Thank you for joining us for the Third Quarter 2014 Harvard Bioscience Earnings Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded. I'd now like to introduce your host for today's call, Ms. Cheryl Schneider of Dian Griesel International.

Thank you very much, operator, and good morning everyone. Thank you so much joining us for the Harvard Bioscience Third Quarter 2014 Financial Results Conference Call. Leading today's call will be Jeffrey Duchemin, CEO and President; and Robert Gagnon, Chief Financial Officer of Harvard Bioscience. But before I turn the call over to management, I'll read the Harvard Bioscience's Safe Harbor statement. In its discussion today, the company may make statements that constitute forward-looking statements. The company's actual results and performance may differ materially from what it has projected due to risks and uncertainties, including those detailed in its annual report on Form 10-K for the period ending December 31, 2013, and its other public filings. Any forward-looking statements, including those related to the company's future results and activities represent its estimates as of today and should not be relied upon as representing its estimates as of any subsequent day. It is now my pleasure to turn the call over to Jeff Duchemin. Jeff, please go ahead.

Thank you, Cheryl. Good morning, everyone. Thank you for joining us today for our third quarter 2014 conference call. I'm pleased to be addressing you today as it is about one year ago today, November 1, 2013, that Harvard Bioscience became a pure-play company and embarked upon it's new growth strategy. Since that time, we built a world-class organization, brought in a great team of leaders, and have aggressively worked to grow our company. And we're succeeding in the execution of our strategy. I'm happy to note that we reported strong financial results for the third quarter as we leveraged our growth, created operational efficiencies, improved productivity and increased our bottom line. I'm also happy to report that we're on track to achieve our financial goals for 2014. We also acquired two life science companies, Multi Channel Systems in Germany and Triangle BioSystems in North Carolina. These two acquisitions, which are expected to add to both top line and bottom line growth have transformed Harvard Bioscience into a leader in the electrophysiology market. Now, let me provide a brief overview of our strong financial results that we achieved this quarter. Earnings per diluted share increased 50% to $0.06 per share. We grew non-GAAP income from continuing operations by 46% to 1.9 million. Operating margins increased 360 basis points to 11.5%. Revenue increased 1.2% to 25.4 million. This increase, which is on target with our expectations, shows that we're achieving our stated goal to stabilize revenues after many quarters of declines. While we reported an increase, the increase was due substantially to currency exchange. Our bookings remain strong as well, at 25.7 million. Now, our backlog increased more than 40% over the last year's third quarter to 6.2 million. The business strategy we put in place just about a year ago…

Thank you, Jeff. Consistent with previous quarters, much of my focus will be on 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. However, I'll briefly review the GAAP results, the differences of which are outlined in the earnings release we issued today, which can be found on our Web site 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 Web site. A replay of this call will also be archived at the same location on our Web site at www.harvardbioscience.com. Now, beginning with the top line; as mentioned on our last earnings call, there is some level of seasonality in the business in the third quarter. As seen in previous year's performance, our revenues in the third quarter are usually down from the second quarter. However, our fourth quarter tends to be the highest in any fiscal year, compared to the other three quarters. Revenues in the third quarter were 25.4 million, an increase of approximately 300,000 compared with revenues of 25.1 million in the third quarter of last year. Currency translation accounted for the vast majority of the increase. As discussed on previous calls, this was the result of a weaker U.S. dollar compared to the pound sterling on a year-over-year basis. Excluding currency translation, revenues were essentially flat. Bookings were 25.7 million in the Q3, essentially unchanged with Q3 of last year. Excluding the impact of currency translation, bookings decreased by approximately 400,000. And consistent with the second quarter of book-to-bill ratio was approximately 1.01 times as orders received…

(Operator Instructions) Our first question comes from Paul Knight of Janney Capital. Your line is open.

Hi, yes. Jeff, can you talk about the ERP system? I missed some of that. It's going in or the planning of it -- just refresh what's going on there.

Hey, Paul, it's Jeff, how are you doing? I'm going to let Rob answer this question. He is leading the project.

Hi, Paul, thanks. Yes. So, currently we have nine legacy systems at Harvard Bio across our footprint. A lot of them are older systems. Some of them are approaching close to end of life. We kicked off a process over the past few months to implement a common ERP system across our entire network. We're expecting that cost to be in the range of 1 million to 1.5 million, and that cost will come in over the course of Q4 and throughout 2015. And it's likely as we continue to integrate the acquisitions and execute on future acquisitions that cost could change slightly and also push out the timeline. But that's a little bit of information on that program.

