Global Healthcare Conference. My name is Alec Savory with the Jefferies Healthcare Investment Banking team, and it is my great pleasure to introduce Jim Green and Jen Cote of Harvard Bioscience.
Great, thank you. I'm Jim Green, Chairman, President, and CEO. With me today, as you said, is Jen Cote, our CFO. A minute on how I came to Harvard Bioscience. In mid-2015, I was in a 10-year run as CEO of Analogic Corporation, a billion-dollar publicly traded medical device and technology company. Harvard Bioscience asked me to join their board because I knew quite a bit about the space and had a pretty good track record in building profitable growth companies, such as Analogic, and prior to that, combining Marconi Medical with Philips CT to create and then lead Philips global computed tomography business for a number of years. Soon after joining the board, Harvard Bioscience elected me to Chairman, and in 2019, I was asked to take on the operating CEO role with the mandate of building a profitable growth platform.
Just in time, of course, for COVID-19 and a few other situations with global supply and 500% increase in interest rates, just to mention a few headwinds, but anyway, we got on with the job. Just a quick look at our Safe Harbor statement. I won't read it for you. You're welcome to look at it on our website. Moving to our company profile, Harvard Bioscience, we're a trusted provider of advanced life science tools to the leading academic research institutes, contract research organizations, pharmaceutical biotech companies. We don't make the new drugs. We, w hat we do is we are part of a small number of companies that create the technologies that are essential to making and testing these new drugs and therapies. We have two product lines, product families: cellular and molecular technologies and preclinical systems.
Cellular and Molecular is about 49% of our revenue, and our leading technologies to support research, discovery, and the creation of the latest breakthrough drugs and vaccines and therapies. Preclinical systems is about 51% of our total revenue, and we're the market leader and recognized gold standard in real-time data acquisition, analysis, regulatory report generation for safety pharmacology and toxicology testing that's required for all new drugs prior to human clinical use. We have three primary engineering and manufacturing operations and a small number of specialized sites. We're a highly technical company, with about half of our team being engineers and scientists. 2023 reported revenue was $112 million, delivering Adjusted EBITDA of $14.6 million.
In FY 2023, recurring revenue was over 35%, and I'll add that during that last four years, we've cut our debt in half, paying down about $30 million during what was arguably a pretty challenging time in the marketplace. We have long-standing relationships with blue-chip customers in natural growth markets. We have highly specialized direct sales complemented by distributors for global reach, and all supported by our elite applications and data scientists. We have a trusted reputation with limited competition, providing essential high-barrier technologies with high switching costs. Our product brands are well established, and we have a reputation with investors as good stewards of their investment.
We're disciplined in our capital allocation, balancing investments for growth while delivering to our financial performance targets, and we're clear on our long-term targets of sustained double-digit top-line growth, 60% gross margins or better, and 20%+ EBITDA margins. Moving to Slide 5, take a look at our sales and earnings trends and this year's outlook from our Q1 conference call. On the left, FY 2022, you can see reported revenue included about $5.5 million of low-margin product revenue being obsoleted. You can see that by 2023, obsoleted products were nearly gone, down to less than $500,000. Like many companies in our space, we had a significant headwind from China that began in the middle of FY 2023 and continued into the first half of this year.
The first half of this year will be down mostly on those China headwinds, but we expect the second half of this year to be strong on the combination of Asian headwinds annualizing and returning to growth, and most importantly, the new growth from our new latest, new product introductions. On the right side, you can see how our new improved portfolio with lean operations has improved EBITDA, even in FY 2023 on a flat year-over-year. Finally, you can see how expected strong growth starting in our upcoming second half will drop down substantial growth in EBITDA in this year and going forward. Slide 6 shows a look at our global footprint. Since 2019, we've consolidated 14 sites down to eight, with three core operations in Minneapolis, Boston, and Stuttgart. During this time, we also reduced global headcount by approximately 150.
Leaning our cost structure while improving our portfolio is clearly demonstrated by our march to 60% gross margins. Slide 7, our end markets are primarily driven by the needs of the aging population. Our technologies are widely used in advanced research and new breakthrough therapies for diseases ranging from neurodegenerative diseases, such as Alzheimer's and epilepsy and cancer, to obesity and infectious disease. Slide 8 gives a look at the kind of blue-chip customers we've long served. For many years, our products and brands have been needed by the top academic researchers in the creation and cellular level testing of new breakthroughs and advanced therapies. On the right side, biotech and pharmaceutical companies have long depended on our technologies for the discovery of new compounds and the cellular level testing of those compounds.
