Biolife Solutions Inc Q4 FY2020 Earnings Call

Thanks, Latiff. Good afternoon, everyone, and thank you for joining this call. Earlier today, we issued two press releases. The first was our announcement of the signing of a definitive merger agreement to acquire Global Cooling Inc., better known as Stirling Ultracold, a leading U.S.-based developer and manufacturer of ultra-low temperature freezers. The second press release detailed our Q4 and full year 2020 financial results and operational highlights. 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 or its acquisitions. 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 qualifies 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 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 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, CEO of BioLife Solutions.

Thanks, Rod, and good afternoon, everyone. Thank you for joining our call. We are very pleased to present the background, strategic rationale, and synergies as well as the potential financial impact of our just announced acquisition of Stirling Ultracold, a company that’s been in the news quite a bit these last few months due to their support of COVID-19 vaccine distribution and point-of-care storage. Before I get to Stirling, I would like to give some color on how we finished last year. I’ll provide some quantitative data, but I’ll leave most of the detailed revenue presentation to Rod. To set the context, it’s important to review how active the cell and gene therapy space is right now. In 2020, total funding for companies participating in the space was nearly $20 billion, a 50% increase over 2019. Industry-sponsored clinical trials increased by 154 over 2019, and several therapeutic candidates could get approved this year. 2020 was a banner year for BioLife with total revenue of $48 million, up 76% over 2019. 2020 media revenue grew 32% over the prior year. We gained over 200 new direct customers with new end users across the portfolio, including media, thaw, evo Cold Chain, CBS freezers, and SciSafe storage services. Additionally, our two largest distributors sold and shipped our preservation media products to nearly 3,500 different customers. This is truly remarkable and speaks to how well our direct sales team and distribution partners are planting seeds for future growth. Further to our media franchise, since 2016, we processed nearly 300 cross-reference requests for our U.S. FDA master files to support media use in human clinical trials. In 2020, we added 63 new media customers, and we also added 75 new customer clinical trials using our media, including 30 in the fourth quarter alone. It’s not a perfect data match up, but if we take the ARM data of 154 new clinical trials in 2020, it’s possible our market share is nearly 50% of these, considering we added 75 new trials last year. We continue to believe that our media franchise of really sticky marquee customers is the engine that will continue to leverage to market our growing bioproduction tools and services portfolio to. To date, our biopreservation media is used in four approved cell therapies: Yescarta and Tecartus from Kite; Abecma from Celgene; and Zynteglo from Bluebird. CryoStor is also used in four new therapies that could get approved this year. These include ide-cel from Celgene, Omidubicel from GamidaCell, Cilta-cel from Janssen, and eli-cel from Bluebird. So we could start to see the anticipated growth in customer approvals this year and continuing for several years, considering our large installed base of media customers still in the clinic and marching toward filing for approvals in various geographies. Turning to our CryoStor products, although the pandemic significantly limited our ability to sell on-site in person at customer and prospect locations, we gained 11 new customers in Q4 last year and a 29% increase for the full year 2020. Turning to our evo Cold Chain management platform, we continue to gain traction and added 14 new customers in Q4 last year. The large pharma company we’ve been working with to secure some portion of the commercial shipments has confirmed that they’ve completed their regulatory update filings, citing the EVO platform in the U.S. and Europe. And we are on schedule to commence a series of monthly deliveries of EVO containers to our courier partners to support customer shipments using EVO next quarter. We believe that over time, this customer decision to de-risk cold chain management by approving more than one container and logistics provider will become the norm, and we will have a strong opportunity to compete across the landscape of cell and gene therapies. In the last few months, we also onboarded two new courier partners with Biocare and Fisher BioServices joining World Courier and Quick as approved EVO partners targeting the cell and gene therapy space. With our CBS freezer platform, again, the pandemic curtailed much of our on-site selling activities. However, we finished last year on a strong note and gained 19 new customers in Q4 2020. Rounding up my recap, our biostorage services team had a very strong Q4 and full year 2020. We gained six new customers in Q4 and set the stage for significant growth this year with expansion underway in the U.S. and Europe. Starting with this call and onward, based on the guidance and requests we’ve directly received from several government agencies, we’re not going to discuss SciSafe customers and involvement with COVID vaccines. So just a heads up for when we get to the Q&A portion of this call. In summary, we are really pleased with what we accomplished last year and are confident about our organic growth potential and how the acquisition of Stirling will take BioLife to the next level. Now, turning to the transaction, joining Rod and me on the call today is Dusty Tenney, the current CEO of Stirling Ultracold, who will be joining BioLife Solutions after we close the transaction as our new President and Chief Operating Officer. Dusty has a proven track record of scaling high-growth businesses at Brooks Automation and, before that, at PerkinElmer. And I am really looking forward to his contributions in scaling the business. We are thrilled to welcome Dusty and the entire Stirling team to the BioLife family. With our acquisition of Stirling, we’re now guiding 2021 total revenue in a range of $101 million to $110 million and have set our next revenue goal at $250 million within the next 3 to 4 years. I will start off with a recap of our M&A strategy and then comment on why Stirling is such a great fit for BioLife. Recall that in August 2018, we embarked on a strategy to identify and acquire or invest in novel and potentially disruptive technologies that would broaden our tools portfolio and enable us to help our cell and gene therapy customers to decrease the potential of delivering a nonviable dose. With reimbursement being predicated on an initial and sustained response from the patient and our understanding of the many ways manufactured cell and gene therapies can be damaged during storage, shipping, and filing, we looked at the fragmented tool supplier base and got to work. The merger with Stirling is our fifth deal in the last 2 years, following our acquisitions of Astero Bio in the ThawSTAR product family; SAVSU Technologies and the evo Cold Chain management platform; Custom Biogenic Systems’ liquid nitrogen freezers; and most recently, last October, SciSafe and their biologic storage services offering. We focused on the mechanical freezer landscape since we currently don’t offer that temperature range in our freezer portfolio, which is limited to -196°C. Mechanical freezers operate in a range from -20°C to -80°C, a key requirement of our strategy to enter the mechanical freezer market. We used to identify technologies that are not prone to the typical compressor failures and maintenance requirements of the current market offerings. The Stirling Freezer platform is a novel, utilizing a very efficient Stirling engine and no compressors, providing much higher reliability and uptime on standard compressor-based technologies. There are just two moving parts and the energy consumption is a fraction of compressor-based freezers, creating significant operational benefits. These are the typical reasons that customers buy from Stirling, but the most compelling reason is that all Stirling freezer systems, the portable ULT-25, the under-counter SU105, and the upright 780XLE, all have programmable ultra-low temperature ranges between -20°C and -86°C, which provides customers universal applications for their biologic materials and vaccines that no other system in the world can provide. So with this acquisition, we now have a complete cold chain freezer line from -20°C to -196°C that fulfills 100% of the needs of cell and gene therapy developers and the broader biopharma market. The strategic fit is excellent. In addition to welcoming the 18-person Stirling Global Direct sales team to BioLife who will now also present our CBS liquid nitrogen freezers to customers, we have an operational and cost synergy to leverage and that SciSafe is a major customer of Stirling, so we’ll be supplying one operations team from another. Lastly, we will pick up 80 patents from the acquisition related to Stirling’s current and future products that will enable strong sustained product differentiation. Now, I would like to turn the call over to Dusty to give you a background on Stirling, and then Rod can take us through our 2020 financials and the impact of the Stirling acquisition.