Okay. And the tax rate of 28.8 in the quarter, continuing I guess in Q4, what's the long-term trend on your tax rate? Does it go down as you increase Asia exposure or not?

Yes. So, like I said, we plan at sort of the 28% to 30% range. That's historically where the business has been on average. As we continue to grow our business outside of the U.S., as that percentage increases, that would lower that effective tax rate. And so, although it doesn't take much to move it, it's only, I think half a percent is less than a $100,000 in the tax line. But we'd expect over the long run, over the five-year planning, the effective tax rate, it would be neutral to down, because of the growing business outside of the U.S. and in Asia.

And, Jeff, where are you in Asia? I know you were trying to get to as many as five people managing distributors there around turn of year. Are you there yet and what's the status of expanding Asia?

Yes. So the goal, the objective this year was to build the commercial team. We had budgeted five headcount, which we filled all five positions this year. Next year, we'll expand into Asia, we'll expand into Japan, Korea, and probably Southeast Asia. So that's the goal right now.

And where are you in terms of the progress. Where these people hired this summer, where they hired in Q1, are we seeing or we're not seeing their impact?

Well, we went into 2014 with one position filled. We filled four positions this year. One of the positions is a Vice President of Sales for the region. Those positions have been filled in 2014. As we expand into 2015, that's where we expand into more of a regional presence in Asia, and that goes back to Japan, Korea and South East Asia for now.

And lastly, is the academic world finally getting stable, better or what's your read?

I think the U.S. has been relatively softer than expected for not only us, but really everyone in the industry. We keep hearing that next year 2015, we'll see some progression in terms of NIH budgeting. But right now, it's been a headwind for most people in the industry. We're doing quite well though. Our teams are really executing. The buildup of our sales and marketing programs, especially in the U.S., have really allowed us to have a strong presence throughout all five of our product families, especially in the laboratory equipment supplies business, which is our Denville business, which is highly academic.

Okay, thank you.

Paul.

Our next question comes from Bryan Kipp of Janney Capital. Your line is open.

Hi, guys. I thought you [were planning] (ph) somebody else. But just a quick couple of follow-ups, on the backlog build, the 6.2, 40% year-over-year growth. Any contribution from the recent acquisitions? I'm pretty sure they haven't closed but just want to get confirmation there.

Yes, Brian, it's Rob. No, you're thinking about that the right way. Those acquisitions closed 10/1, so they're not reflected in that 9/30 number, but they will be for year end.

Okay. Any commentary on the consolidation of those things 10/1, are they performing relative to expectation as you start to ramp up?

Yes. No, we're now getting -- we're in the process of integrating those businesses and also the financial systems, and we get pretty good visibility into their performance daily. And I'd say at this point they're performing as expected.

Perfect. The continued decelerate -- well, I guess we'll start here, one additional that you do have, you guys have a banking fee that you're going to incur in 4Q, is that correct?

Bryan, a banking -- anyway that's on banking fee. Sorry I was thinking banking fee.

Correct.

We do, yes, that's right. So not for the Triangle acquisition but for the MCS acquisition, there was a banking fee associated with it.

Is it significant material in any sense or it's just for modeling purposes?

Yes. No, it's about $600,000. It's in that range. And it would be, we'd highlight it in the Q4 earnings release and make sure that it was transparent to folks in the results.

And just kind of looking at run rates on costs here, you guys have really kind of -- as you highlighted a little about the cost of $600,000 reductions in year-over-year. Just thinking about run rates going forward, especially on the G&A and S&M side; do you think the '14 to '15 on a -- I guess a consolidated, let's put it that way, 30% consolidated is a good run rate going forward? Or you think you can get down in that 25% range over the next couple of years?

Bryan, what was the 25% range in reference?

It's all consolidated, if I looked at your sales and marketing and G&A expenses. Looks like it's about 29.6% sales in the quarter. I'm just thinking about on the long term rate as you consolidate some of your electrophysiology businesses. Do the ERP information be the role -- facility consolidation in North Caroline etcetera? What's kind of your long term goals last projection, you think you can get to close of the 25% range or think like a five year?

I mean, that's a reasonable question to ask. As I try to highlight in the prepared remarks, we're really going through our planning process now for next year. But I wouldn't expect to see a dramatic change in that level of spend, at least over the near term. I think that what we experience the share is probably a pretty good modeling result. But we will soon we'll cover that in the fourth quarter as we give our financial guidance for next year.

