Biolife Solutions Inc Q1 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to today's First Quarter 2020 BioLife Solutions, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode, after the speaker presentation there will be a question-and-answer session. I would now like to introduce your host for today's program Roderick de Greef, Chief Financial Officer. Please go ahead, sir.

Thank you, Jonathan. Good afternoon, everyone, and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the first quarter of 2020. Earlier this afternoon, we issued a press release which summarizes our financial results for the three months ended March 31. As a reminder, during this call, we may 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 forward-looking statements, I refer you to our periodic 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 given. The company assumes no obligation to update any projections or forward-looking statements except as required by law. During the 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 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, President and CEO of BioLife.

Thanks, Rod, and good afternoon, everyone. Thank you for joining our call. Despite significant COVID-19 related disruption to our operations in Q1, the team performed flawlessly, delivering record revenue and gaining 40 new customers in a very challenging environment. For the last month or so of the quarter, we had our team members either working from home, part of an essential reduced on-site workforce or not working through all the transition to get our customer support teams up and running remotely; we stayed in close contact with our customers and shipped more media products than in any other period in BioLife's history. Many of our biopreservation media customers responded to our proactive outreach and placed safety stock or replenishment orders so their cell and gene therapy research and development projects could continue unabated during the coronavirus pandemic. While it's clear that cell and gene therapy clinical trials have been significantly affected by the reallocation of hospital beds to COVID patients, our customers are planning for success and clearly demonstrated through their order volume that our media products are considered mission-critical to their cell and gene therapy manufacturing workflow. In retrospect, the business continuity plans we began to put in place two years ago, which included off-site media product inventory storage, proved well thought out. Turning now to Q1 revenue. We finished at $12.2 million, which was 111% growth over Q1 last year and 47% sequential growth over the fourth quarter of 2019. Biopreservation media sales were the key driver in Q1 with $8.7 million in revenue, representing 50% year-over-year growth and 67% sequential growth over Q4 last year. We gained 16 new biopreservation media customers that placed first-time orders in Q1. Some notable new accounts include Cellphire, Genibet, PACT Pharma, Sanofi, Trevira Vascugen, and Ventria. We also processed 13 additional U.S. FDA master file cross-reference requests for the use of CryoStor or HypoThermosol in human clinical trials of cell or gene therapies. We estimate that our media products have been used in over 400 customer clinical applications. I'm also pleased to tell you that we're supplying our proprietary biopreservation media products to several customers working on cell-based treatments or vaccines for COVID-19. Turning to an update on our ThawSTAR line of automated, water-free thawing products for frozen biologics, Q1 revenue was in line with our expectation at just under $400,000. In the first quarter, we shipped the first batch of our new ThawSTAR CB product. This new product is designed to safely automate the thawing of biologic material frozen in cryo bags. We also gained six new ThawSTAR customers including Alvotech, AC Therapies, Notch Therapeutics, and Honeycomb Biotechnologies. With our evo cold chain management platform, including smart shipping containers and the evo.is cloud app, we continue to gain traction in the cell and gene therapy space with our courier partners adding ten new customers in Q1. We are now supporting nearly 100 cell and gene therapy clinical trials with our evo platform through our relationships with two of the largest specialty carriers serving the regenerative medicine space. While Q1 revenue remained modest at $435,000 as customer use ramps up, we are seeing increased inbound interest in the evo platform and are continuing to support existing product validations by leading cell and gene therapy companies. This activity has been impacted by COVID-19 resulting in delays in completing the transition to evo, but we're confident that this will emerge as a strong competitor to the existing non-optimized shipping containers and information systems in use. On our last product revenue stream, the Custom Biogenic Systems or CBS line, we booked revenue of $2.7 million in the quarter. This was slightly below our plan, but as capital equipment, some customers could have delayed large purchases due to cash conservation plans during the COVID pandemic. Q1 CBS revenue included product shipments to several of the leading cell and gene therapy companies, many of whom also use our media, thaw, and cold chain management products. We gained eight new CBS freezer customers with two notable accounts being Lacerta Therapeutics and NexImmune. For perspective, our freezer customer base now totals more than 750 accounts and includes many of the leading cell and gene therapy developers and pharma companies, such as AbbVie, Astellas, Bellicum, Celgene, Fate, Fisher Scientific, Fujifilm, Glaxo, Hitachi, Juno, KITE, Lonza, Mayo, Norwest, Orchard, Precision, Bio, Sigma, and Sorrento. I'd now like to give an update on our intellectual property estate. In the first quarter of 2020, we were granted three new patents related to our cold chain management technologies. This brings our total of issued patents to 50 with 34 additional pending patent applications submitted and in the review process. Before I turn the call back over to Rod, I'll provide some comments on the new growth capital investment we announced today by existing shareholder Casdin Capital. We're fortunate to have a growth equity partner in Casdin Capital that enables us to strengthen our balance sheet to aggressively grow our portfolio of high-value bioproduction tools and services targeting the cell and gene therapy market. We believe that through a combination of internal innovation, acquisitions, co-investments, and licensing of external assets we have a strategy to significantly expand our business over the next few years. We're committed to playing a role in consolidating the bioproduction tool supplier space and anticipate continuing to jointly identify targets with Casdin that may lead to additional co-investments or outright acquisitions with their financial support. Now, I'll pass the call back over to Rod to present our financials for Q1.

