Good morning, ladies and gentlemen, and welcome to the Q4 2020 Harvard Bioscience Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] I would now like to turn the conference over to Mr. Dave Sirois. Please, go ahead, sir.

Thank you, Tiffany, and good morning, everyone. Thank you for joining the Harvard Bioscience fourth quarter 2020 earnings conference call. Before we begin, I would like to suggest that you take a moment and download a copy of the presentation that will be referred to during this call. The file is entitled Q4 2020 HBIO Quarterly Earnings Presentation and is located in the Investor Overview Events & Presentations section of our website. Leading the call today will be Jim Green, Chairman of the Board, President and Chief Executive Officer; and Mike Rossi, 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 estimates 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, 2019, our 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 represent 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 in 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.

Thanks, David. Good morning, everyone. Thanks for joining us today. Why don't we go right to the slide deck, move to slide four of the presentation, take a look at the highlights for the quarter? Net revenue recovered to pre-COVID levels. Adjusted operating margin improved both year-over-year and sequentially to 19%. Our preclinical product revenue was up 19%, showing strength across all markets and product lines. Cellular and Molecular revenue is still down, though recovering sequentially as academic labs continue to recover and come back to work. We finished refinancing from high-cost debt to commercial bank debt, saving about $3 million annually. As we look forward, we expect reported revenue growth of approximately 8% to 12% over last year. We expect adjusted operating margin improvement to the mid to upper teens. Going forward, this year, you're going to see our focus is on high-value organic growth, marketing and new product introductions. Let's move on to slide five and we'll take a closer look at some of the details. As expected, we continue to see improvement with Q4 revenue coming in at $31 million flat to last year. Gross margin came in at 57.2%. That's an improvement of 150 basis points from last year. This quarter had GAAP operating income of $2.8 million or 8.9% of revenue. Our adjusted operating income was $5.8 million, so our adjusted operating margin measured 18.7%. GAAP earnings per share was negative $0.02. On an adjusted earnings basis our EPS was $0.08, flat to last year. Our cash flow from operations was $2.5 million. And we paid down our net debt by $0.5 million in the quarter. Let's move on to slide six. Starting with the first row of the table, we'll take a quick look at our Cellular and Molecular product revenues, which is primarily…

Thanks, Jim and good morning, everyone. I'll focus my discussion on the full P&L and our liquidity. In Q4, we saw growth in operating margins improved as a result of continued focus on business fundamentals. Gross margin improved year-over-year on strong sales from our higher-margin products and the positive impact of cost reductions. Sequentially, gross margin also benefited from normal seasonal uptick Q3 to Q4 in revenue. The improvements we are seeing from focused sales execution and product portfolio management including, elimination of a number of low-margin SKUs at the beginning of 2021 has us on track to the 60% gross margin target we set forth in 2019 as academic lab productivity returns to pre-COVID levels later in 2021. Adjusted operating income increased its revenue returned to prior year levels in Q4 and product mix improved. In Q4, we continue to manage costs with discipline maintaining our focus on lean structure. We recently communicated internally our plan to consolidate certain engineering operations and eliminate two small facilities in Europe. These incremental actions are expected to generate additional annualized cost savings of approximately $2 million and will be completed in the first half of 2021. All told, total cost reductions versus run rate prior to the July 2019 management changes are over $7 million annually with global headcount down over 15% creating a more operationally efficient business. These savings have enabled reinvestments in a much stronger sales and marketing organization and Jim will speak to our expected growth and other investments in the discussion of our 2021 outlook. Finally, operating expenses increased sequentially in Q4 due to variable compensation with higher sales incentives plus bonuses accrued based on achieving our original 2020 second half goals of over 17% adjusted operating margins and refinancing our debt all happening despite COVID-19. The ability to fund these incentives while also delivering improved sales and financials, absolutely creates some momentum for 2021. Finally on debt and cash flow, we continued to reduce net debt in Q4 with improved earnings plus significant improvements in DSO as accounts receivable were down $3 million year-over-year on the same revenue as collection focus improved significantly. Our leverage ratio, our total debt to adjusted EBITDA remained in the low 3s. With new credit facility closed in December, as Jim noted, cash interest costs at current debt levels will be down about $3 million and overall debt will continue to come down in 2021 with earnings growth and the underlying strong cash flow profile of the business. As importantly with this new facility, we have substantial operating flexibility to execute our growth initiatives. With that I'll turn it back to Jim to discuss our outlook for 2021. Jim?

