BioLife Solutions, Inc. (NASDAQ:BLFS) Q1 2023 Earnings Call Transcript May 10, 2023

BioLife Solutions, Inc. misses on earnings expectations. Reported EPS is $-0.32 EPS, expectations were $-0.21.

Operator: Hello. My name is Mallory, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2023 BioLife Solutions, Inc. Earnings Conference Call. [Operator Instructions]. Thank you. I would now like to turn the conference over to Troy Wichterman, Chief Financial Officer. Please go ahead.

Troy Wichterman: Thank you, Mallory. Good afternoon, everyone, and thank you for joining us. With me on today’s call is Mike Rice, Chairman and Chief Executive Officer. Earlier today, we issued a press release announcing our financial results and operational highlights for the first quarter of 2023, which is available at biolifesolutions.com. As a reminder, during this call, we will make certain projections and other forward-looking statements regarding future events or the future financial performance of the company. These statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company’s business and that qualify as forward-looking statements, I refer you to our periodic reports and other public filings filed with the SEC.

Company projections and forward-looking statements are based on factors that are subject to change, and therefore, these statements speak only as of the date they are made. The company assumes no obligation to update any projections or forward-looking statements, except as required by law. During this call, we will speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. These non-GAAP or adjusted financial metrics should not be viewed as an alternative to GAAP. However, in light of our historic M&A activity, we believe that the use of non-GAAP or adjusted metrics provides investors with a clearer view of our current financial results when compared to prior periods.

Now I’d like to turn the call over to Mike Rice, Chairman and CEO of BioLife Solutions.

Michael Rice: Thank you, Troy. I’d like to begin our call by discussing our announcement today that we are actively exploring strategic alternatives for our Stirling ULT and Custom Biogenic Systems Cryogenic Freezer businesses, which could include out-licensing our proprietary IP, changing our go-to-market approach, and outright divesting these assets. As you know, we had high expectations for the benefits of scale the acquisitions could bring to BioLife and for the potential to cross-sell our core high-margin biopreservation media solutions with CBS and Stirling Differentiated Freezers. We built BioLife organically and inorganically with acquisitions like Stirling and CBS and while we certainly realized many benefits of scale, after much analysis and consultation with external advisers, we’ve now come to a decision to explore our options for these businesses.

The capital intensity and a lower margin volatile sales cycle business has not been beneficial to our core growth rate and corporate profitability and has not placed us in the peer group where we belong. With the global supply chain negative impact still ongoing and the volatile market dynamics in play, the expected merits of these 2 acquisitions have failed to materialize to the extent we expected. I take my job responsibility to create shareholder value very seriously and with support of the Board and our leadership teams to let the decision to explore a course change. To support these explorations, we’ve engaged a strategic advisory firm to manage outreach to and inbound inquiries from parties interested in licensing our IP and/or acquiring these businesses.

To be clear, our strategic decision is to explore options, one of which is to potentially put our innovative CBS and Stirling businesses in the hands of other parties that can better leverage their operations, supply chain and cost structure to maximize their business model. If divesting is ultimately the best option, and we complete both, we will have returned BioLife to a higher multiple peer group with a portfolio of leading high-margin, high-growth recurring revenue products and services that are class-defining. We believe any potential divestitures will preserve and enhance the synergies among our biopreservation media products, Sexton Cell Processing tools, evo Cold Chain management service and SciSafe biologic storage services. This potential portfolio optimization will help us to return to an enhanced gross and EBITDA margin company with industry-leading growth.

It will also importantly and significantly reduce working capital cash burn, providing more flexibility to invest in and build upon our potent complementary offering where everything fits. It’s clear when we look at these assets on a go-forward basis, that our exploration of strategic alternatives is the right decision at the right time for the right reasons for the company and for shareholders. We recognize that it’s frustrating when strategy and tactics fail to produce anticipated results. But as business people, we work for you, the shareholders, and we must be thoughtful and decisive. In our view, looking at the key financial metrics, we’ve built an incredibly powerful company. Going forward, acquiring additional high-margin recurring revenue businesses still make strategic and economic sense and our learnings from these 2 deals will be applied in the future so that we focus only on high-margin, high-growth businesses that can deliver additive recurring revenue.

To conclude, I’d like to acknowledge the sustained improvement efforts of our leadership team, middle management, and line workers at CBS and Stirling who have put these assets in the best shape ever from the perspectives of quality, operations, supply chain, financial accounting, CRM, HR systems and sales and marketing. The R&D activities have been focused and well managed through a rigorous stage-gate review and approval process. Without this work, we would not be in a strong position to explore strategic alternatives. We appreciate and recognize that operating through a potential divestiture process can lead to uncertainty for our team members and customers, and I’m proud and grateful for their dedication and support. Our team can count on us to retain talent and reward loyalty and results.

