UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM
For the quarterly period ended
For the transition period from_____to _____
Commission file number
HARVARD BIOSCIENCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
(Address of Principal Executive Offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S- T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 1, 2021, there were
| HARVARD BIOSCIENCE, INC. |
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| (Unaudited, in thousands, except share and per share data) |
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - Note 13 | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value per share, shares authorized | ||||||||
| Common stock, par value per share, shares authorized; and shares issued and and shares outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock at cost, -- and common shares, respectively | ( | ) | ||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| HARVARD BIOSCIENCE, INC. |
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| (Unaudited, in thousands, except per share data) |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Revenues |
$ | $ | $ | $ | ||||||||||||
| Cost of revenues |
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| Gross profit |
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| Sales and marketing expenses |
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| General and administrative expenses |
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| Research and development expenses |
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| Amortization of intangible assets |
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| Total operating expenses |
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| Operating income (loss) |
( |
) | ||||||||||||||
| Other (expense) income: |
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| Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Total other expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income (loss) before income taxes |
( |
) | ( |
) | ( |
) | ||||||||||
| Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Loss per share: |
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| Basic and diluted loss per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average common shares: |
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| Basic and diluted |
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See accompanying notes to condensed consolidated financial statements.
| HARVARD BIOSCIENCE, INC. |
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| (Unaudited, in thousands) |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive (loss) income: |
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| Foreign currency translation adjustments |
( |
) | ( |
) | ||||||||||||
| Derivatives qualifying as hedges, net of tax |
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| Other comprehensive (loss) income |
( |
) | ( |
) | ||||||||||||
| Comprehensive (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
| See accompanying notes to consolidated financial statements. |
| HARVARD BIOSCIENCE, INC. |
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| (Unaudited, in thousands) |
| Accumulated |
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| Three Months Ended |
Number |
Additional |
Other |
Total |
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| September 30, 2021 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Treasury |
Stockholders’ |
|||||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Stock |
Equity |
||||||||||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Stock option exercises |
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| Vesting of restricted stock units |
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| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Accumulated |
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| Three Months Ended |
Number |
Additional |
Other |
Total |
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| September 30, 2020 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Treasury |
Stockholders’ |
|||||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Stock |
Equity |
||||||||||||||||||||||
| Balance at June 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock option exercises |
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| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||
| Nine Months Ended |
Number |
Additional |
Other |
Total |
||||||||||||||||||||||||
| September 30, 2021 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Treasury |
Stockholders’ |
|||||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Stock |
Equity |
||||||||||||||||||||||
| Balance at December 31, 2020 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||
| Retirement of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||
| Stock option exercises |
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| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
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| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Accumulated |
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| Nine Months Ended |
Number |
Additional |
Other |
Total |
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| September 30, 2020 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Treasury |
Stockholders’ |
|||||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Stock |
Equity |
||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||||||
| Stock purchase plan |
||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Stock compensation expense |
- | |||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| HARVARD BIOSCIENCE, INC. |
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| (Unaudited, in thousands) |
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of deferred financing costs | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred income taxes and other | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Additions to property, plant, and equipment | ( | ) | ( | ) | ||||
| Additions to intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of debt | ||||||||
| Repayments of debt | ( | ) | ( | ) | ||||
| Debt issuance costs | ( | ) | ||||||
| Proceeds from exercise of stock options | ||||||||
| Taxes paid related to net share settlement of equity awards | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes, net of refunds | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of Presentation and Summary of Significant Accounting Policies, and Risks and Uncertainties |
Basis of Presentation and Summary of Significant Accounting Policies
The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, Harvard Bioscience or the Company) as of September 30, 2021 and for the three and nine months ended September 30, 2021 and 2020, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2020, consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of September 30, 2021, results of operations and comprehensive income (loss) and cash flows for the three months and nine months ended September 30, 2021 and 2020, as applicable, have been made. The results of operations for the three months and nine months ended September 30, 2021, are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The accounting policies underlying the accompanying unaudited consolidated financial statements are those set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2021.