Thanks, Mike. Okay. Let's move to slide 11, take a look at the summary. And looking forward, I guess, I just want to first say that when we see that most of the structural improvements are really behind us at this point there'll be more work this year for really for our final alignment for some items that will be really lining up nicely for Europe. But most of the big work has already been done. This year, our primary goal is sales growth, moving the business to growth and driving it the proper way through sales effectiveness, having the right coverage with the right organization and direct sales in combination with distribution sales. Professional marketing, you're going to see a significant change in the caliber of what we use to help send our message to our customers and also new product introductions. This is a technology company that introduces incredible technologies that make a difference in people's lives. So that's going to be the focus this year. But it really -- what you will see a real move to sales growth in this year. We expect revenue growth on reported basis in the range of 8% to 12% versus 2020. We see the pre-clinical tailwinds and overall sales execution on track to providing a sustainable growth foundation. And the academic labs will continue to come back and recover as they come back to work. Portfolio rationalization pruned low-quality product revenues from the business in the tune of around $2 million off of our FY 2019 baseline and then an additional $3 million from our FY 2020 baseline. Adjusted operating margins are expected to range in the mid to upper teens. We expect gross margin expansion to approximately 60% on volume and higher margin mix, reinvestment in our sales, marketing, product development, R&D will support our long-term profitable growth plans going forward. Thank you. Now I'll turn the call over to the operator to open the lines for questions-and-answers. Thank you.

[Operator Instructions] Your first question comes from the line of Paul Knight with KeyBanc.

Hi, guys. Impressive quarter.

Hi, Paul.

The sales goal of 8% to 12%, what's your thinking on normalized growth rate? I mean, you've got a lot of noise in 2020 and then comparing 2021 to 2020 a lot of noise -- after 2021?

Yeah. That's a great question Paul. Just to give you a little view as to how we think of it, I like to look back to 2019 before COVID, before all the noise. And -- prune out of the portfolio, the nonstrategic type products, the things that really didn't make sense or need -- or weren't really strategic for growth and weren't really part of driving the business. So those -- with those coming out I look at the -- I, kind of, my underlying view is I look at 2019 and I look at the growth, and I look at -- and I adjust it for what I'm no longer selling. And then I move -- fast forward into 2020, and do the same thing. So by -- when I look at adjusting for what we're no longer selling, it looks like we can -- we add somewhere in the neighborhood of three to four maybe five points of growth to what it would be -- what it would like had we restated it based on what we're actually selling going forward. So when I look at what we expect on a normalized basis -- and again you're right this year is going to be -- it's going to be still a little bit noisy because the labs aren't all back yet. There could be another downturn or another shutdown though we're not expecting that. But net-net I would -- we believe fundamentally that we've got business here that should be growing and we expect to see growing in the high single digits. So I originally had a target of 6% to 8%. I certainly wouldn't come off of that. I think there's room to even improve on that, but when I look at the breakout of the two classes of businesses, the preclinical products they were pretty confident that we're going to see somewhere around double-digit growth in that space. And then as we get the laboratory equipment working as that really starts to come back in the research work that's going to come back to a normalized growth rate somewhere in the neighborhood of 5% to 6%. But I think it's fair to say that we also are going to see some significant improvements in our sales efficiency as we get coverage rights, and we run our direct sales like a professional direct sales team needs to. So, again, net-net, if I'm in that 6% to 8% maybe up to close to 10% growth on an underlying basis, I think that's a good basis to build on and to assume this business should be generating.

