Good day, and thank you for standing by. Welcome to Harvard Bioscience First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Sirois, Director of -- SEC Director. Please go ahead.

Thank you, Amy, and good morning, everyone. Thank you for joining the Harvard Bioscience First Quarter 2023 Earnings Conference Call. Before we begin, I would like to suggest that you take a moment and download a copy of a presentation that will be referred to during this call. The file is entitled Q1 2023 HBIO Quarterly Earnings Presentation and is located in the Investor Overview, Events and Presentations section of our website. Leading the call today will be Jim Green, Chairman of the Board, President and Chief Executive Officer; and Jennifer Cote, Interim Chief Financial Officer. Before I turn the call over to Jim, 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 described in our Annual Report on Form 10-K for the period ended December 31, 2022, our subsequently -- subsequent Quarterly Reports on Form 10-Q 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 day. 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 and today's presentation. These two documents, as well as a replay of this call can be found on our website under Investor Overview, Events & Presentations. Additionally, any material, financial or other statistical information presented on the call, which is not included in our press release and presentation, will be archived and available in the Investor Relations section of our website. I will now turn the call over to Jim. Jim, please go ahead.

Thank you, Dave. Hello, everybody. Let me start by saying how pleased I am to have the last two years in the turnaround phase behind us and to now focus on delivering the profitable growth platform we envisioned. Let's go to Slide three of the presentation to take a look at the highlights for the quarter. Reported revenue for the quarter was $30 million, up 4% on an as-reported basis. When I think about $0.5 million of negative impact from currency and consider the $1.1 million of discontinued products, I see underlying core growth of around 10% over Q1 last year. Gross margin improved to $18.3 million, or 61% of revenue. That's five percentage points above last year. Adjusted operating profit improved to $4.4 million, or 15% of revenue, up seven percentage points. Adjusted EBITDA measured $4.8 million, or 16% of revenue, also up seven percentage points from last year. GAAP earnings per share improved to a positive $0.01 from negative $0.17 last year. Adjusted EPS measured $0.06 per share, up $0.02 from last year. Cash-flow from operations was $1.8 million versus a negative $2 million last year. And in the appendix, you'll find the bridge from non-GAAP measurements to GAAP. Move to Slide four. Take a look at the revenue in the quarter by product family. This slide shows Q1 '23 revenue adjusted to reflect Q1 '22's exchange rates. Starting with the first row of the table, our cellular molecular technology revenue was roughly flat when adjusted for currency and includes an impact from the discontinued products. We had solid growth in Asia Pacific, which was offset somewhat by slowness in the Americas and Europe. BTX Electroporation growth was driven by our new focus in bioproduction. Cell-based testing products were up strong. We continue to rotate out of low-margin…

Thank you, Jim. I'm excited to be able to share our Q1 financial results in greater detail. If you can please refer to Slide seven. As a reminder, my discussion will focus on adjusted results for P&L performance, which aligns with measurements we use to internally manage the business, and reconciliation between our adjusted results and the corresponding GAAP financial measures is included in the slide deck. Jim has already taken you through our revenue performance, and I'll take you through some additional details on our expenses, balance sheet and cash-flows. Q1 gross margin was 61% compared to 56% in Q1 of FY '22. This is also a strong consecutive improvement over Q4 FY '22 margin of 56%. In general, our gross margin will fluctuate from period-to-period based on revenue mix and volume, inflation, impacts of supply chain and other factors. We had a higher mix of our preclinical products during Q1, which has stronger average margins, and we are also realizing the impact of pricing improvements and the impact of lower mix of discontinued products. We also entered Q1 2023 with lower labor and overhead costs, as the headcount reductions related to our portfolio rationalization are now complete. The implementation of these improvements, together with our pricing increases are demonstrated in our margin improvement in Q1. Moving to our adjusted EBITDA; a discussed in Q4, we are now reporting on adjusted EBITDA. The primary difference to adjusted operating margin is depreciation on our fixed assets. We believe this change aligns more closely with our focus on cash-flow improvements and is consistent with the presentation of other comparable companies. Our Q1 adjusted EBITDA was $4.8 million or 16%, compared to $2.7 million or 9% in Q1 2022. The improvement was primarily driven by our increased gross margin. We also see favorable impact of our cost reduction activities in our Q1 results. These are partially offset in Q1 by accruals for our employee annual incentive plan. As mentioned last quarter, we do expect an increase in capital expenditures in 2023, as we invest in the consolidation of certain business tools and also invest in tooling and capital equipment related to new products. Turning my attention to cash-flow, our cash-flow provided by operations was $1.8 million in Q1 FY '23, and represents our third consecutive quarter of positive cash-flow from our operations. This is a result of our strong EBITDA, together with our continued focus on working capital management. We continue to keep our improved DSO steady and continue to implement activities that will start to shift our inventory downwards. We are also excited to share that we reduced our net debt by $2.2 million during Q1. The combination of strong gross margins, strong adjusted EBITDA and solid operating cash-flows and our reduction in net debt results in a great start to FY '23. I'll now hand this back to Jim to cover our 2023 guidance.

