Good day, and welcome to the Third Quarter 2024 Harvard Biosciences Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would like to turn the call over to Kathryn Flynn, Corporate Controller. Please go ahead.

Thank you, Michelle, and good morning, everyone. Thank you for joining the Harvard Bioscience Third Quarter 2024 Earnings Conference Call. Leading the call today will be Jim Green, President and Chief Executive Officer; and Jennifer Cote, 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 at investor.harvardbioscience.com. Please note that statements made in today's discussion that are not historical facts, including statements or expectations or 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 facts and other risks and uncertainties are described in the company's filings with the Security 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 Jim. Jim, please go ahead.

Thanks, Kathryn. Good morning, everybody. Let's go ahead and move to Slide 3 of the presentation and take a look at our quarterly results. Revenue in the third quarter came in at $22 million. That's 13% below Q3 last year. On a sequential basis, we were down about 5%, impacted primarily on weakness in China or Asia Pacific. Taking a minute now on the market environment. Americas and Europe seem to be stabilizing with 3 sequential revenue quarters that were roughly flat. China, APAC saw further weakness in Q3 that was now expected to flatten or improve modestly going forward. So despite the delayed market recovery, overall, we believe we have a stable base revenue run rate that we'll be building on with new products now going into production. Gross margin came in at $12.8 million or 58.1%, close to our 60% target despite a low revenue quarter. On a GAAP basis, we reported an operating loss of $1.9 million. On an adjusted basis, our operating income measured $800,000 or 3.8% of revenue and adjusted EBITDA came in at $1.3 million or 6% of revenue. It's worth mentioning a major operating milestone. During Q3, we successfully transitioned and merged all U.S. operations onto one modern ERP system. This enterprise tool set enables significant improvement in both inventory and supply chain management and we already see in early Q4 improvements in supply chain related delayed shipments, which have plagued us for well over 1 year. In addition, with our continued focus on efficiencies and operating costs, we took additional actions during Q3 and early Q4, which are expected to reduce operating expense by an additional $1 million a quarter, beginning here in the fourth quarter. These reductions are designed to structurally and long-term optimize our overall cost of our business and to enable self-funding from operations, even on low revenue quarters. Operating cost reductions combined with new product introductions now shipping are expected to further improve gross margins, and with strong operating leverage significantly improve EBITDA in the fourth quarter and beyond. I'll give some more color on our new product commercializations later in the presentation. But first, let me turn it over to Jennifer Cote, our CFO, to discuss our third quarter financial results in more detail. Jen?

Thank you, Jim, and hello, everyone. Let's dive into further details on our financials. If you can move to Slide 4 where we will look at revenue for the quarter by product family and region. Starting with the Americas, revenue in the third quarter was down 12% as reported from last year Q3 and is stabilizing sequentially, as you can see, compared to Q2 and Q1. We are pleased to see these signs of stabilization in the Americas. Preclinical sales saw a 26% decline compared to the prior year quarter, primarily due to COVID-related respiratory products and Telemetry system software. Sequentially, preclinical sales have leveled off starting with Q2, down slightly. Cellular and Molecular showed revenue growth of 15% compared to Q3 of last year. Sequentially, CMT showed modest growth. Pharma and CROs are still keeping a tight hold on spending, but there is optimism as we listen to industry updates. Moving on to Europe. Overall revenue was down about 12% compared to Q3 last year, but has also stabilized sequentially. Revenue has remained effectively flat for the last 3 quarters. We are experiencing overall stabilization in our European sales. Preclinical sales were down 21% year-over-year and remained challenged on a sequential basis as compared to Q2 of this year. Cellular and Molecular sales were down 7% compared to prior year. Compared to Q2, CMT saw sequential growth driven primarily by increases in cell-based testing. While budgets remain tight as a result of the general economic environment in Europe, overall revenue has stayed flat and we are starting to see improvements in orders at the start of Q4. Moving to China and Asia Pacific. Overall, APAC revenue was down 20% against prior year Q3 and 20% sequentially to Q2. The APAC market has been especially difficult this past year, which…