Thanks, Mike. This is a great day for Stirling’s team members, customers, and shareholders. For my time at Brooks Automation and more recently at Stirling Ultracold, I followed the progress that Mike and the BioLife team have executed to broaden their tools portfolio and provide more value to customers and shareholders. Each of the assets BioLife acquired were targets of my own M&A list. When Mike reached out to me last fall to start a conversation about putting Stirling and BioLife together, I immediately saw the strategic fit. And I’m really looking forward to joining BioLife as its President and COO and doing my part to further the growth of the company and build into an even bigger and more trusted supplier of critical bioproduction products and services. Let me give you a little background on Stirling. The company was spun out of Sunpower, Inc. in 1996 to capitalize on an IP estate related to the use of Stirling engines in various industrial applications. Since that time, the company developed a family of mechanical freezers and to date has shipped more than 10,000 systems worldwide. I joined Stirling in March 2020 after a very successful time at Brooks Automation, where I was President of its Life Science division and oversaw rapid growth and the completion of several acquisitions. We grew Life Science’s revenue from $65 million to over $300 million over five years. At Stirling, we operate a 50,000 square foot manufacturing facility, southeast of Columbus, in Athens, Ohio, and have an inside sales and marketing team that works in Downtown Columbus. We currently employ 160 team members and have been flat out running with the pedal down hard since last August when our upright, under-counter, and portable Stirling freezers were recognized as key enabling technologies for the distribution and point-of-care storage of COVID-19 vaccines. In 2020, our revenue breakouts were along these lines: by market segment, pharma and biotech was 71%; academic, 26%; and government was 3%. By freezer model, large freezers were about 80%; portable, 15%; and under-counter freezers, 5%. And by geography, North America was about 90%; EMEA, 8%; and Asia-Pacific, 2%. We sell through distributors, mainly VWR and by our direct sales team who also provide support to our sales partner at VWR. Preliminary revenues for 2020 were $39 million, and 2020 revenue is estimated at $60 million. We are a key supplier to Operation Warp Speed and have partnered with UPS, Walgreens, and other participants in the fight against COVID. We also serve the cell and gene therapy space and count Allogene, Moderna, Orchard, and Sangamo as key customers. I will close with some comments on why our Stirling engine freezers are highly valued in the cell and gene therapy and broader biopharma market. Just as with BioLife’s entire portfolio, it’s all about helping customers reduce risk. Stirling has engaged with multiple cell gene and regenerative medicine customers, provide a flexible solution and maintain the cold chain of custody, critical to maintaining the efficacy and viability of these therapies. Use cases include localized high-density upright freezers at manufacturing locations, clinical applications that leverage the under-counter system, given the limited space to store therapies and a fully mobile solution that allows couriers to transport this high biological material to its point of use while maintaining full traceability at ultra-low temperatures. Stirling has partnered with several gene and cell therapy customers and co-branded the portable benchtop ULT25 as their point-of-care storage. This makes it easy for their customers to maintain the biologic materials that they supply to clinics at proper temperatures ranging from -20°C to -86°C while bringing prominent brand recognition for repetitive purchases. Further, Stirling has demonstrated that its engines can also support cryo temperatures less than -135°C without further invention, which creates tremendous pathways for further growth as a natural combination with the existing assets within BioLife to address the full range of ultra-low temperatures required for viable cell and gene therapy storage and distribution. This truly highlights the tremendous growth strategies that exist by combining Stirling’s assets with BioLife’s strong cell and gene therapy portfolio. Now, I will turn the call back over to Rod.

