Investor Introduction & Discussion. October 2018

Transcription

1 Investor Introduction & Discussion October 2018

2 Table of Contents Introduction to Harvard Bioscience 5 Strategy 8 Financial Information 20 Appendix 24 2

3 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the federal securities laws. You can identify these statements by our use of such words as will, guidance, objectives, optimistic, potential, future, expects, plans, estimates, continue, drive, strategy, potential, potentially, growth, long-term, projects, projected, intends, believes, goals, sees, seek, develop possible new, emerging, opportunity, pursue and similar expressions that do not relate to historical matters. Forward-looking statements in this presentation may include, but are not limited to, statements or inferences about the Company s or management s beliefs or expectations, the Company s anticipated future revenues and earnings, the strength of the Company s market position and business model, the impact of acquisitions, or potential acquisitions, the outlook for the life sciences industry, the Company s business strategy, the positioning of the Company for growth, the market demand and opportunity for the Company s current products, or products it is developing or intends to develop, and the Company s plans, objectives and intentions that are not historical facts. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause the Company s actual results to differ materially from those in the forward-looking statements include economic and political conditions generally and those affecting pharmaceutical and biotechnology industries, research funding levels from endowments at our university customers, our financial position, general economic outlook or other circumstances, the Company s failure to identify potential acquisition candidates, successfully negotiate favorable pricing and other terms with acquisition candidates to enable potential acquisitions to close, successfully integrate acquired businesses or technologies, complete consolidations of business functions, expand our product offerings, introduce new products or commercialize new technologies, unanticipated costs relating to acquisitions, unanticipated costs arising in connection with the Company s consolidation of business functions and any restructuring initiatives, decreased demand for the Company s products due to changes in our customers needs, our ability to obtain regulatory approvals, the seasonal nature of purchasing in Europe, economic, political and other risks associated with international revenues and operations, including expansion into Asia and other emerging markets, additional costs of complying with recent changes in regulatory rules applicable to public companies, our ability to manage our growth, our ability to retain key personnel, competition from our competitors, technological changes resulting in our products becoming obsolete, future changes to the operations or the activities of our subsidiaries due to manufacturing consolidations, our ability to meet the financial covenants contained in our credit facility, our ability to protect our intellectual property and operate without infringing on others intellectual property, potential costs of any lawsuits to protect or enforce our intellectual property, impact of any impairment of our goodwill or intangible assets, our ability to utilize deferred tax assets after the release of our valuation allowances, plus factors described under the heading Item 1A. Risk Factors in the Company s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 or described in the Company s other public filings. The Company s results may also be affected by factors of which the Company is not currently aware. The Company may not update these forward-looking statements, even though its situation may change in the future, unless it has obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. 3

4 Introduction to Harvard Bioscience, Inc.

5 History and Overview William Porter founded the Harvard Apparatus Company Becomes a for profit subsidiary of the Harvard Apparatus Foundation Harvard Bioscience, Inc. files a form S-1 with the SEC Acquired DSI; divested Denville Acquired MCS and TBSI to become a market leader in the ephys and animal physiology markets Harvard Bioscience, Inc. forms executive leadership team Harvard Apparatus changes its name to Harvard Bioscience, Inc. Acquired HEKA; completed the consolidation of 5 manufacturing sites 5

6 Commercial Units Physiology, Cell, and Molecular Instruments (PCMI) Approx. 47% of Revenue Data Sciences International (DSI) Approx. 35% of Revenue Electrophysiology (Ephys) Approx. 18% of Revenue Brands Harvard Apparatus Panlab Coulbourn Hugo Sachs CMA KDS Biochrom Biodrop BTX Hoefer Scie-Plas Brands Warner HEKA MCS TBSI Products Syringe pumps Surgical & monitoring Organ perfusion Microdialysis Spectrophotometers Amino acid analyzers Plate readers Electrophoresis Electroporation Products Wireless implantable sensors, receivers Software Products In vivo and in vitro ephys recording, stimulation and analysis Patch clamp systems 6

7 Strategy

8 Strategy Commercial Excellence / Organic Growth Operational Efficiency Reinvigorating Product Development Business Development / Acquisitions 8

9 Commercial Brands Strong brands position HBIO as a leading competitor in the Life Science arena. 9

10 Footprint Corporate Office Distribution Center 1 Corporate Headquarters & Manufacturing 2 Hoefer 3 Data Sciences 4 Warner 8 Panlab, S.L. 9 S.A.R.L. 10 Biochrom 11 Hugo Sachs Elektronik Manufacturing 5 Harvard Apparatus Canada 12 CMA Microdialysis Sales Office 6 Triangle Biosystems 7 HEKA Electronik Multi Channel Systems Shanghai Representative 15 Harvard Apparatus, Inc. 10