More recently, with the acquisition of Data Sciences International in 2018, our preclinical systems are considered the gold standard for in vivo telemetry data acquisition and analysis, for proving drug safety and pharmacology and toxicology, with the leading CROs and large biopharmaceutical companies being heavy customers of ours. This slide demonstrates how we support the cycle of new drug development. Our cellular molecular technologies are primarily used in early research and discovery phases. Our preclinical systems are heavily used for safety and toxicology assessment and regulatory reporting, and we're now starting to penetrate the bioproduction phase with certain of our products, that in the past had been limited to the research and discovery phase. Overall, our strategy is to adapt our leading technologies to higher volume applications in biopharma and CROs, where usage of our products, services, and consumables scale with production volumes. Slide 10.
This slide demonstrates the three pillars that underpin our growth expectations. The first and main pillar is the base business, with the second and third pillar specifically focused on two high-growth adjacencies. On the left, our base pillar represents nearly 85% of our total revenue, and where we're targeting better-than-market growth. On this slide, you can see new product introductions in areas such as implantable telemetry, and in the recent introduction of VivaMARS high-capacity neurobehavior systems, adding to our base. In addition, expanded services and consumables continue to move the needle for recurring revenues. The two pillars on the right are specific for high-growth targeted areas. In the middle, leveraging our well-known BTX family of electroporation and electrofusion, historically sold into research and discovery, we are adapting the system for bioproduction, where consumables scale with production.
Our third pillar is adapting our leading microelectrode array systems to our mesh MEA platform to enable emerging organoid applications. Slide 11 is a high-level look at our product lineup. The right side shows the preclinical systems used heavily in safety pharmacology and toxicology. Our largest product line is our industry-leading telemetry implants and Ponemah data acquisition and analysis system. The system captures critical data, critical data measurements required for analysis and reporting to regulatory agencies. Our recent introduction of VivaMARS expands our offering to preclinical high-capacity neurobehavioral testing. VivaMARS acquires and analyzes up to 100 simultaneous models and is integrated with our leading Ponemah system. The left side shows our cellular molecular product lineup.
Same as with VivaMARS, we plan to network certain of the cellular-level analysis systems to our Ponemah Enterprise software, where longitudinal evaluations can then occur from early-stage cellular testing through final-stage in vivo animal testing. On the lower right, you see the products targeted to the new high-growth opportunities in bioproduction and emerging organoid applications, and I have a couple of slides to talk about that in a minute here. Slide 12 highlights high-growth opportunities for our products in bioproduction. On the left, you see our well-known BTX electroporation line. BTX is used for today's most challenging cell modifications, CAR T-cell transfection, monoclonal antibody development, gene therapies, and CRISPR-related technologies. BTX is ideal for bioproduction when a biotech or pharma customer utilized our system to create the original compound.
The value proposition includes its low barrier transition to production, faster time to market, and reduced costs. On the right side is our recently introduced high-precision amino acid analyzer for bioproduction. It's best for biologic therapies that rely on precise amino content and it enables the customer to do on-site bioproduction testing of things like buffers and solutions to reduce production cycle time. Slide 13 is probably our most exciting new introduction. Starting at the top of the slide, I've outlined a simplified version of today's preclinical new drug testing, where our technologies are applied. Early testing starts with individual cell-based testing and data collection on how the cells react to a compound under test. Here, patch clamp systems with ultra-low-level amplifiers, like our HEKA amps, can be used.
If the cells react properly, further electrophysiological analysis could be done with our microelectrode array systems, using both 2D and 3D organoids or organ-on-a-chip often. The limitation with either cell-level or organ-level on-a-chip analysis is the life of the cells, which is very limited these days. We're talking in terms of hours or maybe days. So today's next phase requires exposing large populations of small animal models to the compound for long periods of time to see if and how they're affected.
If a compound is going to fail, and about 90% of new compounds fail, it will typically happen before or during this phase. For the few compounds that pass this phase, they move on to small animal model safety, and then large animal model safety, where our implants are heavily used, and potentially our new VivaMARS high-capacity neurosystem for safety and pharma, and safety and toxicology, will also be used. What the industry's been looking for is an in vitro method for assessing safety, as opposed to costly use of large model populations over long periods of time. With our decades of experience with in vitro electrophysiological testing, with 2D and 3D organ-on-a-chip, we introduced a new consumable for our MEA systems that you see in the box below in the center.