Thanks, Dusty. I’ll start off with a review of our 2020 financial performance. Revenue for the fourth quarter totaled $14.7 million representing a 78% increase over 2019’s fourth quarter revenue of $8.3 million. Media revenue for the fourth quarter of 2020 was $8.2 million, a 58% increase over the fourth quarter of 2019. This quarter’s revenue also included $662,000 of sales related to the automated thaw product line, $469,000 of evo Cold Chain-related revenue and $3.6 million in freezers and accessories at CBS. We also reported $1.8 million in biostorage revenue related to our acquisition of SciSafe, which closed on October 1 last year. Revenue for the full year ended December 31, 2020, totaled $48.1 million, an increase of 76% over 2019. Media revenue for the full year of 2020 increased 32% to $31 million compared to 2019. We believe that the full year comparison is the best reflection of how media revenue is currently growing as it smooths out the quarterly lumpiness we witnessed throughout 2019 and 2020, and which we expect to continue to see in 2021. Our adjusted gross margin for the fourth quarter was 54% compared with 65% last year. For the full year of 2020, adjusted gross margin was 58% compared to 69% in the same period in 2019. The decrease in adjusted gross margin for both periods reflects the gross margin profile of the product lines we acquired in 2019 and 2020. In addition, based on expected growth in these product lines in 2021, we increased our fixed manufacturing overhead at our evo and freezer operations. Adjusted operating expenses for Q4 of 2020 totaled $8.2 million compared with $4.9 million in Q4 of 2019. For the full year of 2020, adjusted operating expenses totaled $27.6 million compared with $16.8 million in 2019. The increase in both periods was primarily driven by additional operating expenses related to the acquisitions made in 2019 and 2020 as well as increased headcount and stock-based compensation expense necessary to support our overall growth objectives. The adjusted operating loss for the fourth quarter of 2020 was $255,000 compared with an operating profit of $437,000 in 2019. Our adjusted operating income for the full year of 2020 totaled $293,000 compared to $2.1 million in 2019. Our adjusted net loss for the fourth quarter of 2020 was $256,000 or negative $0.01 per diluted share compared with adjusted net income of $527,000 or $0.02 per diluted share in 2019. For the full year of 2020, adjusted net income was $351,000 or $0.01 per diluted share compared with adjusted net income of $2.6 million or $0.13 per diluted share in 2019. Adjusted EBITDA for the fourth quarter of 2020 increased 47% to $2.5 million compared with $1.7 million in the fourth quarter of 2019. For the full year of 2020, adjusted EBITDA increased 41% to $8.3 million compared with $5.9 million in 2019. And our cash balance at December 31 was $90 million. Now I’d like to make a few comments on our just announced acquisition of Stirling. This is an all-stock deal, whereby BioLife will issue 6.6 million shares of common stock in exchange for 100% of the outstanding shares of Stirling. Based on Friday’s closing share price of approximately $39, the transaction has an imputed value of approximately $258 million, including the assumption of $8.7 million of debt. When you combine fourth quarter 2020 revenue for BioLife and Stirling, the annualized revenue run rate is approximately $115 million. Stirling’s margin profile is not dissimilar to our CBS freezer business with gross margins currently in the low 30s and a modest adjusted EBITDA expectation this year. However, during diligence, Dusty and his team did a good job of articulating a clear and what we believe to be an achievable plan for significant margin improvement over the next 12 to 36 months. We expect the gross margin expansion to result from the introduction of new and higher ASP products and increased plant automation, which we expect will move gross margins into the mid to high 40s. So while we will see some near-term margin erosion, particularly at the gross margin level, we believe that the combined entity can achieve our adjusted EBITDA margin target of 30% in the next 24 to 36 months and with materially higher absolute numbers. In addition, we expect the transaction to be accretive to adjusted net income per share next year and beyond. In summary, we are issuing 19.9% of our outstanding shares, which is 16.5% on a pro forma basis, to acquire a business that is a great strategic fit and which we expect will contribute in excess of 30% of projected pro forma revenue and EBITDA of this year and in the following years. I will conclude my remarks with our revenue guidance for 2021.