11 Harvard Bioscience s Portfolio Transformation In January 2018, the Company acquired Data Sciences International ( DSI ), while simultaneously selling Denville Scientific, Inc. ( Denville ). These transactions turn Harvard Bioscience into a $120M pure play life science instrumentation business with higher gross margins, higher operating margins, and higher non-gaap EPS. 11

12 Financial Impacts Margin Expansion and Profitability Improvements Non-GAAP Adjusted Gross Margin 55% Non-GAAP Adjusted Operating Margin 11% Non-GAAP Adjusted EPS $ % 47% FY 16A FY 17A FY 18E 7% 7% FY 16A FY 17A FY 18E $0.15 $0.12 FY 16A FY 17A FY 18E +800 bps +400 bps +67% 12

13 DSI Transaction Overview On January 31, 2018, the Company closed on the acquisition of DSI for $70M. The transaction was financed by cash on hand, the proceeds from the sale of Denville, and approximately $67M in debt. DSI is a St. Paul, MN-based life science research company, a recognized leader in physiologic monitoring focused on delivering preclinical products, systems, services, and solutions to its customers. DSI sells its offerings to customers in the pharmaceutical and biotechnology industries, as well as to contract research organizations, academia, and government. DSI s revenue for the year ended December 31, 2017 was approximately $44 million. 13

14 DSI Product Portfolio Physiologic Monitoring Instrumentation Data Acquisition and Analysis Tools Scientific Services Surgical Data Review Validation 14

15 DSI Key Global Customers Academia Government / Non-Profit Pharmaceutical / Medical Technology Industry Contract Research Organizations 15

16 Drug Development Process 16

17 Denville Transaction Overview On January 22, 2018, the Company announced the divestiture of Denville for $20M. The proceeds from the transaction were used to pay down the Company s existing debt and finance the acquisition of DSI. Denville is a Charlotte, NC-based lab consumable distributor, which sells its products predominantly in the U.S. through its direct sales force. Denville sells its distributed and private label branded offerings to customers in academia, as well as to the pharmaceutical and biotechnology industries. Denville s revenue for the year ended December 31, 2017 was approximately $25 million. 17

18 Transaction Rationale The portfolio shift creates a more profitable company, with immediate expansion of gross margins, operating margins, and non-gaap adjusted EPS. Customer mix substantially changes with these deals to higher growth customers. Before the transactions, 70% of consolidated revenues were sold to academic customers. Following the transactions, the Company estimates the academic customer base will be approximately 60%. The shift in mix is primarily to CROs and biotech. The academic lab tools market is growing LSD, while the CRO and biotech lab tools markets are growing MSD. The shift in customer mix also creates revenue synergies for selling legacy products into CROs and biotech, while creating opportunities to sell DSI products to our academic lab customers and through our vast international distributor network. Anticipated first year combined revenue and cost synergies of $2.5 million to $3.5 million. 18

19 Financial Information

20 2018 Financial Guidance Revenues Adjusted EPS $120- $123 $0.20- $0.23 $104.5 $101.9 $0.15 $ (G) (G) * Based on estimated 36 million shares outstanding and 25%-28% expected tax rate 20

21 Financial Impacts Balance Sheet Path to De-Lever Through our legacy tax assets, as well as those acquired from DSI, we will not be a cash tax payer in the U.S. in the next 3-5 years. Leverage: Day 1 leverage = approximately 4x TTM EBITDA Based on expected cash flows, path to get to approximately 3x leverage by the end of 2018 and below 3x leverage by the end of

22 Stock Information September 21, 2018 Exchange: NASDAQ Symbol: HBIO Stock Price $5.20 h Market Cap $190m Shares Outstanding 36.6m Insider Ownership (Approximation) Institutional Ownership (Approximation) 2% 66% 22