Our Mesh MEA organoid system allow organoids to grow around and through the mesh electrical sensor, allowing perfusion of the tissue, which enables long life, and for what we're seeing, is long life up to a year or more. This system is targeted at longitudinal studies of tissues such as brain and heart, to determine how a proxy for the organ under test reacts to compounds, and potentially an efficient method for early filtering out of compounds that so often don't make it through the full preclinical cycles. So this allows the pharma biotech company to play best ball, pick the, pick the compounds that are most likely to be successful, and put those through the very expensive, time-consuming process of completing the preclinical phases.
The first half of this year, we expect a number of research collaborators to validate and help us tune this system and these new applications for limited production shipments, and we expect more production shipments to be shipping in the second half of this year, and those starting to go to biopharma and CRO customers, and we expect that to start up, to start growing, even in the second half of this year. The system is an evolution of our well-established microelectrode array technology, so it's not doing something from a standing start. It's actually taking our systems that are already today used and read the consumables on the biochips and the MEA-type chips, and evolving that now to be able to do the same thing for organoids. But in this case, these organoids now can live up to a year.
So if you think about the kind of testing that you can do, the longitudinal testing, one of our key sites, University of Texas, is showing that brain organoids, and they're specifically testing with epileptic brain, that they're living up to a year. So they can use our systems to validate an epileptic brain.
What we find interesting also is that they have to do the same thing on a controlled brain, which is a healthy brain, and so that starts to point to, in my mind, essentially an in vivo, an in vitro test that could be used to start the whole safety pharmacology area of starting to filter which compounds might fail early, so that you don't spend the money taking them through the full cycle, but limit what you're gonna put through the whole cycle to drugs and compounds that you really believe have a high probability of success. So I'll move to summary. Now that we've optimized our portfolio and we've leaned our business, we're now focused on top-line growth, driven by product introductions and recurring revenue.
The growth leverages our existing large, loyal customer base, and we're focused on long-term, double-digit top-line growth with 60% margins and better, and over 20% Adjusted EBITDA margins. Thank you very much, and we have a few minutes left. If there's any questions from the audience, I'd be glad to take it now. Thank you. Up here?
Just wanna ask you-[crosstalk]
Let's wait till you have a mic. Okay.
Can you kinda give us a broad-based overview of the business, and what, how much is APAC, and kind of how that kinda core business is looking this year?
Yeah. Well, like many companies in our space, Asia-Pacific revenues, which for us was about 20%-25% of our overall business, had a reduction there of around 30%-35%. So that was, overall, that could be, you know, roughly nearly a 10% headwind coming in. Now, it started about middle of last year, so we see that part annualizing as we get into Q3. So, you know, the good news is the tide will no longer be working against us. It'll at least be a calm tide. But it does look like early indications that we see is we think that Asia-Pacific and China will be coming back.
We are starting to see more interest in with customers, you know, asking for, for quotes. We're seeing the quote level go up. We normally expect that then to turn into more quotes, more sales, so we see Asia-Pacific coming back. So yeah, I think, I think that's, w hen you look at the base business, you know, our, but our real growth is about the new product introductions. That's gonna be, that's what's gonna drive sustained growth. Second half of this year looks very solid because it's a combination of both Asia-Pacific resolving and going back to being a positive for us, but it's in addition to the new products coming out, like the new Mesh MEA for organoids, which we will be shipping here in the second half of the year.
Even with some already shipping it in the first half, though limited to academic sites to help us tune the system. But again, we see the real opportunity there is to target it toward the much higher volume utilization with biopharma companies. Thank you.
Thanks. Just a question on the AI stuff. Can't help myself. Curious how you think about that develops long term. Seems like you guys are doing the testing of the compounds, so how do those two things pair together, the testing of it digitally versus the testing of it over the compounds? Is it that you just validate what the AI suggests? r does the AI make more things through to tests? What's your thoughts? Thanks.
Well, we certainly are looking at AI. We've actually tended to focus more on machine learning for applications of our products. You can imagine, like with the organoid system, you know, the kind, the amount of data that comes out of an organoid, you being able to characterize that as to what it means, that's a good application for us to be using machine learning to help tailor that toward real answers.