Thanks Mike. Revenue for the first quarter totaled $12.2 million as you mentioned, representing a 111% increase over last year's first quarter revenue of $5.8 million. Media revenue for the first quarter of 2020 was $8.7 million or 71% of total revenue and represented an increase of 50% compared to last year, largely driven by the buying behavior Mike alluded to earlier. This quarter's revenue also included $394,000 of sales related to the automated thaw product line; $438,000 of evo cold chain related revenue; and $2.7 million in freezers and accessories, all of these revenue streams were acquired subsequent to the first quarter of 2019. Our adjusted gross margin for the first quarter of this year was 64.1% compared with 71.5% last year. The decrease in adjusted gross margin for the first quarter reflects the lower margin profile of the automated thaw, evo, and freezer product lines, which accounted for 29% of revenue compared with media-only revenue last year. Adjusted operating expenses excluding cost of revenue for Q1 totaled $6.4 million compared with $3.3 million in Q1 of 2019. The increase primarily reflects the fact that this quarter was the first full quarter of operating expenses related to the acquisitions we made last year and secondarily to increased headcount and stock-based compensation expense necessary to support our overall growth. Adjusted operating profit for the first quarter of 2020 was $1.4 million, compared with adjusted operating profit of $774,000 in the first quarter of 2019. Our adjusted net income for the first quarter of 2020 was $1.4 million, or $0.06 per share compared with adjusted net income of $942,000, or $0.04 per diluted share in the same period last year. GAAP net income for the first quarter included $21.9 million of other income related to the change in fair value of outstanding warrants, whereas GAAP net income in the first quarter of 2019 included other expense of $19.7 million, also related to the change in the fair value of outstanding warrants. Adjusted EBITDA for the first quarter was $2.9 million, which was an increase of 110% compared with $1.4 million in the same period last year. For both periods, adjusted EBITDA equaled 24% of revenue. Our cash balance at March 31 totaled $6.4 million. We believe that this amount when added to the $20 million in capital we're receiving from the placement of common shares to Casdin Capital will be sufficient to fund our operations as well as provide additional capital to take advantage of any strategic opportunities that may arise. Finally, in addition to the 1.9 million shares issued to Casdin in the private placement, we entered into an agreement with our two large Swiss warrant holders to immediately exercise all of their warrants on a cashless basis, resulting in the issuance of 2.7 million shares and the elimination of 3.9 million warrants. This puts our total issued and outstanding share count at 25.8 million and 29.1 million on a fully diluted basis. Now, I'd like to turn the call back over to Mike.

Thanks again, Rod. In summary, we demonstrated solid execution in Q1 and drove the business to record revenue and an impressive adjusted EBITDA margin, demonstrating the operating leverage we envisioned as the enterprise scales. We built a highly valued business as a supplier of critical, class-defining bioproduction tools for cell and gene therapy manufacturing. COVID-19 continues to create uncertainty on how the rest of 2020 will play out, but we're focused on the things we can control in serving our customers. I will turn the call back over to the operator to take your questions.

Our first question comes from Paul Knight from Janney Montgomery. Please go ahead with your question.

Hey, Mike, what was the portion of the revenue from stocking orders?

Hi. Paul, we don't have complete visibility. Some POs came in and said COVID-19 related, but not all. It's probably $1 million to $1.5 million, maybe it's $2 million. We're not exactly sure, but that's probably a decent guess.