Thank you, Jen. Now moving to our summary on Slide 9 and a look to see what we see for the year 2023. With growth from new products, a stronger portfolio and expanding recurring revenues, all running through our improved cost structure, we see 2023 as the year we deliver the profitable growth platform that we've envisioned. We now expect reported revenue growth in the mid-single-digit range, and that's inclusive of approximately four percentage points of discontinued product revenue compared to 2022. We expect gross margins to remain strong at the 60% level. We expect adjusted EBITDA margin in the 16% to 17% range. With expanded EBITDA, combined with improving working capital driving strong cash-flows, we plan to significantly pay down our debt. Finally, this quarter, we reduced our debt leverage to 3.2x, and we plan to further reduce our debt leverage to approximately 2x levels by the end of 2023. Thank you. Now, I'll turn the call over to the operator to open the line for questions. Thank you.

[Operator Instructions] And our first question is from Paul Knight with KeyBanc.

Hey Jim, congratulations on what looks like a great quarter. Can you talk, I guess, first of all, where are you with your sales force reorganization? And what do you have now and where are you with that process?

Thanks, Paul, and thanks, again, for your kind comments about our performance. What we've done is we've established the sales force now where we're able to effectively fit and approach the academic research sites and continue to deliver high-end products and advanced technologies there. But at the same time, we've expanded our reach to be able to have our sales force also call on the industrial segments of CROs and pharma companies. So, there's a bit of a split there. There is a focus on the academic side for people who are focused on advancing the technology. But we're also, like I said, working to design these products, and you see them now being introduced into the industrial side for where we see substantial growth in not only the ASPs and revenue growth, but also recurring -- generating much more recurring revenues in the process. So it's a good mix of the two. And at this point, I'd say we're pretty much in the final shape as far as how that coverage works today.

And then every quarter, you're getting a little more granular on new product launches. Can you quantify that? I mean, is 10% or 20% of sales from new products in the last year? Or how do you like to talk to this Slide five on new products?

Yes. That's a great question. To me, when I look at overall growth of the business, I typically expect to see -- I split that into 3 main components. Our biggest driver is new product introductions because those change the inflection of the business. They move more and more toward the addition of recurring revenues that we -- and you also see that I now report more on our recurring revenue basis, and I reported last quarter that we had indicated that over 35% of our revenue today is recurring revenues. So if you look at the big drivers for growth, it's primarily new product introductions, it's also expansion and volume of our existing and improved portfolio. And then along with that, you see pricing improvements. When I look at what do I expect to see as far as new product development and how that drives growth, typically, I would expect that to -- we would shoot to see something like 10% growth with new products. Now, of course, some of that is going to be cannibalized. But if I can deliver on my growth targets and have it be predominantly new product introductions and then also expanding our existing portfolio, again, with a much better mix that we have now, it lets me underpin the growth targets that I've set for the business. And it's also nice to see us rotating out of these lower end products. If you think about back when I took over as CEO, since then, we've arguably taken about $10 million out of lower margin, less not as strategic revenue segments with -- and these are mainly products that are sold through distribution. But that allowed us to get the size of our business, to get the size right and you see that in the margin profile dramatically changing. And we're more than -- with the product that we've discontinued, we're more than replacing that with new products and much better. And again, you see that measured very well in the migration of our gross margin into that 60% range.

Okay. And then the other last question for me at this time would be on supply chain. Are you through that kind of -- are you through that period?