And what products in the quarter stood out to you as kind of highlights on their growth rates?

Right. Well, I mean, certainly you saw what happened with the preclinical products. I mean, 19% growth. Much of this we believe is strong sustainable continuous growth in those areas. A big part of that was, I have to say, the new introduction of the inhalation technology. That's a fast-growing component, but also the fundamental business of the telemetry, the implantables and the base software systems, the Ponemah software system, that's what we call it, it's that base analytics system that's used to call the data and to come up with your -- come up with what it is you're going to be defining as the outcomes of the testing. So those were three of the big areas. Other areas that we see growth is on the single-cellular type test areas, areas where we're seeing more and more activities going to single cell testing. And then, of course, the expansion of the newer technologies that are CRISPR related. So you get into the BTX Electroporation technology, we see that's also going to be -- continue to see nice demand, pretty much across the spectrum of our customers, but -- so that's why it all comes together very nice. And as we get into time to get out there and talk with our investors, we're going to have a much better deck that we'll be working through to show more detail on these products and what's really growing and where the technology, where the puck is going to. So look forward to getting out with your people Paul.

And do you expect any further shrinkage on non-growth businesses in 2021, Jim?

I don't think so. I think we've -- it was important to try and get -- to figure out what really didn't make sense in the portfolio. Net-net it's probably somewhere around five points. That just -- they were a drag to the business. They were not really things that were -- they weren't in areas that were going to be growing. They were eroding. And they weren't -- they didn't really -- it just didn't make strategic sense, but I don't really see anything specific going forward there, because I think we did a pretty good job evaluating the full portfolio, our call points, the sales teams, our marketing capabilities. I think we're in pretty good shape. There always could be something that depending on what happens in the market might make more or less sense for us to do. And we are -- we do have limitations as to how much we're going to be able to spend on R&D. And that means you have to make calls. We will make the calls for the most -- for the longest running tailwinds where we see the long -- the best future for these technologies. But that said I don't see anything in particular that I expect to have to come out of the portfolio at this point.

And then lastly, the CRO industry is having another merger. Do you see those two customers as a significant part of your sales exposure and your thoughts on that?

Well, I mean, I think that it's always -- historically, it's an issue for a short time, because there's always a chaotic period where nobody's quite sure who's going to run the show and which processes will be used. The good news is we have great exposure across those companies, so it's not like there's a risk. We don't believe there's a risk that we'll lose it. We think there could be some -- a little bit of noise during the process, while they switch over. But sometimes it goes the other way and the acquirer needs to expand more and we end up with more business there. But we -- I think the key thing is we've got the team in place now. We have professionals strategic account management in place. We have a great sales leader in this area who knows how to work these relationships, and knows how to build strategic relationships with these types of large customers. But the CRO business is a big part of our expected growth going forward, and we see that continuing to come. We're seeing it in the US, Asia is really picking up in CRO and pharma. Just overall, this looks like we've got a really nice year coming our way.

Okay. Thank you.

Thanks, Paul. Operator, I think we have another question coming in.

And pardon me. Up next we have Bruce Jackson with The Benchmark Company. Your line is open.

Good morning and thank you for taking the question. So you talked about launching some new products here in 2021. I wanted to know if you would be willing to go into some more details about which areas you're going to be launching in this, and if there's anything that you're particularly excited about?

Sure. I will tell you that as we get to our roadshows that will be coming up, we're going to go into a lot more detail. But just in general, I think you're – it's fair to see that you're going to see investments in our BTX line, which is electroporation. It's part of the whole CRISPR world. You're going to see expansions there. You're going to see further improvements in some new product lines coming out in the individual cell areas that would be the multicell systems, the MCS systems. We're always coming up with new areas of expanding and expanding our infusion products. And then I'd say across the board for the products for preclinical, telemetry, there'll be some new telemetry technologies that we're working on for implantables. We'll continue to push the inhalation product. And there'll be a lot more effort on really making our best-in-class software platform. This is a product, as this goes into a large site, it really is sticky. And it makes – it's something that our customers get really good at using it. And it's areas where we can add new features fairly quickly to meet their needs. So that's a big part of adding the number of sockets that we had in the business.