Okay. And the last one that I have is, I guess, more product-specific business line stuff. The Denville business, I think you highlighted in the past up 30% of the business -- lab equipment and supplies business, how is that performing relative to expectations? I think, I looked up your old acquisition 8-K release and it's in 2009 that the expected contribution is about $19 million at the time and growing at 10% to 15% in CAGR over the last decade; just an update there on how that's performing relative to expectations in your mind.

Bryan, this is Jeff. So are you specifically talking about the Denville business?

Correct.

The Denville business, I would say is right at expectations for 2014. The one thing that's brought us off this year is at beginning of the year weather. So, weather set us back a little bit in January and February. Outside of that, I think they've been above expectations but because of weather earlier in the year, we're right where we thought would be at this point in time.

Okay. And conversations are still ongoing to expand that into Asia, etcetera, and really penetrating other markets, correct?

I don't think we've really talked about expanding distribution outside of the U.S. right now. But as we build our distribution strategy moving forward, there's no reason why not to think about moving outside of the U.S. but for right now, we just focused on the U.S.

All right. Thank you, very much.

Thanks, Bryan.

Thanks, Bryan.

Our next question comes from Raymond Myers of Alere Financial Partners. Your line is open.

Thank you for taking the questions. Jeff, on the prepared remarks, you mentioned something interesting that the East Coast distributor will be moving; can you give some more detail about the cost implications of that?

Well, I'll give you the reason for the move and I'll let Rob get into maybe the cost structure of how it applies to the business. But the purpose of the move is, we've put a lot of time and emphasis and we've communicated this quite frequently that distribution is a big and important part of our strategy moving forward. With that said and with the expectations of growing that business, the facility we are currently in New Jersey is just too small. The location in North Carolina fits a couple things for us. Number one, reduction in cost; number two, it's in a location where weather-related situations such as January and February will not impact us as severe as it has in the past. Not to say that North Carolina doesn't run into weather, but or customers during weather-related issues here in the Northeast, customers don't go to work; that will continue. But I think we'll eliminate some of the situations we've run into in the past. It's a great location to be in, it allows us to increase our service levels to customers, get product to customers within a 24-hour time period. So it's a great location for us. Rob, you want to contact?

Yes, right. Just in terms of the cost, the fact that we've got and we've increased guidance for the year, I think, is indicative that the cost for the move in the fourth quarter is manageable and one that we can absorb. So it's not terribly significant to us. And in terms of the benefits going forward, as Jeff said, there is a cost benefit of making this switch. But the real story is around the service levels. So I think it's more around the business performance and top-line potential as opposed to the ongoing cost savings. But the lower cost structure will be reflected in our guidance for 2015.

That's great, thanks. And you increased the upper end of your EPS guidance for this year by a penny. And I'm interested to understand, how much of that was driven by organic improvements or contributed by the recent EPA acquisition?

Yes. So, a good question, that's right. The acquisition are the clearly the primary contributing factor to the increase in the EPS of a penny or so. The other contributing factor is there is a small impact of foreign currency that flows through the bottom line, but it's rather de minimis. It's the acquisitions and consistent with where we started the year as we talked about the restructuring that was announced last December. That was the main driver behind the 20% growth in EPS this year. And so, we're pleased to report that we're on track to achieve that. But to go to the $0.27 is predominantly the acquisitions.

That's great to hear. Regarding acquisitions, can you update us on what your cash is now and your level of debt now relative to your appetite and capacity for further accretive acquisitions?

Yes. I'll start with some numbers and then Jeff can add some contacts around maybe appetite. So, we reported cash and debt as of 09/30. The next day, so 10/01, cash was reduced to approximately $14 million and our debt is in the range of about 22, a little higher than $22 million. And so, as you know we have the credit facility in place and that's available to us as well as that 14 million. But I'll let Jeff speak to pipeline and appetite.

Yes. The pipeline is robust, I'll put it leave it at that. We consistently look at companies, we're consistently approached by companies but we're taking this into 2015 like we did in 2014; it has to be very strategic to our business. You look at our five product families, we want to make sure that we are staying within specialized segments of life science, such as electrophysiology and become market leaders within those specialized segments. So, if we come across an opportunity that fits within our strategic profile, acquisitions will continue into 2015.

That's it. Thank you. That's a perfect (indiscernible) when I ask you my next question. You mentioned strategic several times and I wondered if you could describe in a little bit more detail how the EPA acquisitions and in addition to being accretive, are strategically important to the company.