Is that $1 million to $1.5 million like that or?

Something like that or $1.5 million to $2 million in that range.

Okay. And then regarding CBS, can you talk about how things are going in the April period?

Somewhat, Paul. I guess, I could say that, as capital equipment that's big-ticket items. And so we are seeing some delays in closing period from quotes and all that. On the media side, the quarter-to-date has started out relatively strong, and so fingers crossed on that and how the quarter is going to end up, but there definitely is a different buying behavior on the capital equipment side versus the reagents.

How much is CBS as service?

Very little.

Okay. Is it cap equipment?

Yes. The larger items, such as freezers and related accessories, are not capitalized, but there is a significant accessory business. However, the majority of the revenue is generated from the larger items.

Okay. Thank you.

Thank you. Our next question comes from the line of Suraj Kalia from Oppenheimer. Your question, please.

Good afternoon, everyone. Can you hear me all right?

Yes. Hi, Suraj.

Hey, Mike, hey, Rod. Hope everyone is safe and healthy.

Likewise.

So, Mike, now that you have celebrated the anniversary of the last three acquisitions, can you provide insight into the optimization efforts made on the sales force side? What still needs to be completed as we move through FY 2020? Any details would be appreciated.

Sure, Suraj. Really good question. So, we've analyzed across the line now the various external distributors, the indirect partners who have been repping the various lines, particularly at CBS. And the strategy that we have is to optimize and deploy the best resources based on market segments. And so, the CBS crew was selling into cell and gene therapy into biopharma and some other ancillary markets. We're obviously looking to maximize our own media relationships, which are the strongest and leverage those for direct selling. So, it's a process that will unfold over the next several quarters. On the marketing side, we have several initiatives underway to expose the entire new customer base to all the products in the portfolio. Obviously, travel is difficult now to get on site in many places, but nevertheless, the inbound interest and the referral leads we're getting from people have been really quite remarkable, so more work to do in that regard, but we've got a good plan, and we look forward to really leveraging those relationships and maximizing that cross-selling opportunity that's there.

Got it. And keeping on that theme Mike, you know obviously there has been an infusion of new investment. I guess one question is, are there any inorganic opportunities that you all have already identified, which is driving this decision? And second, sub part of that question for Rod specifically is, what is the current ownership stake of Casdin, if you don't mind my asking?

Sure, Suraj. Good question. I'll take the first part and then I'll let Rod answer the second part. My part is yes, there are some near to mid-term opportunities, really shouldn't get into the size of opportunities or technologies, but there is definitely some activity underway, and to the other question about well is that all there is, we’re opportunistic. We see what fits, and clearly this infusion of capital is helpful. It may not be helpful enough for larger opportunities. If so, then we'll be opportunistic to make sure that we can fund those should those arise. Rod?

They're going to be right at around 18.4% of the issued and outstanding shares, Suraj.

Got it. Mike, you mentioned that approximately $1.5 million to $2 million was the pull-through into Q1 demand related to COVID for media. How did the other three areas—ThawSTAR, evo, and CBS—perform? Were there any unusual ordering patterns or was demand perhaps lower in CBS? My main question is whether there were any factors that offset this, or was the media impact more significant?

It’s a bit challenging to determine, as CBS revenue comes from distributors. However, in media where we have direct and closer relationships, we have more clarity, although it's not perfect. There were no significant developments in the thaw side, evo line, or freezer side. In media, we definitely saw customers engaging with our outreach to ensure they had sufficient media for their clinical programs to continue.

Got it. And finally, I'll hop back in queue forgive me, I'll squeeze one in. Any update on the big fish you guys were swimming for on the evo side of the equation? I guess, you guys have made some brief comments last quarter, I believe it was that you're 80% there. Any updates there? Thank you.

Sure. Thanks for asking. Yes, pertinent. Yes, still on track. COVID has caused some delays and some of the validation work, but still on track and checking in regularly with this account to make sure that we understand what they're going through and providing all the support we can.

Thank you. Our next question comes from the line of Jacob Johnson from Stephens. Your question, please.

Hey, thanks. Hope you guys are doing well.

Hi, Jacob.

Hi, Jacob.

Hey, Mike. Hey, Rob. I guess my first question is about the strong start to the year. Is there any way to estimate if there are any impacts from delayed clinical trials going into the second quarter? And does this differ by product line?