Okay. Great. And then just generally on capital deployment, do you have like a target debt-to-capital ratio that you're going for? You've been doing a really good job of paying down debt. I'm just wondering what do you think is the optimal mix there for you?

Well, I think as we get down somewhere around 2x, that's going to be a pretty good number for us. We have a much better facility now. As we get to late in the year, it's likely that we may see some real opportunities to bolt-on some products or technologies that would help us build out the portfolio nicely. So we – that was the whole idea was to get our balance sheet clean. It will be clean this year. You can see how we're cash flowing very well. Much of that cash is to pay down the debt. There likely will be some level of capital expense or capital expenditures this year, just as we really tune the system and move the volumes up and work on improving our yields. But those would be the two main things, nothing big on the horizon right now though.

Okay. Great. Nice quarter. Thank you very much for taking my questions.

Thank you, Bruce.

And your next question comes from the line of Tim Chiang with Northland Securities. Please go ahead, sir.

Hi, Jim.

Hi, Tim.

Nice quarter. Could you talk a little bit just about your geographic segmentation? I mean it looks like what, about half your business is coming from North America and the rest comes from outside North America. How do you sort of see the year – the growth rates ex US or ex North America versus North America for this year?

Well, good question Tim. We – I mean, certainly North America is the bulk of our business. But Asia has been coming on very quickly and surprisingly fast, a tremendous amount of strength in Asia. Europe is a little slower. It's been slow in – for last year. In fact, Europe hasn't been running super well for us for a while. We are working on getting our structure in place and our ability to sell better there. We think in time – so I guess, if I were to say, the main driver with US fastest growth area probably is going to be Asia, because we do see continued – all indications are this is going to be a grower. We see our orders are coming in very solid backlog building. Europe will probably be able be the last one to really come up. Part of it is Europe still has a lot of countries that are shut down pretty hard. But by the time they're all back to work and labs are open, we will – I expect Europe to turn back into a nice growth component of our business.

Great. And Jim, maybe just one follow-up. I mean, how do you sort of see research labs reopening as the year progresses? Is it going to be more tied to the 2021 school year, or do you see the research labs opening up more this summer?

Yes. I would say it's going to be slightly different, probably depending on the region. Asia seems to be pretty much running full speed. They're -- I would say they're up and running. And we see that and we see the outlook there very strong. North America is coming along very nicely. We still have a few areas like the Northeast, which typically are probably the strongest areas. They're still running slow. They will start to clip in, we believe as we get into summer time. So, I would expect that, as we get into the fall school year, that's when things really start to kick in that's when the budgets will all be resnapped. But we've still got budget for this year that we expect to see continuing to build here. But as the people get back, that's kind of the way we see it. Now, Europe is going to take a little longer. So yes, I would expect, China is pretty much there now; North America is coming back very fast; Europe, a little slower. I think, it's going to take, Europe we're probably looking into the third or fourth quarter to really be back to where they should be running. It's probably more like the fourth quarter for them on the research labs that is. The CROs and pharma, I mean they're -- we don't really see a problem there. They're up and running. You can see it by the growth we're seeing. I mean nice sustained solid growth on CRO and pharma work. And we're also seeing more and more of what typically happened in small pharma in these -- with these cores that are coming out of large universities. They're starting to move more and more toward what looks like a small pharma company. And that's -- for us that's a great target and we think that's going to be a big part of academic growth in the preclinical space.

Okay. Great. That’s great commentary. Thanks.

Thanks, Tim.

Your next question comes from the line of Lisa Springer with Singular Research.