Thank you, Jen. I'm just going to take a quick second and reflect on Jen's comment about the trailing 12 months -- or the trailing 3-month trend on our order intake that -- now that we're seeing an inflection back to growth, it's very exciting. I do want to mention though that with -- the first thing that happens with order growth, there is a timing between order and shipment and sale and such. So it does take a while for that to then turn into revenue growth. But certainly, it is the prime indicator. And it also gives us good comfort that now as we start to look toward our expectations and outlook, we should be -- we expect to be able to do a much better job than we've done in -- during the last recent few months -- recent few quarters where we had this kind of falling situation that was hard to predict, especially driven even lately by China. But now that we see that stabilizing and we look at the fundamental of that 3-month -- 3, 4-month trend, it's a very key indicator for us to be able to underpin what we see is our base run rate revenue that we'll be building on with the new products. So it's very good timing for us. I think it's a great thing to see. I don't know that I would call it a return of the market, but certainly, from our perspective, we see things stabilizing and something really strong that we can build on and much better be able to predict. So if we go to Slide 6, I do want to take some time going -- go through and discuss our more -- our considerable progress that we've seen on some of these new…

[Operator Instructions] Our first question comes from Paul Knight with KeyBanc.

Could you go over the CRO dynamics? What are they, about half of company revenue? And then, kind of what happened here? I think we all know that biotech financing was down like 30% in '22, down 20% in '23. And now we're seeing the reality of CROs having less to spend, but now we're seeing more capital raised again. So does this like -- I guess, this is what you see in your orders, thiskind of pickup? And then what do you see? Do you agree? And then, how big are they as a [indiscernible] company?

Sure, sure. CRO revenue is -- if I look at the split, I think we show it at about 1/4 of our revenue globally. Is that about right, Jen, if you're looking on the --

Yes.

It's about 1/4 of our total revenue. We -- It's been a bit of a mixed bag because we sell to all of the big CROs. We are the gold standard and the standard. Some of the CROs we've actually seen -- and they've gone publicly and said they see improving output. They see more new drug starts in their production line, not big growth, but certainly, at least the way they described it to us is more of a return to normalized run rate in their safety and assessment. It was a little hard to tell like with Charles River exactly what -- their last call, it was a little confusing for us. But certainly, I think we would expect to see the same kind of thing happening there. But in general, we look across the board, we see the second half and Q3, Q4, mainly -- and certainly in Q4, more of a normalized demand for that. You're right about the biopharma, the big biotech company out of -- the big pharma companies. They certainly have been tightening their belt. And we think that we know that they've had a series of layoffs throughout the year. I don't know if that's continuing. But we have seen that some of that has slowed down. Our thought was they have a lot to do with the election because we do tend to see that every 4 years. There are some questions about -- with pharma companies about whether -- how their reimbursements are going to look like and pricing and such. So there always seems to be a little bit of noise there. But in general, our pharma company business is -- seems to be doing pretty well. It seems to be pretty -- it's been running pretty flat, at…

Jim, on Slide 6, you have these new products. And looking at electroporation and Mesh MEA, I think most people can kind of understand the promise there. How big are those businesses? Or can you talk to range on percent of revenue? And then I guess you're saying those should be high single-digit growers, double-digit growers. That's kind of what you're saying there?

Yes. I guess the way I look at it, the base business -- assuming the market is stable, the base business, and given that we're adding new technology, new products to the base business, I expect that to run at where -- pretty much where the market is. Now you know we are heavily exposed more to the equipment side. So if there is downturn or something -- and what we saw over the last year or so with the reduction in spend, that tended to hit equipment more than companies that had a lot of recurring revenue. So -- But with these new products, we think the base is essentially going to align with how the market is developing. For us, we think that's at least going to be stable. Your question about electroporation and bioproduction, this is new. It's growth. The overall -- that mean -- that revenue segment for us is again, with a combination of bioproduction and specific electroporation, and they're connected because they'll use our electroporation systems to design a new drug. And the concept is then they'll -- they now have the opportunity to use it for bioproduction. That's somewhere in the neighborhood of maybe 10% of our business. We expect that to have a nice solid growth vector, certainly in the 20% or better range for that segment. So that we would expect to be adding a couple of points or more to our overall business. Now, the Mesh MEA is another story. This is arguably -- it's in the neighborhood of $6 million, $7 million today historically in electroporation -- in electrophysiology and MEA type of systems. This we expect to be growing at better than 50% CAGR, maybe it's even a 100%. This could be -- and again, I would expect…

And then last on my side would be the -- I guess, you see core growth rate around what standard services have, like evaluate which is what kind of a 2.6%, low single-digit kind of biopharma R&D growth rate. Do you think that's fair?