23 Appendix

24 Financial Reconciliations Exhibit 1 Exhibit 2 Exhibit 3 Three Months Ended Year Ended December 31, December 31, GAAP net income (loss) $ 999 $ (1,320) $ (865) $ (4,307) Adjustments: HARVARD BIOSCIENCE, INC. Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income (unaudited, in thousands) Amortization of intangible assets ,442 2,722 Forensic investigation and remediation costs ,663 Impairment charges Loss on sale of AHN 95 1, ,190 Severance and restructuring charges Transaction costs Stock-based compensation expense ,500 3,497 Income taxes (A) (1,654) (129) (2,521) (553) Non-GAAP adjusted net income $ 1,675 $ 1,315 $ 4,224 $ 4,980 (A) Income taxes includes the tax effect of adjusting for the reconciling items using the calculated effective tax rate in the jurisdictions in which the reconciling items arise and any changes to valuation allowances. HARVARD BIOSCIENCE, INC. Reconciliation of GAAP Diluted Earnings (Loss) Per Common Share to Non-GAAP Adjusted Diluted Earnings Per Common Share (unaudited) Three Months Ended Year Ended December 31, December 31, GAAP diluted earnings (loss) per common share $ 0.03 $ (0.04) $ (0.02) $ (0.13) Adjustments: Amortization of intangible assets Forensic investigation and remediation costs Impairment charges Loss on sale of AHN Severance and restructuring charges Transaction costs Stock-based compensation expense Income taxes (A) (0.04) - (0.07) (0.01) Non-GAAP adjusted diluted earnings per common share $ 0.05 $ 0.04 $ 0.12 $ 0.15 (A) Income taxes includes the tax effect of adjusting for the reconciling items using the calculated effective tax rate in the jurisdictions in which the reconciling items arise and any changes to valuation allowances. HARVARD BIOSCIENCE, INC. Reconciliation of Guidance for 2018 GAAP Diluted Loss per Common Share to Non-GAAP Adjusted Diluted Earnings per Common Share (unaudited) GAAP diluted loss per common share (A) $(0.12) - (0.15) Adjustments: Amortization of intangible assets 0.16 Denville Non-GAAP adjustments included in discontinued operations (0.03) Deferred revenue valuation charges on acquisition 0.01 Inventory valuation step-up charges on acquisition 0.11 Severance and restructuring charges 0.01 Acquisition, disposition and integration costs 0.08 Stock-based compensation expense 0.10 Income taxes (B) (0.09) Non-GAAP adjusted diluted earnings per common share (A) $ (A) This guidance excludes, among other things, the impact of future acquisitions, acquisition costs, restructuring charges, or other one time charges. (B) Income taxes includes the tax effect of adjusting for the reconciling items using the calculated effective tax rate, including the post-2017 impact of tax reform, in the jurisdictions in which the reconciling items arise and any changes to valuation allowances. 24

25 Financial Reconciliations Exhibit 4 Exhibit 5 Three Months Ended Six Months Ended June 30, June 30, GAAP net loss $ (1,464) $ (381) $ (5,528) $ (1,447) Adjustments: HARVARD BIOSCIENCE, INC. Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income (unaudited, in thousands) Amortization of intangible assets 1, , Denville Non-GAAP adjustments included in discontinued operations (A) (24) 249 (920) 550 Deferred revenue valuation charges on acquisition Inventory valuation step-up charges on acquisition 2,238-3,729 - Forensic investigation and remediation costs Severance and restructuring charges Acquisition, disposition and integration costs 170-2, Stock-based compensation expense ,596 1,622 Income taxes (B) (1,022) (447) (1,534) (655) Non-GAAP adjusted net income $ 2,347 $ 869 $ 3,279 $ 1,489 (A) For the three months ended June 30, 2018, the Non-GAAP adjustments reported in discontinued operations related to the sale of Denville included a $24 gain on sale. For the three months ended June 30, 2017, the Non-GAAP adjustments reported in discontinued operations related to the sale of Denville included $222 in amortization of intangible assets, $1 in severance and restructuring charges, and $26 in stock-based compensation expense. For the six months ended June 30, 2018, the Non-GAAP adjustments reported in discontinued operations related to the sale of Denville included a $1,251 gain on sale, $47 in amortization of intangible assets, $132 in disposition costs, and $150 in stock-based compensation expense. For the six months ended June 30, 2017, the Non-GAAP adjustments reported in discontinued operations related to the sale of Denville included $445 in amortization of intangible assets, $54 in severance and restructuring charges, and $49 in stock-based compensation expense. (B) Income taxes includes the tax effect of adjusting for the reconciling items using the calculated effective tax rate, including the post-2017 impact of tax reform, in the jurisdictions in which the reconciling items arise. HARVARD BIOSCIENCE, INC. Reconciliation of GAAP Diluted Loss Per Common Share to Non-GAAP Adjusted Diluted Earnings Per Common Share (unaudited) Three Months Ended Six Months Ended June 30, June 30, GAAP diluted loss per common share $ (0.04) $ (0.01) $ (0.15) $ (0.04) Adjustments: Amortization of intangible assets Denville Non-GAAP adjustments included in discontinued operations (0.03) 0.02 Deferred revenue valuation charges on acquisition Inventory valuation step-up charges on acquisition Forensic investigation and remediation costs Severance and restructuring charges Acquisition, disposition and integration costs Stock-based compensation expense Income taxes (A) (0.03) (0.01) (0.04) (0.02) Non-GAAP adjusted diluted earnings per common share $ 0.07 $ 0.03 $ 0.09 $ 0.04 (A) Income taxes includes the tax effect of adjusting for the reconciling items using the calculated effective tax rate for the consolidated entity and any changes to valuation allowances. 25