Q3 2026 Harvard Bioscience, Inc. Earnings Conference Call - HARVARD BIOSCIENCE INC

Financial Performance:

• Q3 2026 revenue reached $22.2 million, an 8% year-over-year (YoY) increase, aligning with high-end guidance and marking the second consecutive quarter of growth.
• Adjusted gross margin was 57.1% (low end of guidance range), impacted by higher volume of lower-margin legacy products, increased distribution channel sales, and growth in China.
• Adjusted EBITDA was $1.8 million (7.9% margin), down from $2.0 million in Q3 2025, primarily due to product mix shifts.
• Operating loss was $1.2 million compared to a $0.2 million operating income in Q3 2025; Adjusted operating income was $1.2 million with a 5.3% margin.
• GAAP diluted EPS was negative $0.58; Adjusted EPS was negative $0.06.
• Cash used in operations for the nine months ended was $0.6 million, a reversal from the $6.8 million generated in the same period in 2025, driven by increased inventory for Project Viking and higher interest costs.
• Cash and cash equivalents ended at $4.9 million; Net debt was $35.1 million (up ~$7.6 million YoY), with a term loan maturing in December 2029 and amortization beginning late 2027.
• Recurring revenue represented approximately 54% of the quarter's total.

Guidance and Future Outlook:

• Reaffirmed full-year 2026 revenue growth guidance of 3% to 5% and adjusted gross margin target of 57% to 59%.
• Lowered full-year adjusted EBITDA growth guidance from 6%–10% to -1% to 4% to reflect the volume of lower-margin legacy products and China/distribution sales.
• Q4 2026 guidance: Revenue $23.7M–$25.5M (midpoint $24.6M, mid-single-digit growth); Adjusted gross margin 59%–61%; Adjusted EBITDA $3.8M–$4.2M.
• Q4 2026 Adjusted EBITDA is expected to show 5% growth at the midpoint.
• Project Viking manufacturing consolidation is on track for completion in Q1 2027, targeting $3M cost savings in 2027 and $4M annually thereafter.
• Management anticipates gross margins reaching the 60% range in 2027 as restructuring costs sunsets and New Product Innovation (NPI) mix improves.
• Full-year 2027 guidance is not provided, but management expressed confidence in sustainable growth and improved cash generation post-consolidation.

Business Segments and Product Lines:

• Double-digit preclinical growth driven by respiratory/inhalation products, organoid/MEA platforms, and fluidics.
• New Product Innovation (NPI) portfolio contributed over 11% of total revenue, with specific strength in organoid technologies.
• China revenue surged 31% YoY in Q3; all three BTX electroporation product lines are now localized and shipping in the region.
• CRO sales grew meaningfully year-to-date, driven by demand for telemetry, respiratory, and inhalation products.
• Amino acid analyzer product line relocated to the Cambridge, UK facility in Q3; Fluidics products are being shipped from Minneapolis using a parallel build approach.
• Sales through Fisher Scientific in North America more than doubled YoY following an expanded distribution agreement.
• A dedicated key accounts group was established to manage relationships with top-tier pharmaceutical, CRO, and biotech customers.
• BTX electroporation products saw double-digit growth, including hardware and consumables, though the GMP/bioproduction version is expected to launch in mid-2027.
• Five of eight product lines have been moved under the Project Viking plan, with the transition expected to conclude in five months.

Market and Competitive Landscape:

• Industry tailwinds include an expanding preclinical drug pipeline driven by the upcoming 2030 patent cliff, with forecasts of a 7% increase in clinical trial starts.
• Competition in electroporation includes Thermo Fisher, Lonza, and MaxSight; Harvard Bioscience notes the competitive landscape is stronger for bioproduction (GMP) than research, which remains their focus.
• Academic funding remains a challenge; Europe saw a 5% revenue decline (3% on constant currency) due to a weak academic environment, representing a drag on EMEA performance.
• APAC revenue grew 29% YoY, and Americas revenue grew 9% YoY, offsetting European softness through strong CRO and distribution channel performance.
• Academia historically represented 50% of revenue but has dropped to approximately 40% of direct business; management views this shift as a strategic opportunity as CRO and pharma demand grows.

Risks and Challenges:

• Margin pressure from a temporary shift toward lower-margin legacy products and sales through distribution partners and China.
• Continued weakness in the European academic market.
• Higher operating expenses due to restored salaries and bonuses, normalizing the cost structure in the short term.
• Inventory levels increased by ~$3M during the year to support Project Viking manufacturing pre-builds; levels are expected to decrease significantly in Q1 2027.
• Debt structure includes $37.2M total debt with amortization starting late 2027; interest costs have risen due to the December 2025 refinance.

Management Commentary and Tone:

• Tone was confident and constructive, emphasizing "solid top-line performance," "robust customer demand," and "steady progress" on operational initiatives.
• Management highlighted the strategic alignment of their innovation pipeline with the industry's transition toward new approach methodologies (organoids).
• CEO John Duke and CFO Mark Frost emphasized the disciplined execution of the commercial realignment and the tangible benefits expected from Project Viking in 2027.
• Management noted that while academic funding recovery has been slower than anticipated, it has been more than offset by growth in CRO and biopharma sectors.
• The newly formed Scientific Advisory Board has begun providing industry insights to guide the technology roadmap.

Analyst Questions and Answers:

• Electroporation (BTX): Confirmed double-digit YoY growth in hardware and consumables globally; GMP version for bioproduction expected to launch mid-2027.
• Project Viking: Confirmed completion of five of eight product lines; parallel build for Fluidics ensures uninterrupted delivery; $1.25M savings per quarter expected starting Q2 2027.
• Academia: Still represents ~40% of direct revenue; European decline is linked to weak academic funding; any recovery would act as a tailwind.
• China Localization: All three BTX lines launched in Q1 2026; more product lines to be localized in 2027 to drive revenue and margin.
• Inventory: $3M increase is primarily for Project Viking pre-builds and lead time management; expected to drop significantly as consolidation finishes.
• Margins: Gross margins are expected to reach ~60% in 2027 as restructuring costs sunsets and high-margin NPI/recurring revenue mix increases.
• Political Landscape: Management noted no change in fiscal policy assumptions in guidance; a Democratic Congress historically favors NIH funding, which would be an upside risk.
• Sales Quality: Q3 revenue was entirely run-rate sales with no one-time large orders or pipeline-filling shipments.

Other Key Points:

• The company is exploring refinancing $10M of term loan B debt with an asset-based revolver to reduce interest costs and improve working capital flexibility.
• 1-for-10 reverse stock split completed in March 2026 is reflected in all per-share data.
• Project Viking amortization of deferred financing costs is $0.3M per quarter, with exit fee accruals at $0.2M per quarter.
• The company plans to hold quarterly meetings of the Scientific Advisory Board moving forward.
• Revenue from Europe was $6.3M, down 5% YoY, driven by the academic slowdown.