Yes. I think, assuming things have stabilized now, that's even though we're all kind of looking at a lower base rate. But yes, we certainly -- we would expect that, that to be sitting in the low to mid-single-digits in normalized kind of years. So that's why I like to look at that base rate and then the new high-growth areas. And you'll also notice that each one of these new areas are really targeted to drive substantially more consumable recurring revenue than we've tended to be able to do in the past. That's been our strategy, adapt these technologies, start them, test them out in academic research and adapt them to much higher volume, much higher consumable recurring revenue-based applications with our customers in biopharma and CROs.

Our next question comes from Bruce Jackson with The Benchmark Company.

So I'd like to get back to your comments about China. This has been kind of an ongoing issue in terms of like trying to predict what's going to happen. So you think that it's stabilizing. My question to you is, why couldn't this get worse? And maybe you could give us some of the market indicators that you're keeping an eye on?

Yes. No, I mean, certainly -- you never know it could get worse. And given the political situation with China, our -- what we're hearing from our side, our folks in China is just getting through the election and the stability there that, that there -- again, we're hearing that there could actually be some positive stabilizing news there with now being through the election. But overall, the issues that we've seen in China, and there's no question we've all seen kind of a falling knife almost on the China business, and that primarily was driven by -- they just hadn't set up the budgets for their academic research, was the first thing that happened. Now we've seen that reverse. We've seen the academic-oriented products actually returning to some level of growth. That's more in the cellular technologies and such. It's also an area where, as you know, we have unique technology. And everybody knows in China that if you're -- you have a product that can be commoditized, you probably aren't going to have it for long if you're selling it there. So we really focus on the products that have technological, intellectual property edge with pricing power, and they want and need this kind of technology because they want to be able to do -- they want to be able to compete with the Western world in these new drug development targets. So the academic piece, we think, is stable, and it will start to, we think, grow at a modest level in China. What was really been hurting over the last few quarters has been the availability of capital to the CROs and pharma companies there. And they're the ones who really pulled back and delayed purchasing over the last few quarters, including this last quarter Q3,…

Yes, that's surely helpful. The other question I have is around the order patterns for the Mesh MEA and organoids. So what's the lag time between getting an order and then shipping it? I'm just trying to kind of gauge what the lift might look like in 2025?

Well, you can bet I want to make sure that I can meet the demand. But we've actively kept it scarce because we -- with something like this, we want to make sure we get through all the beta site testing. We make sure we have a product that really is reliable and it meets the demand. The indications are very solid. The beta site testing is going quite well. We now have the data and we have the applications in place now to be able to start the early adopters. The early adopters are ramping up fairly fast. I mean, if I put -- I mean, this could easily be $1 million to $2 million a quarter of new growth. And with these systems, you put a system in, you might get the same amount of -- if a system costs you $100,000, we'd expect to get somewhere close to that in terms of the consumable going forward. Now the academics will tend not to have -- need as much consumable. But when you start to put this into the biopharma companies or into safety assessment type testing, now you could be looking at a whole different story as far as the ratio of consumable to product revenue. But your base question, how fast could we ramp? Right now, we're -- again, we are fairly really limited in terms of the number of these biochips we can make. But we're setting this up now so that by the second quarter, we're able to ramp up that production, something like ten-fold. Now whether that will be enough or not -- I'd be happy with getting ten-fold. But, again, we have to be careful with how many we can ship to different operations for now until we really ramp up that…

I'm showing no further questions. I'd like to turn the call back over to Jim Green, CEO, for closing remarks.

Okay. Well, thank you very much for joining us today. This ends today's presentation. We hope you join us in March for our fourth quarter results for fiscal 2024. Thank you so much, and have a good day. Thank you.

Thank you. This does conclude the program. You may now disconnect. Good day.