Risks and Uncertainties
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on the Company’s operations to date and the future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. Since the global outbreak of COVID-19, many customers, particularly academic research institutions, have reduced laboratory work which has negatively impacted, and will continue to negatively impact, the Company’s sales. While many of the Company's customers, including academic labs, have reopened, a significant number of them remained closed or at significantly lower capacity levels through the third quarter of 2021. Additionally, to ensure business continuity while maintaining a safe environment for employees aligned with guidance from government and health organizations, the Company transitioned a significant portion of its workforce to work-from-home while implementing social distancing requirements and other measures to allow manufacturing and other personnel essential to production to continue work within the Company's facilities. Business travel was significantly reduced during this period. While a portion of the workforce has returned to in-office work and travel is less restricted, the Company continued to have restrictions which represent disruptions which can impact productivity including sales and marketing activities.
The global supply chain has experienced significant disruptions during 2021 due to electronic component and labor shortages and other macroeconomic factors which have emerged since the onset of COVID-19, leading to increased cost of freight and purchased materials, while also delaying customer shipments. Accordingly, these conditions in addition to the overall impact on the global economy have negatively impacted results of operations and cash flows.
| 2. | Recently Issued Accounting Pronouncements |
Accounting Pronouncements Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which enhances and simplifies various aspects of the income tax accounting guidance related to intra-period tax allocation, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. ASU 2019-12 also amends other aspects of the guidance to reduce complexity in certain areas. The Company adopted the provisions of ASU 2019-12 effective on January 1, 2021. The adoption of this new accounting guidance did not have a material impact on the Company’s consolidated financial statements.
Accounting Pronouncements to be Adopted
In September 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The FASB issued several ASUs after ASU 2016-13 to clarify implementation guidance and to provide transition relief for certain entities. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact that adopting ASU 2016-13 and related amendments will have on its consolidated financial position, results of operations and cash flows.
| 3. | Goodwill and Intangible Assets |
Goodwill
The change in the carrying amount of goodwill for the nine months ended September 30, 2021, were as follows:
| (in thousands) | ||||
| Carrying amount at December 31, 2020 | $ | |||
| Effect of change in currency translation | ( | ) | ||
| Carrying amount at September 30, 2021 | $ |
Intangible Assets
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
| Weighted | (in thousands) | |||||||||||||||||||||||||||
| Amortizable intangible assets: | Average Life* | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | |||||||||||||||||||||
| Distribution agreements/customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Existing technology | ( | ) | ( | ) | ||||||||||||||||||||||||
| Trade names and patents | ( | ) | ( | ) | ||||||||||||||||||||||||
| Total amortizable intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Indefinite-lived intangible assets: | ||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ||||||||||||||||||||||||||
* Weighted average life in years as of September 30, 2021
Intangible asset amortization expense was $
| Amortization | ||||
| Year Ending December 31, | Expense | |||
| (in thousands) | ||||
| 2021 (remainder of year) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total | $ | |||
| 4. | Balance Sheet Information |
The following tables provide details of selected balance sheet items as of the periods indicated:
| Inventories: | September 30, | December 31, | ||||||
| (in thousands) | 2021 | 2020 | ||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Total | $ | $ | ||||||
| Other Current Liabilities: | September 30, | December 31, | ||||||
| (in thousands) | 2021 | 2020 | ||||||
| Compensation | $ | |||||||
| Professional fees | ||||||||
| Warranty costs | ||||||||
| Customer related costs | ||||||||
| Interest | ||||||||
| Accrued income taxes | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 5. | Restructuring and Other Exit Costs |
On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify operational efficiencies, enhance commercial capabilities, and align its cost base and infrastructure with customer needs and its strategic plans. In order to realize these opportunities, the Company undertakes restructuring-type activities from time to time to transform its business.
The following table summarizes the changes in the restructuring liabilities for the nine months ended September 30, 2021:
| (in thousands) | Severance | Other | Total | |||||||||
| Balance at December 31, 2020 | $ | $ | $ | |||||||||
| Restructuring and other exit costs | ||||||||||||
| Non-cash charges | ( | ) | ( | ) | ||||||||
| Cash payments | ( | ) | ( | ) | ( | ) | ||||||
| Balance at September 30, 2021 | $ | $ | $ | |||||||||
The restructuring liability has been included in other current liabilities in the consolidated balance sheet and is payable within the next twelve months. Restructuring costs were million and $
| 6. | Related Party Transactions |
In connection with the 2014 acquisitions of Multi Channel Systems MCS GmbH (“MCS”), the Company entered into a facility lease agreement with the former principal owner of MCS who became an employee of the Company at the time of the acquisition and subsequently retired in 2021. The MCS agreement expires on December 31, 2024. Pursuant to this lease agreement, the Company made rent payments of $
| 7. | Leases |
The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2030.