Our customers can count on us to continue to produce and deliver high-quality products. Now I’ll switch back to discussing our Q1 performance. The team continued to gain new CGT and biopharma customers, driving continued adoption of our Cell Processing and Storage and Storage Services platforms, while our Freezer platform experienced similar disruptions that others have reported in recent quarters. Turning to Q1 revenue and customer highlights. Total revenue was $37.7 million, representing a 4% increase over Q1 2022. Excluding COVID-related revenue from Q1 last year, total revenue growth was 16% driven by a 28% increase in biopreservation media revenue. In Q1, we sold and shipped products or provided services to 197 new unique customer sites across our 3 products and services platforms.

A large portion of our total revenue continues to come from existing customers as we penetrate deeper and pitch our integrated solutions to take more share of their spend for manufacturing, storage and distribution products and services. In each of the last 5 quarters, we gained over 150 new customer sites, building a phenomenal pipeline of early-stage users that we will carefully nurture and support to drive future growth. New Q1 customer sites by product and service line included 9 more now using biopreservation media, 5 new ThawSTAR users, 17 new evo Cold Chain end users, 15 new Cryogenic Freezer and accessory customer sites, 121 new Stirling ULT Freezer and accessory customer sites, 22 new Biostorage customers, and 8 new Cell Processing customers now using Sexton products.

For our Cell Processing platform in Q1, we received confirmation that our solutions will be used in at least 20 additional clinical trials for new cell and gene therapies. We estimate that our biopreservation media products have been used in or are planned to be used in over 630 customer clinical applications, and our Sexton Cell Processing tools are in about 140. For both biopreservation media and Sexton products, we also remain confident that each customer clinical application, if approved, could generate annual revenue in a range of $500,000 to $2 million. To date, our Cell Processing solutions are used in 14 approved therapies, including the recently approved Omisirge by Gamida Cell. We expect to be able to continue to take share from home-brew preservation cocktails as awareness grows of the critical role our engineered media formulations play in reducing risk for CGT companies.

I’ll reiterate the 5 strong catalysts we expect to support our growth estimates since each will increase the number of manufactured doses and hence, the demand for our biopreservation media, Sexton Cell Processing solutions, evo Cold Chain rentals and SciSafe storage services. Number one, new de novo CGT approvals; two, approvals of existing commercial therapies in new geographies; three, approvals of existing commercial therapies and new indications; four, approvals of existing commercial therapies as first- or second-line treatment; and five, the eventual shift to allogeneic therapies. Turning to our Storage and Storage Services platform, which includes evo Cold Chain rentals and SciSafe Storage Services, we gained 39 new customer sites in Q1, 22 for biologic storage services and 17 for evo.

On the SciSafe side of the platform, we also continue to penetrate further in existing customers and have a very strong pipeline of high-value, long-term contract opportunities, and we expect another banner year for SciSafe. On the evo Cold Chain management side of the platform, we continue to drive the business as evidenced by 135% increase in quarterly shipments, specifically of approved cell therapy products. As we’ve reported before, evaluations and validation shipments by leading CGT companies are ongoing, and we expect continued adoption. One global pharma company has confirmed that upon a completed successful validation, they intend to switch up to 100% of both of their approved cell therapy shipments from the leading provider over to our evo platform early next year.

This is excellent market validation as internally, we modestly modeled a 50-50 split of shipments between evo and the incumbent. And finally, our Freezers and Thaw Systems platform. We shipped first-time orders to 141 new customer sites, including 121 now using Stirling products. Customers continue to recognize the value proposition of our Freezer offerings based on tight temperature regulation, reduced power consumption, reduced heat generation and less noise pollution as these support their goal of reducing the negative environmental impact of their operations. Q1 revenue was lumpy and off pace due to the now well-understood tightening biotech capital equipment funding and delayed purchase decisions due to economic uncertainty. On a positive note, we have a strong opportunity pipeline of potential Stirling Freezer orders, forecasted to close this year.

Now I’ll turn the call back over to Troy to present our financials for Q1. Troy?

Troy Wichterman: Thank you, Mike. Total revenue for the first quarter of 2023 was $37.7 million, representing a 4% increase over Q1 of 2022 and excluding COVID-related revenue from Q1 2022, growth was 16%, which was driven by a 28% increase in biopreservation media revenue. There was no COVID-related revenue in Q1 2023 compared to 10% of total revenue in Q1 2022. Cell Processing platform revenue was $19 million, up 27% over the same period in 2022. Storage and Storage Services platform revenue was $5.7 million, down 5% over the same period in 2022. Excluding COVID-related revenue from Q1 2022, revenue in Q1 2023 increased 98%. Freezers and Thaw Systems platform revenue was $13 million, down 15% over the same period in 2022. Excluding COVID-related revenue from Q1 2022, revenue in Q1 2023 decreased 12%.