When I think about AI, given that our Ponemah systems collect very large, we're talking terabytes of data, during entire preclinical phases, so we are a feeder into those base data sets that are really perfect for the use of trying out various AI algorithms to see if you can validate the algorithm with the kinda typical things that we're doing today. So our customers would be using that along, and accessing our data sets with them in order to do that. So for us, we certainly expect to be spending more time working with our large customers to make sure that the database schemas are set in a way that they can be operated on with AI-type algorithms.
So it's clearly a place for very large datasets, longitudinal datasets, you know, very high amounts of data, where there is an opportunity to get a much better correlation of which kinds of materials and compounds have a better success rate. It's a little bit like helping again to build which types of materials you should start with and maybe avoid early on, and it certainly looks like a nice opportunity for improving the overall drug development cycle. So that's probably gonna take some time.
'Cause that will take, I mean, I know, I've worked with the FDA for many years with, you know, Class II, Class III devices, and to get something through the site, to the point where you've actually validated using something, it really, you really do have to go through, you know, some significant verification, validation testing. That'll be required, I would expect, but it certainly could though, early on, at least get an early step towards it, and maybe there's a follow-on validation that happens separately. But it certainly could, there's a lot of opportunity for that to improve the overall cycle. Yes, in the back?
Who do you view as your biggest competitors, and is there any M&A potential in the market?
Great question. We typically compete with a very small number of very large, well-known customers. You know, somebody in the bioproduction side for transfection and electroporation, you would see somebody like MaxCyte or Lonza. We tend to see them more. It's more Lonza in the academic and in the discovery side. On the production side, they focused on the production side, the same thing as MaxCyte. So that's. So again, there, you're talking a small number of customers. They tend, though, to be really focused on the very high volume applications. We're targeting the lower volume niche applications for drugs that maybe don't need, you know, 10 million doses, but that maybe it's 40,000 doses, but they could be very, very expensive doses.
They've been very critical doses, and to be able to quickly get those through the cycle is a nice value proposition. For us, it's a razor, razor blade type application. When I look to our, what we talked about with the new generation of organoid testing systems, we don't really see anybody doing that today because we, we've been the market leader in academic research for microelectrode array analysis of organoid, our organoid and 2D organoids and cell-based systems for years.
Now, the equivalent to that in production, there's actually one or two companies that do that similar kind of testing in production, but none of that has gone anywhere near the use of organoids and organoids being able to survive long periods of time so that you could get, you know, you could start to see the latent type issues that show up, maybe in brain, that don't show up in day one or day two, but, you know, today you could, you'd have to wait and see how a large population of small animals reacts to the neuro how they're reacting to it. Where if we could test that early on, it'd be, t here's really nothing like that out there now. That's what's been missing.
Today, if you take, there's a lot of work in organoids, but if you look at how things are, how it's actually looked at, you have to take it out of the incubator. You know, a scientist looks at it under a microscope, does various tests to see how a compound is affecting that organoid. We don't do that. We actually are the intel inside. We measure during, in the inside, in real time, how the organoid is operating electrically, and that's how we can tell if an organoid or if a cell block is surviving, if it's- if something's happening to it. Like, you think about, you know, cardiac tissue. Is the QT interval changing? You know, is the depolarization as strong as it used to be?
If you're looking at brain, is the neural firing at the level of strength it should be at? And is the neural network disrupted? Because even in a small organoid on a brain, it becomes a small brain, and there is, and there's a natural development of a neural network, which can be measured electrically with a system like ours. So again, small number of competitors. Sometimes our competitors are our customers. For instance, the new high volume VivaMARS system, which tests 100 animals at the same time, typically, a big CRO or pharma company has to figure out how to build those.
They might have bought, in the past, 50 of our individual cages and tracking systems that would sell at, you know, maybe $5,000-$6,000, and they have to figure out how to put it together and turn it into a validated system. We were asked by some of these guys, "Could you just deliver us a configuration where we could just do a capital purchase, and we could test 100 at a time and be able to optimize our spend and improve our cycle time?" So that product, that's an area where what I find most interesting about it and compelling is not only does the buyer save money, he could make more money.
If his cycle time testing is cut in half, in theory, he should be able to double his capacity of those types of tests. So again, I, I don't, I tend, if, if there's an area where we compete with somebody, and it's commoditizing, that's actually not a good area for us to be in. We've, we focus in the niches where we have a compelling value proposition, and we can do it, we have access to sell it and service it, and it, it has to meet our niches. So we're down to one second, so I think we're about out of time. Thank you very much, everybody, for, for your interest in Harvard Bioscience.