Electrophysiology is a market, is a subset of life science is a growing segment. The fact that we had a business, our Warner Instruments business in electrophysiology by acquiring TBSI and MCS allows us to become a market leader within electrophysiology. So, it's a perfect fit for us. It fits within our core competencies as an organization. This is the prime example of our acquisition strategy and that strategy will continue into 2015.

All right, great to hear. And then maybe one final question, a lot of what was talked about are related to reducing the cost structure, we touched a little bit on acquisitions. Is there anything else that would contribute to restoring organic revenue growth for the business and maybe give us a hint at that growth trajectory for 2015?

Yes, I think it's the focus of the sales and marketing teams, along with operations. One of the things we've done this year is, we've put a lot of emphasis on increasing the talent pool within the organization. I think we've done a great job of that. I'll give you an example. Our last, was it Q4 of 2013, we made an organizational change and we made some changes to our commercial teams in Europe. Europe is our top-performing region this year, and it's specifically due to the performance of our operations team, our sales and marketing team in Europe. This is a prime example of how we see organic growth continuing in other regions of the world. As we make these changes, as we increase the talent pool, as we increase our focused marketing activities, marketing programs, things like that, we believe organic growth will fall.

Thank you. I'll get back in queue.

Thanks, Ray.

(Operator Instructions) Our next question comes from Jack Wallace of Sidoti & Company. Your line is open.

Good morning, Jeff and Rob, Thanks for taking my questions.

Good morning, Jack.

I just want to dive a little deeper on the acquisitions here. The EMP market, roughly how big is that on a global basis?

About a 100 million.

And after the acquisitions, roughly what market share do you have now?

So we're about 15%, Jack. So roughly 6% to 7% to 15%, like that.

Okay. So, it roughly doubles your market size. And with the product lines that we're acquired, are these kind of add-on new products or the products bought and sold at the same time, I guess, help me get a bit of understanding for when you're going to the market with now larger portfolio products in the segment. How the newly acquired product lines are going to fit in with that sales process?

So, our current business or the current business that we had for quite some time, the Warner Instruments business is a patch clamp business. What TBSI and MCS bring to the table are both in vitro and in vivo products within electrophysiology. Now, you can take all of these components as one and almost create a package opportunity for scientists. So, this is the strategic initiative behind these acquisitions.

Got you. Thank you. That's helpful. And then when you're looking at other acquisitions, is that the same mindset or are there may be other market segments where (indiscernible) or do not have a presence that you're looking to get into?

Yes. I mean, I think we've said it all along. If we come across something that we believe is outside of a current product family that we have, but we have capabilities, we have core competencies around managing that business on a global basis, there is no reason for us not to be attracted to that. But at this point in time, we have our five product families and we're pretty specific to the types of products and innovation that we're looking at for especially around the M&A activity.

Okay. Thanks. And then with China obviously with since last couple of quarters, (indiscernible) to the political environment there, is there any, I guess, the inside on when we might see the that swing back up into the quick growth mode, or had then previously even but you seen the reports, so there is that China they said they are going to be putting a ton of money into the life science research area and obviously that's a great tail win for a tool provider or a tool manufacturer, excuse me. Any idea, when we might see that inflation point when the higher growth rates will return to that segment?

Well, the good news is China continues to stay, that they want to be a market leader in life sciences. So, that's great for us. Can't predict exactly when funds will be released. But the newly formed commercial team we have in China, what they're doing is they're establishing new relationships with new channel partners. We've looked at legacy channel partners that we have, they just weren't working out, we've made changes. So, as we progress and as we move forward, even without the releasing of funds, I believe there is ample opportunity for us to grow in China.

Right. Just going back to the two acquisitions in the EMP market, you mentioned that the market is growing. Is it growing at clip bit better than the rest of the business, is that somewhere in the, maybe, high single digits?

I don't have any direct information on where it's growing but I can tell you this, it's growing faster than the laboratory consumable product categories or small instrumentation, such as some of the other product families that we have within Harvard Bioscience today. And once again, this is the attractiveness of these types of acquisitions. They're growing faster than the businesses. They're growing faster than the overall academic market in terms of the products that we currently play in. So it leads to a win situation for us moving forward.

That's great. Thanks for the comment, guys. I'll hop back in queue.

Thanks, Jack.

(Operator Instructions) I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Jeff Duchemin for any further remark.

Thank you, everyone. This concludes our Q3 2014 earnings call. We look forward to announcing Q4 results in Q1 of 2015. Thank you.