Good morning. Congratulations on a great quarter.

Thanks Lisa.

Thank you.

I wanted to ask, how much of the bump in preclinical revenues in the fourth quarter would you estimate as COVID related?

That -- probably the only way we could really say would be -- it wouldn't necessarily be specifically COVID, because these products are used for all vaccines and all therapies and drug development. The one though that we would point to that seems to have more of a COVID connection to is the inhalation products. And what's really nice about that is and of course COVID, we introduced the product right at the perfect time and it is seeing a lot of uptake in -- across the board. And I think, as the academics come back, I mean the academics have a real taste for inhalation. And the concept is, we believe that as this happens, we're going to see more and more drugs and vaccines taking advantage of what you can do and what you need to do with inhalations, the ability to measure the amount of what's going in to the lungs and how much and how fast it's getting across into the bloodstream. And then also -- it also is used for the effectiveness of the drugs that are going to be used against it. So again, I would say that the general portfolio supports COVID, but it's not really a specific like a one-off thing. It's really more generalized. But the inhalation, it does have a specific growth vector associated with it that's incremental because of COVID and the move toward these vaccines.

Okay. Excellent. And in terms of products that were introduced this year and ones you're planning to introduce next year or in 2021, how important are they to your revenue growth? Are they going to be a big contributor of it?

Yes. Well, I think that typically with these kinds of technologies, some will have some immediate growth impact. But generally, the things you built today are things that are being used one year from now, two years from now. I think they are -- the product development activities, they're a little more aligned with the long-term growth because this business hasn't seen long-term growth for a long time. So for us to have a significant expected underlying organic growth vector -- and again, I said from the beginning, if we're not in the eight -- 6% to 8%, 9% range, to be there to be healthy, you got to be in that range or better. That means, you better be shooting for more like double-digits and much higher numbers. So there's always some things that are going to be going the other way at times. But -- so I see it as what we're doing in sales that gives an immediate and much more immediate kick to the -- to getting to the capacity, volume capacity of sales that you should have getting the right level of marketing materials that help solidifying the distribution arrangements. Those should all be growth drivers. They're more immediate. But the -- again the NPI, the new product introduction, they tend to be a little more medium-term and long-term. But I will say, I've always been a believer in teaming with some -- with key strategic customers and taking risk together with them on introducing new innovative products that maybe nobody is using yet. But you'll start to see some of that happening too here more work that we think we'll be doing that will be newer technologies that they may not be used immediately, but as they come out, you'll start to see them in the more leading institutes and then eventually working their way into more general use.

Okay. Thanks, Jim. And my last question concerns gross margin the improvement. How much of that improvement came from product mix? And is there still room to even make the product mix better?

Yeah, I don't know that we've broke it down specifically. But clearly, there's a natural mix improvement, because as I said, there were some products in the portfolio that honestly just didn't make sense. There wasn't -- they weren't part of a portfolio that would pull through higher-margin consumables or anything. So those it made sense to just remove from the portfolio, whether they be sold off or just moved to other areas. So part of it is the product offerings, part of it is the mix. We do have good pricing power though we always have to be careful with that. But in general, it still also comes down to volume. So a better mix and more volume gives us natural improvement in gross margin. Our target from the beginning was to get to 60%. It's clearly -- I fully felt like that was well within reach. We feel like we're going to be there this year. And then we'll have to see how that goes. If it's based on -- there's always a trade-off on price and volume and where you are and if you're introducing in new spaces and that. So there are white spaces that we'll be looking at to for this portfolio.

Okay. Great. Well thanks very much, Jim.

Great. Thank you, Lisa.

At this time, I'm currently showing no further questions in queue. I will now hand the conference back over to Mr. Jim Green.

All right. Well thank you everyone for joining us in today's presentation. I'll ask that you join us in May for our first quarter fiscal 2021. And have a great day, and thank you so much for your support. Thank you.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.