The components of lease expense for the three and nine months ended September 30, 2021 and 2020, are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short term lease cost | ||||||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to the Company's operating leases was as follows:
| Nine Months Ended September 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | $ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations: | $ | $ | ||||||
Supplemental balance sheet information related to the Company's operating leases was as follows:
| September 30, | December 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Operating lease right-of use assets | $ | $ | ||||||
| Current portion, operating lease liabilities | $ | $ | ||||||
| Operating lease liabilities, long term | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
Maturities of operating lease liabilities for each twelve-month period subsequent to September 30, 2021, are as follows:
| (in thousands) | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ |
| 8. | Capital Stock and Stock-Based Compensation |
Retirement of Treasury Stock
In May 2021, the Company retired the
Stock-Based Payment Awards
Activity under the Company’s equity incentive plans for the nine months ended September 30, 2021, was as follows:
| Stock Options | Restricted Stock Units | Market Condition RSU's | ||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||
| Stock | Average | Restricted | Market | |||||||||||||||||||||
| Options | Exercise | Stock Units | Grant Date | Condition RSU's | Grant Date | |||||||||||||||||||
| Outstanding | Price | Outstanding | Fair Value | Outstanding | Fair Value | |||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised | ( | ) | - | - | - | - | ||||||||||||||||||
| Vested (RSUs) | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Cancelled/Forfeited | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Performance Factor Adjustment | - | - | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | |||||||||||||||||||||
Stock-based compensation expense related to stock options, restricted stock units, Market Condition RSU’s and the Company’s employee stock purchase plan for the three and nine months ended September 30, 2021 and 2020, was allocated as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Cost of revenues | $ | $ | $ | $ | ||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total stock-based compensation expenses | $ | $ | $ | $ | ||||||||||||
As of September 30, 2021, the total compensation costs related to unvested awards not yet recognized is $
The weighted average estimated fair value of the Market Condition RSUs that were granted during the nine months ended September 30, 2021 was $
| 2021 | ||||
| Volatility | % | |||
| Risk-free interest rate | % | |||
| Correlation coefficient | % | |||
| Dividend yield | % | |||
Earnings (Loss) Per Share
Basic earnings (loss) per share (EPS) is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options, restricted stock units and Market Condition RSUs into common stock using the treasury method. The weighted average number of shares used to compute basic and diluted earnings per share consists of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Basic | ||||||||||||||||
| Dilutive effect of equity awards | ||||||||||||||||
| Diluted | ||||||||||||||||
The Company has excluded from the shares used in calculating the diluted earnings per common share options, restricted stock units and Market Condition RSUs totaling
| 9. | Long-Term Debt |
As of September 30, 2021 and December 31, 2020, the Company’s borrowings were comprised of:
| September 30, | December 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Long-term debt: | ||||||||
| Term loan | $ | $ | ||||||
| Revolving line | ||||||||
| Less: unamortized deferred financing costs | ( | ) | ( | ) | ||||
| Total debt | ||||||||
| Less: current portion of long-term debt | ( | ) | ( | ) | ||||
| Current unamortized deferred financing costs | ||||||||
| Long-term debt | $ | $ | ||||||
On December 22, 2020, the Company entered into a Credit Agreement (the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and Silicon Valley Bank (together, the “Lenders”). The Credit Agreement provides for a term loan of $
Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or nine months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “LIBOR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). LIBOR interest under the Credit Agreement is subject to applicable market rates and a floor of
As of September 30, 2021, the weighted average interest rate on the Credit Agreement borrowings was
Commencing on March 31, 2021, the outstanding term loans amortizes in quarterly installments of $
The Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock. The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement also includes customary events of default.
