Biolife Solutions Inc Q2 FY2020 Earnings Call

Welcome to the BioLife Solutions Second Quarter 2020 Conference Call. My name is Rebecca, and I will be your operator for today's call. Operator Instructions. I will now turn the call over to Roderick de Greef, Chief Financial Officer. You may begin, sir.

Thank you, Rebecca. Good afternoon everyone, and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the second quarter of 2020. Earlier, this afternoon, we issued a press release which summarizes our financial results for the three and six months ended June 30. As a reminder, during this call, we may make certain projections and other forward-looking statements regarding future events or 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 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. Q2 was another quarter of solid execution and growth, despite the challenges all of us are facing due to COVID-19. We grew top line revenue by nearly 50%, generated positive adjusted EBITDA, gained 48 new customers and just after the end of the quarter completed an oversubscribed $86 million follow-on offering to strengthen our balance sheet for further M&A activity. We're in a good place serving the cell and gene therapy industry; it is rewarding, and we're building a great business. We're armed with the leading brand with our media products and are leveraging our media customers to expose our expanded portfolio to the regenerative medicine space. We're now well capitalized to continue to build for a bigger and more profitable future; the regenerative medicine space is white hot right now with $10 billion raised by companies in the first half of 2020. Now, I'll provide some Q2 highlights for each product line. For biopreservation media in Q2, revenue was up 5% year-over-year and up 27% year-over-year for the first two quarters of 2020. We called that in Q1 this year in response to our customer outreach program; we booked about $1.5 to $2 million in COVID-related safety stock orders. Media orders so far in Q3 are strong. We gained 14 new media customers in Q2 including Caribou Biosciences, ImmunoActiva, Opta, Minerva Biotechnologies, and Leopargen. Also, in the quarter, we processed 14 new US FDA master file requests to support the use of our biopreservation media products in new cell and gene therapy clinical trials. We now estimate that our media products are used in or are planned to be used in about 450 customer clinical applications. Relevant to the current pandemic, we have at least seven customers using our media in at least nine planned or current clinical trials of COVID-19 therapies or vaccines. These include Avita Biomedical, Capricor, Cartesian Therapeutics, SolinnCo's, Milner Therapeutics, Neupogen, Wetstem, and Vitro Biopharma regarding the use of our media products and approved cell therapies. I'm glad to confirm that Gilead Kite uses CryoStor in their recently approved drug for relapsed refractory mantle cell lymphoma. This is in addition to Kite's longstanding use of CryoStor in Yescarta. Also, Bristol-Myers Squibb and bluebird bio filed for approval of any cap gene Vicwest Cell, also known as ED cell or BB2121, as a treatment for multiple myeloma. If approved, this would be the first CAR T-cell therapy to treat the second most common form of blood cancer, which is used in the manufacture of BB2121. I'll remind you that CryoStor is also used in Leso cell therapy for relapsed refractory large B-cell lymphoma from Juno Celgene BMS, which provides PDUFA date for Leso cell of November 16. CryoStor is also used by Bluebird. We have so many shots on goal here with our base of cell and gene therapy customers. Many of you remember that former FDA chief Scott Gottlieb predicted in January 2019 that by 2025, the agency will approve between 10 and 20 cell and gene therapy products annually. This all points to tremendous upside for BioLife. Our automated thaw revenue and evo cold chain revenue were on plan in Q2; we gained five new ThawSTAR customers and six new evo customers. Working with our carrier partners, we've jointly driven adoption of the evo platform to now be supporting over 100 clinical trials. It's important to note that these are all early phase trials, so the shipment volume is low, and hence the revenue is relatively small, but we're confident that the evo platform will emerge as a leading cold chain management preference in the cell and gene therapy space. Notably, we continue to support an approved cell therapy company in their evaluation. So far, the validation work is on track, and we believe if we win this customer similar to how our media products were broadly adopted after the initial approvals, this cold chain customer win could greatly accelerate adoption of the evo platform in the cell and gene therapy space. Turning to our CBS freezer franchise, COVID-19 has impacted us in two ways: travel and onsite visitor restrictions at customer and prospect sites, and also a delay in approvals for large capital equipment purchases. Despite this environment, we gained 23 new customers who purchased freezers or related accessories in the second quarter. Product development on two new freezer platforms is continuing, and we anticipate launches late in Q4 or in Q1. We're also making good progress to vertically integrate and use our foundry at CBS to manufacture the evo drive per shippers for our cold chain management platform. We expect to offer CBS mediums in the first quarter of next year. I'll conclude my remarks with a recap of our funding activity this year, with a follow-on $20 million investment from cash and capital in May, and the $86 million oversubscribed public offering we completed just after the end of Q2. BioLife is in great shape to continue to consolidate the cell and gene therapy bioproduction tools space. We're actively engaged in additional M&A and investment discussions and look forward to sharing the details when we can. Now, I'll pass the call back over to Rod to present our financials for Q2. Rod?