Yes. Jacob, you were breaking up a little bit on our side, but I think we got it. Really hard to try to assess impact on clinical trials. I think based on some of the safety stock replenishment ordering, we could infer from that the customers fully expect that as beds get freed up they'll be back in business and enrolling at the pace that they were before this whole thing started. So if anything just a validation that our stuff is really, really important. It's critical and they had to have it to make sure that they could continue on. As far as, how the rest of the year we'll shake out with that. Anybody's crystal ball is as good as anybody else's at this point, right?

Got it. And then just one other question for me. Really strong gross margins in this quarter. Could we just tuck that up to a good media sales quarter? Anything else to call out on the gross margin line?

No. I think that's exactly it, Jacob is that the percentage of revenue that we got from the higher level of media revenue with the higher margin definitely played a positive role on that.

Got it. Thanks a lot. Thanks Mike.

You bet. Thank you.

Thank you. Our next question comes from the line of Raghuram Selvaraju from H.C. Wainwright. Your question, please.

Hi. This is Blair Cohn on behalf of Ram. I have a couple of questions. Could you provide an update on the percentage of your customers that have been directly affected by COVID-19 restrictions in their clinical development programs?

Sure. 100%. Any customer that was running a clinical trial on the cell and gene therapy has clearly been impacted to some degree. None have not been impacted to any degree. They've all been impacted to some degree. I'm not sure, I can get any more granular than that, Blair.

Okay. And just qualitatively are you seeing any impact of COVID-19 related restrictions on FDA review timelines, particularly those pertinent to manufacturing processes for cell and gene therapy products?

Well, there's no doubt the FDA is marshaling resources to evaluate cell and gene therapy based treatments or vaccines for COVID. But for the other stuff, the normal cell and gene therapy stuff targeting the other clinical disease states, we haven't seen any. Whether that's going on or not, it could be, but we haven't seen any.

Okay. And then just last one for me. Is your business being impacted at all by the significant reduction in airline flights and the effect it may having on shipping and logistics?

That's a great question. I would say no. Our courier partners have been very creative and found alternative ways to manage temperature and time requirements when transporting biological materials. This includes using commercial flight cargo in addition to dedicated cargo flights. In fact, some courier partners are reporting a significant increase in their business because the shipping destination for certain medicines has shifted from hospitals to patients' homes. This is not limited to cell-based therapies, but applies to other types of medicine that require cold chain management or are sensitive to time and temperature. So, they have certainly figured it out.

Perfect. And if I can just get one more in. How defensible do you think the evo.is cloud application from an intellectual property standpoint is?

I love that question, not just because I'm an inventor on some of the patents, but definitely we've got a bunch of novel processes and functional areas in the evo.is and that really differentiate from the other alternatives that are out there. So we'll continue to write and submit patents on as much of as we can. As you may know, software patents are really hard to get. We have been successful, I think, with three or four so far. And so we're going to keep at that.

Perfect. Thanks, guys.

You’re welcome.

Thank you. Our next question comes from the line of Thomas Flaten from Lake Street Capital. Your question, please.

Good afternoon, guys. Thanks for taking the questions.

Hey, Tom.

Just two for me. With respect to the capital infusion, I know there's a question about inorganic opportunities. Are there organic opportunities, you think you might deploy some of the capital at? Are there growth opportunities inside the business that could be assisted by that?

There are although, I would say that the use of cash will be modest. Rod, you can go ahead.

Yes. I think it's really about continuing to build out the sales and marketing effort throughout the organization and get that integrated. That's really where the internal opportunity would be Thomas.

We're deploying that cash for us.

Yes, I understand. In terms of expanding the portfolio for all customers, can you discuss either qualitatively or quantitatively how effectively you’ve been able to cross-sell products among your customers?

Yes. At least at this point, it will have to be in a qualitative perspective. We're doing okay at that. We can certainly do better. And we have a significant project underway with salesforce.com to make sure that we've got good visibility and the right tracking analytics and all that so we can really measure how our activities and campaigns are going. But, it's certainly my intention that we'll be able to give some quantitative granularity on that in coming quarters.

Okay. I appreciate the opportunity. Thanks. Thanks, guys.

You’re welcome.

Thank you. Our next question comes from the line of Marc Wiesenberger from B. Riley FBR. Your question, please.