The carrying value of the debt approximates fair value because the interest rate under the obligation approximates market rates of interest available to the Company for similar instruments.
| 10. | Derivatives |
The Company monitors interest rate risk attributable to both its outstanding and forecasted debt obligations by the use of cash flow sensitivity analysis which estimates the expected impact of changes in interest rates on the Company’s future cash flows.
On January 31, 2018, the Company entered into an interest rate swap contract with a notional amount of $
The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their classification within comprehensive loss for the three and nine months ended September 30, 2020:
| Three Months Ended | Nine Months Ended | |||||||
| (in thousands) | September 30, 2020 | September 30, 2020 | ||||||
| Amount of loss recognized in OCL on derivatives (effective portion) | $ | ( | ) | $ | ( | ) | ||
| Amounts reclassified from accumulated other comprehensive loss to interest expense | ||||||||
| Total | $ | $ | ||||||
| 11. | Revenues |
The following tables represent a disaggregation of revenue from contracts with customers for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Instruments, equipment, software and accessories | $ | $ | $ | $ | ||||||||||||
| Service, maintenance and warranty contracts | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
The following tables represent a disaggregation of revenue by geographic destination for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| Asia | ||||||||||||||||
| Rest of the world | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
No customer accounted for more than 10% of revenues for the three and nine months ended September 30, 2021 and 2020.
Deferred revenue
The following tables provide details of deferred revenue as of the periods indicated:
| September 30, | December 31, | |||||||
| (in thousands) | 2021 | 2020 | ||||||
| Service contracts | $ | $ | ||||||
| Customer advances | ||||||||
| Total deferred revenue | $ | $ | ||||||
During the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $
Allowance for Doubtful Accounts
Allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts receivable. A rollforward of the allowance for doubtful accounts is as follows:
| Nine Months Ended September 30, | ||||||||
| (in thousands) | 2021 | 2020 | ||||||
| Balance, beginning of period | $ | $ | ||||||
| Bad debt (credit) expense | ( | ) | ||||||
| Charge-offs and other | ( | ) | ( | ) | ||||
| Effect of foreign currency translation | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
| 12. | Income Tax |
Income tax expense (benefit) was $
The difference between the Company’s effective tax rates in 2021 and 2020 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company currently has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.
| 13. | Commitments and Contingent Liabilities |
On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts (the “Court”), against the Company and other defendants, including Biostage, Inc. (f/k/a Harvard Apparatus Regenerative Technology, Inc.) (“Biostage”), a former subsidiary of the Company that was spun off in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.
On October 1, 2019, the Court entered an order granting plaintiffs’ motion to compel the defendant to produce discovery. Subsequently, the plaintiffs filed a motion for sanctions against the Company on January 6, 2020 claiming failure to produce. The Company’s counsel at the time, which had been selected for the case by the Company’s liability insurance carrier, never notified the Company of plaintiffs’ motion and never responded to plaintiff’ motion. As a result of the failure of our former counsel to respond, on January 29, 2020, the Court entered an order allowing plaintiffs’ sanctions against the Company and the other defendants, which establishes a sanction of admitted liability. In June 2021, the Company was informed of these 2019 and 2020 court actions by new defense counsel appointed by the Company’s liability insurance carrier. On June 9, 2021, the Company, together with the other defendants, filed a motion to vacate the Court’s order allowing plaintiffs’ motion for sanctions. On August 6, 2021, the Court issued a ruling in the Company’s favor, vacating the sanctions.
On September 15, 2021, Biostage’s products liability insurance carrier, which insures the Company as an additional insured and which had appointed defense counsel and had been defending both Biostage and the Company on this case, notified the Company and Biostage that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense to the Company or Biostage with respect thereto, or covering related legal expenses incurred after September 30, 2021. The insurance carrier also filed a corresponding complaint for declaratory judgment with the Court asking the Court to declare that said insurance provider is not required to defend, indemnify or provide coverage to the Company or Biostage with respect to the lawsuit. The Company believes that the insurance carrier’s grounds for denying coverage are without merit, and intends to vigorously defend against this complaint for declaratory judgment and the insurance carrier’s denial of the claim and related matters in order to, among other things, restore the Company’s rights to seek insurance coverage for any damages awarded in the lawsuit. However, there can be no assurance that the Company and Biostage will prevail in the insurance coverage litigation. As such, it is unclear at this point if the Company’s liability insurance coverage will reimburse the Company for all or any portion of any defense costs or damages if the Company were to lose the underlying case on the merits.