Thanks, Mike. Revenue for the first quarter totaled $9.9 million representing a 48% increase over last year's second quarter revenue of $6.7 million. Media revenue for the second quarter of 2020 was $6.7 million or 67% of total revenue, representing an increase of 5% compared to last year. Year-over-year growth in media revenue was impacted by the significant pull forward in demand we realized in the first quarter related to our customers building safety stock. This quarter's revenue also included $376,000 of sales related to the automated thaw product line, $439,000 of evo cold chain-related revenue, and $2.4 million in freezers and accessories. We believe revenue from our thaw and freezer product lines was negatively impacted by COVID-19 related delivery delays and capital equipment order postponements, something that we expect will continue through the balance of the year. Revenue for the six months ended June 30, 2020 totaled $22.1 million, an increase of 77% over the same period in 2019. Media revenue for the first six months of 2020 increased 27% to $15.3 million compared to the same period last year. Our adjusted gross margin for the second quarter of this year was 57% compared with 72% last year. For the six months ended June 30, adjusted gross margin was 62% compared to 72% in the same period last year. The decrease in adjusted gross margin for both periods reflects the lower margin profile of automatic thaw, evo, and freezer product lines, which accounted for 33% and 31% of total revenue respectively. In addition, in anticipation of growth in the product lines we acquired last year, we have also increased our fixed manufacturing overhead at our evo and freezer operations. Adjusted operating expenses for Q2 totaled $6.1 million compared with $3.8 million in Q2 of 2019. For the six months ended June 30, 2020 adjusted operating expenses totaled $12.5 million compared with $7.2 million in the same period last year. The increase in both periods is primarily driven by additional expenses related to the acquisitions made in 2019, as well as an increased headcount and stock-based compensation expense necessary to support our overall growth. Adjusted operating loss for the second quarter of 2020 was $510,000 compared with an adjusted operating income of $993,000 in the second quarter last year. Adjusted operating income for the six months ended June 30, 2020 totaled $906,000 compared to $1.28 million in the same period last year. Our adjusted net loss for the second quarter of 2020 was $492,000 or $0.01 per diluted share compared with adjusted net income of $1.1 million or $0.04 per diluted share in the same period last year. For the six months ended June 30, adjusted net income was $952,000 or $0.02 per share compared with $2.1 million or $0.11 per share in the same period last year. Adjusted EBITDA for the second quarter totaled $1.2 million compared with $1.9 million in the same period last year. For the six months ended June 30, adjusted EBITDA totaled $4.1 million compared with $3.3 million for the same period last year. Our cash balance at June 30 was $30 million, taking into account the public offering we closed in July, which provided approximately $80 million in net proceeds. We now have in excess of $100 million of cash on the balance sheet. In terms of our share count, taking into consideration the shares issued in the July offering, we currently have 32 million shares issued and outstanding and 35 million shares on a fully diluted basis. Finally, despite the challenging operating environment, we believe that our first half financial results, which include 77% year-over-year revenue growth, media revenue growth of 27%, and adjusted EBITDA of $4.1 million, continue to support the rationale underlying our overall growth strategy. The recent capital raise is providing us with the financial flexibility to continue to pursue strategic opportunities as they arise. Now, I would like to turn the call back over to Mike.

Thanks again, Rod. In summary, we continued to execute and create value for our customers and shareholders in this challenging COVID era. The business is on a solid foundation and our presence as a leading cell and gene therapy bioproduction tools supplier continues to expand. We look forward to further execution and consolidating the tool space to drive growth. Now, I will turn the call back over to the operator to take your questions, Rebecca?

Our first question is from Jacob Johnson from Stephens. Your line is open.

Hey, thanks guys for taking the questions and congrats on a nice quarter.