Yes. I think we are. I mean, we certainly see. It's really -- it's improved dramatically. And we can also see that with -- now we're starting to see some improvements on purchase price there. Things are starting to come down. We're not seeing so much of situations where things get bought up and are hard to find. But we did have some inflation. And if you think about last year, we had to buy ahead, just wanted to make sure that we could continue to produce and ship. So, we did have to buy ahead at somewhat higher prices, but that will flow through our numbers here. But certainly, overall supply chain is really improving. We don't see the kind of disruptions that we saw in the past. And the same thing goes for freight. Freight will start to improve here in time too. But our focus is making sure that we worked on our -- we had to take on quite a bit of extra working capital with building up inventories to make sure we could ship. So, that's going to improve this year, too. So the combination of much improved EBITDA and improvements in working capital, those drive cash-flow that lets us get our debt down. But at the end of the day, things have really smoothed out quite a bit. You never know if something else is going to happen, but we're positioning to make sure we've got the headroom if we do see some small impacts. But at this point, everything looks very solid for us.

Okay. And then I have just one more on the debt. Are you paying down long or short debt?

Typically be paid on the higher priced debt first. So, that would be the shorter. And then we're working on getting it down overall. We have put a hedge in place, so we're hedged pretty well. And the part that's not hedged, that's the piece that we pay off first.

And our next question is from Bruce Jackson with The Benchmark Company.

Congratulations on the quarter.

Thanks, Bruce. Thank you.

So just a general question about the impact of COVID-19 research right now in the life science tool space. There's been a kind of a drop-off in activity around that. You do have some respiratory research products. I'm kind of curious to know, have you seen any drop-off in demand for those products? Or are there other types of respiratory disease research going on that are helping out that business?

Yes. Well, I think, certainly, there's no question in 2021, we did see what looked like a little bit of a COVID bump and very specifically around the respiratory type products. And some of that demand had slowed down somewhat, but we also introduced a new version of it called SmartStudy, which is helping us keep -- helping us to stay close to those same levels and not really see a drop-off of it. It is part of what we see, continue to grow in our business as we look forward. We didn't really see -- but most of our products, we really haven't seen a drop-off per se associated with COVID itself because as you know, most of our products are used -- heavily used for development of any drug and or any vaccine. So if they're using it, if there's a new vaccine coming through like we saw with COVID, it utilized the same technologies for that and that substituted for what would have been other drugs that were in the pipeline like in some of the neurological drugs that were in development in the typical situations with cancer and diabetes and such. But that's going to rotate back. We see that rotating back to more natural development of the drugs and the drugs that are in the pipeline and less of them may be on specific to COVID. So, I think the main thing is for us, the COVID, it had a bit of a bump for us in 2021. That settled out, and we see we're on more of a natural growth path here going forward.

Okay. Great. And then one quick question on the revenue cadence. Generally, you're up in the second quarter sequentially and then third quarter is kind of like flat to sometimes down, and then fourth quarter is generally pretty big. Is that the same pattern you expect to see in revenue this year? Can you just give us a little bit of guidance there?

Yes. I think when I look to kind of the morphology for the year, we expected with the rotation out of the low end products and the fact that we're able to replace most of that, if not all of it, and then some with the newer products rolling in here in the year, we had -- originally I thought that we'd see the first half to be somewhat flattish and then start to really move back toward our nice growth in the second half. But what we've seen is some strong growth here up front with the new products. So when I think to the rest of the year, Q2 might be kind of a flattish to Q1 kind of view because, again, we're still seeing some of this rotation out. But again, we are seeing nice improvement to overtake that and at least mitigate that. But certainly, in the second half, that's when we see the underlying growth of the new products really kicking in. So, I don't know that this is going to be a real typical year as far as Q2, Q4. But certainly, Q4 has been just because of the purchasing cycle, typically is our strongest quarter and it's likely to be that way again this year, too. So, I think with -- as I get to next quarter, I'll be able to underpin better on the revenue side. But you see, we've taken the revenue up from what we had talked about last time, looking at overall about mid-single digits, plus or minus. And again, that being net of about four points headwind. So, we see this as a very strong year and continuing to develop, and you've seen what the bottom line looks like now that we have so much of a better of our cost position. Our overall cost organization has come down dramatically. And again, you measure that in the gross margin, you see that in the EBITDA margins, and we are back on a nice growth path that is underpinned by these new products, too. So the combination of new products and an improved product portfolio and altogether shows this is the platform we were planning to build.