Yes. Thank you. Good afternoon. I'm wondering if you could provide some insight into the discussions you're having with your distributors, and maybe how the discussions relative to their geography and the activity they're seeing across the globe.

Hi, Marc. Well, we're certainly talking to them. I'm really not sure how I could limit my comments without getting into a little too much of inside baseball. But no doubt the distributors are after it and we've signed some new distributors. We're evaluating all the distributors for productivity, but this is a product line that's highly valued. To the extent they're concerned about competing against us, I guess all I can say is that it's a really target-rich environment. There are a lot of prospects. We don't have a lot of channel conflict. And our distributors at least the top four, who have worldwide footprints in terms of where there's sellers and support areas are they're doing fantastic. It's really phenomenal.

Understood. Thank you for that. You talked about maybe potential CapEx spending slowdown related to the freezers. Can you also add some color on potential, the delay in CapEx maybe because of the new freezers that might be coming out later in the year and anticipating that? And what's the kind of mix there?

Yes, that's a good question. It's primarily related to COVID rather than customers simply waiting for the next upgraded model. We have many ongoing conversations and large projects with expensive products. This means there's significant work required on our end and from the customers as well, including site assessments and acceptance testing. These processes are lengthy, and currently, we don't feel that many of these opportunities are being postponed or that customers are delaying because they are waiting for an upcoming model.

Understood. And last one for me. In light of the global supply chain disruptions and your contract manufacturers in China making the dewars and potentially moving that to Detroit, has that thought process been accelerated? And what's the progress on that front? Thank you very much.

Yes. Thanks for asking. Rod, you can go ahead on that one.

Yes. So it is definitely the plan for 2019. It's going to happen toward the end of the year. We've not had any supply issues with dewars coming out of China today at least. And we have what we believe is adequate inventory in Albuquerque for the next couple of quarters. We do have some units that are on order to come in throughout the summer, but we have no indication that there's anything that would prevent those from coming in.

Great. Thank you.

Thank you. Our next question comes from the line of Christopher Hillary from Roubaix Capital. Your question, please.

Hi, good afternoon.

Hi, Chris. How are you doing?

I’m good. How are you guys doing? Everyone staying healthy?

Yes. Thanks for asking. Hopefully in your side as well.

Yes, indeed. I wanted to ask just part of the broader discussion about having more of the health care supply chain domestic. Are there certain areas that you think would be of particular interest to the company to either expand or invest in?

Definitely. Yes, and I'll try to be just broad as opposed to being too specific so we don't tip our hand to other folks who might be shopping for the similar assets or something. But really broadly speaking Chris, our interest is looking at the cell and gene therapy manufacturing workflow, which starts with the acquisition of some starting material from a patient, which gets moved to some factory where someone makes a dose out of it. Then that manufactured dose gets moved back to a clinic where it's administered to a patient and whether we're talking about autologous therapies or allogeneic for that matter. So really anything that's used in that continuum that I just described is of interest. Now several of those segments are supplied by really large companies that have really good solutions, so we're obviously not going to be poking around there. But there's enough opportunity here we believe around the edges and coming in towards the center there where there are some disruptive innovative technologies that we believe over time could really start to command some decent market share. So that's what we're focusing on. Now that could be in the form of reagents, containers, devices, analytics, instruments, product contact layers, you name it, so anything in that continuum. There's a lot of stuff that's used in the manufacture of a cell and gene therapy and a lot of areas that really have not been optimized for a while. And innovation can certainly play a key to reduce cost and also improve quality for our customers.

Okay, great. Good luck with the rest of the year.

Thanks very much.

Thank you.

Thank you. Our next question is a follow-up from the line of Paul Knight from Janney Montgomery. Your question, please.

Rod, is your K file submitted now?

No, we are on track to file tomorrow at 5 o’clock Eastern, which is a firm deadline for us. We have all hands on deck working with our new auditor BDO to make that happen. So, fingers crossed.

Okay. And the adjustments effectively will all hit on the other line item or below operating income. Is that correct?

Yes, for the most part that is correct. There's some small adjustments that will flow through, but they're not material in any way.

Okay. Thanks.

You bet.

Thank you. Thank you. I'm not showing any further questions in the queue at this time. I'd like to hand the program back to Mike Rice, CEO for any further remarks.

Thanks again Jonathan. Thanks again everyone for your interest in BioLife. Please stay safe and we look forward to speaking with you during our follow-up calls and when we report our Q2 results. Good night.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.