Hey, hi, thank you Jacob.

With the approval of T-cell therapies, is this largely a media opportunity? Or could other parts of your business benefit from this approval?

Yeah, good question, Jacob. So initially media, yes, but of course, we continue to offer to present all the parts of the portfolio to our current customers and Gilead Kite is a strategic customer. So we'll be having those conversations.

Got it. And then maybe a high-level follow-up on that. Can you, as we think about a wave of commercial approvals of the cell and gene therapies, how do you think about the initial ramp of these therapies? I imagine it varies by the indication and the customer, but any color on that?

Well, you answered it for yourself; it does vary very much on the indication coupled with the coincidence of how well these companies can align the following things, that have to happen to converge to achieve commercial success, and that's about manufacturing capacity, the reimbursement strategy, and then finally the training ramp for the clinical centers to administer the particular biologics. So, if all the stuff goes well, I would expect that we'll see things going faster than the initial ramp of Yescarta and Kymriah, which were really the two pioneering applications that we've all been studying now for quite some time.

Got it. Thanks for that. And there is one last one, maybe for Rod. Can you just expand on the increased manufacturing overhead? Is this largely due to the CBS deal or are there some other areas where you're adding capacity right now?

Yeah, I think it's less to do with capacity as it is to do with beefing up the quality control side of the manufacturing processes, both in Detroit and in Albuquerque. They were running a little bit on the lean side; we have a pretty high bar with respect to quality, and we want to make sure that our quality system is consistent throughout all of our operations, and so it's really that that's driving that increase.

Great. That makes sense. Thanks for taking my questions and congrats on the quarter.

Thanks, Jacob.

And our next question is from Marc Wiesenberger. Your line is open.

Thank you. Good afternoon.

Hi, Marc.

Hi, Marc.

Hi, I'm wondering if you could provide maybe a little bit more detail on a potential timeline for the qualification and ultimate acceptance of the evo platform, and then, as we think about that, would that be more of a partnership for cryogenic transportation or dry ice transportation?

Yeah. Good questions, Marc. I think we'll just be really careful what we say here because this is a highly competitive environment, as you can imagine. The evaluation/validation work continues; there is some work to do here, which we think will get completed in the next few months, and then past that, how soon the adoption or the transition to the evo might occur remains to be seen. But we're confident that we're going to witness, assuming the rest of the work goes as we expected to, and we look forward to updating as we have more details.

That's helpful, thank you. And just one more from me, I guess now with this really expanded war chest you have, in terms of how you would look to deploy the money, should we be thinking about maybe you doing one large deal or maybe multiple deals? And then would you be looking to add scale to current operations with some complementary offerings or completely new offerings to the portfolio? Thank you.

Yeah. Super, super question, Marc, you bet. And the short answer is all of the above, and when we can be more specific about that, we will, but everything that you mentioned is certainly up for consideration.

Got it. Look forward to hearing more, thank you.

Thanks, Mark.

And our next question is from Carl Byrnes. Your line is open.

Great. Thanks for the question and congratulations on the quarter.

Hi. Thanks, Carl.

The CBS numbers look really good, but I'm wondering if you're experiencing any CapEx deferrals, and if so, if you had any feel for when those held back orders will come online? Thanks.

Yeah, I wish we had a better crystal ball, Carl, really. We had one large freezer order that got delayed. We're working hard to see if we can pull that in this quarter, but who knows; it might be pushed even farther, but that's a significant order amount. No doubt. The two things that I cited in my remarks are our inability or restricted ability to travel to get on site to actually do what we would normally do. In a sales and a highly consultative process for a technical sale like a freezer, which includes everything from where it's going to go, and fit well, to the kind of plumbing and exhaust and electrical utilities that have to happen. So a lot of stuff that the customer has to do first to be ready to receive, in addition to our own factory acceptance testing, and once it gets to their site, acceptance testing, which meters out how we can bill for the various stages of the project, but it's been challenging for sure. As far as when things are going to open up again, that's anybody's guess; that depends on which part of the country they're in and what the particular COVID incidence rates are and the restrictions from the local health authorities. We're doing as best as we can in this virtual mode, and hopefully, this new normal is not going to last too much longer, but we'll see.

That's great. I mean, as it stands, the numbers for the quarter are good anyway. I'm just thinking that, when things do open up, there is probably a pretty healthy backlog of business there. Thanks.