Adjusted gross margin for the first quarter of 2023 was 37% compared with 33% for the first quarter of 2022 and 32% for the fourth quarter of 2022. The positive impact sequentially when compared to prior year was primarily due to product mix and lower inventory write-off charges, partially offset by lower gross margins at SciSafe due to the decrease in COVID-related revenue without an associated decrease of infrastructure costs. GAAP operating expenses for Q1 2023 were $51.3 million versus $44.2 million in Q1 2022. Adjusted operating expenses for Q1 2023 totaled $25.5 million compared with $20.1 million in Q1 2022. The increase in operating expenses was primarily driven by increased headcount, consulting fees and infrastructure costs to support our long-term growth objectives.

Our adjusted operating loss for the first quarter of 2023 was $11.4 million compared with $8.3 million in Q1 2022. Adjusted EBITDA for the first quarter of 2023 was negative $1.9 million compared with negative $1.1 million for the first quarter of 2022. In Q1 2023, we had nonrecurring expenses of approximately $3 million, consisting of strategic consulting fees, a planned severance payment for our former COO, indirect taxes and a discrete bad debt write-off. Excluding these nonrecurring expenses, adjusted EBITDA would have been positive $1.1 million. We expect adjusted EBITDA improvement throughout the year, resulting in full year 2023 positive adjusted EBITDA. Our cash and marketable securities balance at March 31, 2023, was $56.9 million compared with $64.1 million at December 31, 2022.

Taking into consideration our adjusted EBITDA of negative $1.9 million, cash used in Q1 2023 was primarily related to unfavorable working capital adjustments of $840,000, largely due to the timing of raw material deliveries related to biopreservation media, capital expenditures of $3.3 million and purchases of assets [indiscernible] $1 million. Turning to 2023 revenue guidance. Management is reaffirming full year guidance is expected to be in the range of $188 million to $202 million, reflecting year-over-year and organic growth of 16% to 25%. Excluding COVID-related revenue, year-over-year growth of 26% to 35%. Revenue guidance for 2023 does not include any COVID-related revenue. Total revenue expectations for 2023 include the following platform contributions, Cell Processing platform, $89 million to $93 million, an increase of 30% to 35% over 2022; Storage and Storage Services platform, $26.5 million to $30 million, an increase of 0% to 13% over 2022, excluding COVID-related revenue, year-over-year growth of 64% to 86%; Freezers and Thaw Systems platform, $72.5 million to $79 million, an increase of 9% to 18% over 2022, excluding COVID-related revenue, year-over-year growth of 13% to 23%.

Finally, in terms of our share count, as of May 10, we had 43.5 million shares issued and outstanding and 46.3 million shares on a fully diluted basis. Now I’ll turn the call to Mike.

Michael Rice: Thanks, Troy. I’d like to summarize 4 key takeaways from Q1 and today’s call. First, BioLife Solutions is a critical, highly trusted tools and services provider to the cell and gene therapy industry. We’ve built a valuable portfolio of solutions that’s helped CGT developers increase their likelihood of success by reducing risk in their manufacturing, storage and distribution workflows. Number two, demand for our portfolio of class-defining bioproduction tools and services remain strong. And it’s important to remember that we’re still in the early phase of CGT approvals and the growth of this exciting industry. We are very well entrenched and intent on securing and maintaining a position as a premier enabling CGT tools and services provider.

Number three, our decision to explore strategic alternatives for our 2 Freezer businesses was made carefully after much analysis and consultation with our Board and external advisers. We’re keenly focused on options to reposition our portfolio only on the high-margin, high-growth recurring revenue streams that define us. And number four, order volume to date so far in Q2 is strong across our portfolio. For the rest of 2023, we will focus on running the business efficiently, and managing the exploration of strategic alternatives for our Freezer businesses. Now I’ll turn the call back over to the operator to take your questions. Mallory?

Q&A Session

Operator: [Operator Instructions]. Your first question comes from Jacob Johnson with Stephens.

Operator: The next question comes from Thomas Flaten with Lake Street Capital Markets.

Operator: The next question comes from Chad Wiatrowski with TD Cowen.

Operator: Your next question comes from Paul Knight with KeyBanc.

Operator: Your next question comes from Yuan Zhi with B. Riley.

Operator: Your next question comes from Carl Byrnes with Northland Capital Markets.

Operator: We have no further questions at this time. I would now like to turn the call back over to Mike Rice, Chief Executive Officer, for closing remarks.

Michael Rice: Thanks, Mallory. I want to thank everyone for your interest in BioLife and your support, and we do look forward to sharing our Q2 numbers and our results with you. Good evening.

Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.