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

Thank you, Bruce.

[Operator Instructions] And our next question is from Chris Sakai with Singular Research.

Hi guys. This is [indiscernible] for Chris I was wondering to an extent -- yes, I see. I was wondering if you can quantify to an extent you can, the contribution from the increase in price and volume growth versus the new product in terms of the overall growth that you have experienced?

Yes. In general, I would say that we are seeing both are driving growth for us, expansion of volume on better-priced products on the overall portfolio. We tend not to split out and report on those specifically, but I would expect that we're -- that half or maybe a little better than half will be new products and maybe the other half would be expansion of existing products that includes both volume and price, with the two of them really kicking in nicely. You've seen the new products that we've introduced, with the new bioproduction product that we introduced at the end of last year. That's now in our revenue stream this year. That's expected to grow to annualize somewhere around $1 million a year of consumables alone on that one deal and we're working on many others. I talked about the new introduction of the new behavioral -- high-capacity behavioral system. The initial order on that at over $800,000, and that will revenue recognize in the year. And as you might expect, with that being picked up by a large CRO, we expect that, that's going to have a real opportunity to grow with the rest of our CROs and start to move into areas of very large core academic research sites where they're doing large studies and pharma studies. So, this is a whole new incremental growth area for us. If you think about behavioral systems in the past, you might sell them into academic research, maybe they're a $10,000 system. Well, now we're talking hundreds of thousands of dollars and a real need for this kind of a technology, especially when you combine it with what we have for telemetry and that expansion of what's required for data collection, reduction and regulatory submissions. So again, we're really happy to see that a lot of our -- a lot of new growth coming with new products, and you know that they're also designed to really focus on bringing through recurring revenues at the same time in services, but also with our expansion of our current portfolio. So it's a good position to have both vectors moving in the right direction.

Great. Talking of new products, looks like in terms of telemetry, you are gaining great traction in Asia and EMEA. But maybe -- and I'm maybe interpreting it wrong, maybe the momentum here in Americas probably is not as positive as Asia and EMEA. Is that what's going on? And if it is, if you can give us more color how -- what's happening in Asia and EMEA might translate into Americas?

We're actually seeing, across the board, the telemetry. It's come back very strong in all three areas. It's just that Asia has really stepped up. Lot of demand developing in Asia, and we see that as a long-term growth driver. EMEA had been operating pretty poorly for a while in terms of our telemetry products. That was one of our big drop-offs mid last year. That's come back nicely. So on a relative basis, yes, we -- certainly, with Asia growing very fast, EMEA recovering, but don't discount America. Americas, the US is also growing very nicely, and we see that continuing. So, we don't really see -- it's just that when all three are performing well, it's hard to differentiate because when you got one of them that's really outperforming the rest, it doesn't -- no one gets to hide the fact that all the regions are doing quite well in this space.

Great. So as the new product momentum is building up and you continue to get new orders and further in the pipeline, there are even more new products. In like midterm, like in the next couple of years, how do you see the end customers, the mix of end customers changing like OEM distributors, government, academics, CRO, pharma? How do you see that mix changing from maybe what it was in 2022?

Yes. That's a great question. Strategically, we still see academic research as a great opportunity for us that will continue to grow nicely there, with the funding being very strong with NIH and such. But very much of the new growth that we see is taking those technologies and designing them for applicability into the more industrial spaces. So, I think what you'll -- what I expect to see is you'll see growth in both academic research and in industrial segments, but you'll see expanded growth on the industrial segments, and that's where you'll see the growth of recurring revenue streams, too. So, I expect that we'll continue to report a migration to much -- more and more of our business will be on the commercial side with pharma, CROs and industrial segments. But still not discounting what's happening in academic research. We need to still be at the leading edge there and to continue to be at the edge with our technologies, especially in areas like electroporation for transfection and the development of new drugs. So, I think that's -- again, to answer your question, we're going to see more growth on the industrial side along with this.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back over to Jim Green for closing remarks.

Okay. Well, thank you for joining us. This ends today's presentation. We hope you'll join us in the summer for our second quarter results for fiscal 2023. Thank you. And this ends the presentation.

And this concludes today's conference call. Thank you for participating. You may now disconnect.