Well, we're certainly doing everything we can to prospect and to get the product exposed to all of our captive customers as well as the folks in this space who don't use media. So that's the order; we're attacking this: media customers first and then non-media customers who don't know us as well.

Great, thanks.

You're welcome. Thank you.

Thanks, Carl.

And we have a question from Corey Deutsch. Your line is open.

Hey, hey, how you guys doing? Congratulations.

Hi, Corey.

On the quarter.

Thank you.

Could you just provide a bit further color on the M&A landscape, and just given current circumstances and that net income loss in this quarter, how you guys have ultimately decided that now is a good time to kind of roll up some more of the space?

Sure, I'll take the first part. And Rod, maybe you can answer that. You know, the financial impact. So, Corey, I think what I'll do, I'll start off and just repeat what are we looking at, right? So let's just say that in the cell and gene therapy bioproduction tools space, maybe there are 150 companies that are selling something into these companies that are in our real house here. And you know, a year and a half ago, two years ago, we decided to just dissect that cell and gene therapy manufacturing workflow into as many chunks of types of work as we could. Whether the acquisition of the source material, the moving of the source material from patient to the factory, and then once it gets there, everything around cell expansion, purification, transaction—all the stuff that it takes to turn it into a final dose, then the storage of that dose until it's time to get shipped back to the factory, then what's it shipped into once it gets inside. Underneath that layer, Corey, we started the company names in there that have technologies that fit or satisfy that particular part of the workflow. So that's really the roadmap that we're following. It's not too hard to figure out; I mean it's a reasonable way to attack it. And so there are still more than a handful of targets that are of interest to us, either for outright acquisitions, if not some in early stage seed investments for what we would consider to be novel and potentially very disruptive technology. So that's the way we're going about it in terms of right now and why now. Well, we're a relatively small company; there are certainly consolidators at much higher levels of a layer cake in this ecosystem who are continuing to consolidate, and with much larger bite sizes. So we're going to do everything we can to grow this enterprise smartly as quickly as we can so we can continue to add shareholder value, and that's really the goal there. Rod, with respect to his net income loss, is there anything you want to comment on that?

When you say loss, what do you mean by that?

When you think about the net loss at 16.4?

Well, yes. But of that 16.4, Corey, I want to say 14 plus million of that... Let me just get to the page. Yeah, 16.4, the 16.4 has to do with this change in the value of our warrants. The warrant liability. So it's got nothing to do with the operating side of the business. And on top of that, since 98% of the warrants have been converted in Q2 on a cashless basis, we are not going to be seeing those swings anymore below the line there. But in terms of overall, what are our criteria with respect to the impact on net income? We definitely want to see something that's going to be accretive on an adjusted basis.

Yeah.

Within a 12 to 18-month period, and if it doesn't meet that criteria, we may well just make a minority investment and sort of put it on the bench until it gets to that level.

Yeah, I mean listen here, guys. I think you guys have done a tremendous job in terms of rolling up the space when you think about the cell and gene therapy landscape, and incredible tailwinds, and just a robust growth of pipelines and products coming to be commercialized. I think you guys, as a pick and shovel play, have positioned yourself incredibly well in that color on the $16.4 million is very helpful because now it gives me a lot more clarity in terms of how you're positioned. And I am excited to hear about the future. So greater; I mean, congratulations on an awesome quarter.

Thanks. Appreciate your interest and support Corey.

And on the last question is from Jacob Johnson. Your line is open.

Hey, just one quick follow-up. Last year you had some lumpiness in the media business, obviously, a strong first half in that business line. It sounds like this is continuing, but as we look into the back half of the year, just any other color on your expectations for media revenues?

Yeah. Not really, not at this point, Jacob. I'll just repeat what I said during my prepared remarks: so far, here we are a little bit less than halfway through the quarter of Q3, and media orders are strong. So hopefully, that will be sustained, and we'll have some really good news to report for the full quarter of media sales.

Got it. Thanks for taking all the questions.

Thank you.

We have no further questions at this time. I will now turn the call back over to Mike Rice.

Thanks again, Rebecca. And thank you everyone for your interest in BioLife. We hope you and your loved ones can stay safe and healthy, and we look forward to speaking with you during our follow-up calls and when we report our Q3 results. Good night.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.