While there can be no assurance of prevailing, the Company intends to defend the plaintiff’s claims against the Company vigorously. The Company has retained new defense counsel for the lawsuit and a trial date has been set for October 2022. If the Company loses on the merits and a jury awards damages, the Company does not know the exact amount of compensatory and, potentially, punitive damages that could be awarded, but the amounts could be substantial. The Company is also evaluating possible malpractice claims as one source of recovery but has not asserted such a claim and cannot provide assurance that such a claim would provide a recovery. Further, while Biostage has agreed to indemnify the Company for claims and losses relating to certain liabilities that it has assumed from the Company, including liabilities in connection with the sale of Biostage’s products and other liabilities related to the operation of Biostage’s business, the Company cannot be assured that Biostage will have the ability to indemnify the Company against the liabilities the Company may incur in this lawsuit, in particular due to Biostage’s overall financial condition. If Biostage is unable to satisfy its obligations under its indemnity to the Company and if the insurance carrier does not fund the defense of the case, the Company may have to fund the entire defense of the case and satisfy the liabilities in this lawsuit, which could have an adverse impact on the Company’s financial condition or cash flows.
The Company is involved in various other claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued for loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations, and our plans, objectives, expectations, and intentions that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “seek,” “expects,” “plans,” “aim,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” “goals,” “sees,” “new,” “guidance,” “future,” “continue,” “drive,” “growth,” “long-term,” “projects,” “develop,” “possible,” “emerging,” “opportunity,” “pursue” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause our actual results to differ materially from those in the forward-looking statements include the duration and severity of the COVID-19 pandemic and its impact on our business; reductions in customers’ research budgets or government funding; domestic and global economic conditions; economic, political and other risks associated with international revenues and operations; recently enacted U.S. government tax reform; currency exchange rate fluctuations; economic and political conditions generally and those affecting pharmaceutical and biotechnology industries; the seasonal nature of purchasing in Europe; our failure to expand into foreign countries and international markets; our inability to manage our growth; competition from our competitors; our substantial debt and our ability to meet the financial covenants contained in our credit facility; failure or inadequacy of the our information technology structure; impact of difficulties implementing our enterprise resource planning systems; information security incidents or cybersecurity breaches; our failure to identify potential acquisition candidates and successfully close such acquisitions with favorable pricing or integrate acquired businesses or technologies; unanticipated costs relating to acquisitions and known and unknown costs arising in connection with our consolidation of business functions and our current and any future restructuring initiatives; failure of any banking institution in which we deposit our funds or its failure to provide services; our failure to raise or generate capital necessary to implement our acquisition and expansion strategy; the failure of Biostage to indemnify us for any liabilities associated with Biostage’s business; impact of any impairment of our goodwill or intangible assets; our ability to retain key personnel; failure or inadequacy or our information technology structure; rising commodity and precious metals costs; our ability to protect our intellectual property and operate without infringing on others’ intellectual property; exposure to product and other liability claims; global stock market volatility, currency exchange rate fluctuations and regulatory changes caused by the United Kingdom’s exit from the European Union; plus other factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for year ended December 31, 2020, or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.
Unless the context requires otherwise, references in this Quarterly Report to “we,” “us” and “our” refer to Harvard Bioscience, Inc., and its subsidiaries.
Overview
Harvard Bioscience, Inc. is a leading developer, manufacturer and seller of technologies, products and services that enable fundamental research, discovery, and preclinical testing for drug development. Our customers range from renowned academic institutions and government laboratories to the world’s leading pharmaceutical, biotechnology and contract research organizations. With operations in North America, Europe, and China, we sell through a combination of direct and distribution channels to customers around the world.
Recent Developments
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic. The COVID-19 pandemic has had a negative impact on our operations to date and the future impacts of the pandemic and any resulting economic impact remain unknown and rapidly evolving. Since the global outbreak of COVID-19, many custo