So for ‘21, we expect to report revenue in 3 product categories: first is media; then freezer and thaw systems, which includes our CBS and Stirling freezer systems and ThawSTAR product lines; and then third, services, which includes our evo Cold Chain and biostorage services. Our 2021 revenue guidance is based on current expectations for our existing business and includes the anticipated contribution from our acquisition of Stirling, which is expected to close on or before May 1. Total revenue for 2021 is expected to be in the range of $101 million to $110 million, reflecting year-over-year revenue growth of 110% to 129%. Our total revenue expectation for 2021 is comprised of the following items: the expected 2021 revenue contribution of $35 million to $37 million from the Stirling product line, given that we expect to close on or before May 1; media revenue is expected to be between $38 million and $40 million, reflecting growth of 23% to 29% over 2020 and accounting for approximately 37% of total revenue; freezer and thaw systems revenue, including the contribution from Stirling, is expected to be between $50 million and $54 million, accounting for approximately 50% of total revenue; and finally, services revenue is expected to be between $13 million and $16 million, accounting for approximately 13% of total revenue. Now, going to our share count, in terms of our new share count, taking into consideration the 6.6 million shares, which will be issued in connection with the Stirling transaction, we will have 40 million shares issued and outstanding and 42.5 million shares on a fully diluted basis. Now, I will turn the call back over to Mike. I would like to summarize with three key points of our investment thesis: one, we have very sticky relationships with hundreds of cell and gene therapy companies, and our media is baked into hundreds of clinical trials with each customer therapeutic candidate estimated to generate $0.5 million to $2 million in annual revenue if approved; two, these customers trust BioLife and want to buy more from us, so we have a tremendous cross-selling leverage opportunity with the rest of our offering; and three, the Stirling acquisition brings us proprietary products, revenue scale, and a seasoned team and leader in Dusty Tenney. Now, I will turn the call back over to the operator. Latif?

Hey, guys. Thanks. Nice seeing again.

Hi, Paul.

Hey, Mike. First question on the core business pre-Stirling and that is with your talk about a 50% share, what does the rest of the market do? Is it homebrew? Could you talk to that share estimate?

Right on, Paul. Yes, we believe it remains homebrew. We have yet to see really any entrance of either pre-formulated preservation media products from any suppliers, distributors, or anybody else that’s out there. So, it really is a – it’s a BioLife versus homebrew battle, and we are doing great taking share, we believe, every quarter.

And then regarding Stirling with existing ops, what do you have in terms of distribution meaning your move in the direct sales? Do you have direct sales? What’s the headcount there? What’s the plan there? And who are your key distributors?

Sure. Paul, yes, we have, in the current pre-Stirling organization, about 10 folks who are involved in sales and that’s a mix of inside folks and field folks, I’ll call it about 10 with a couple of openings. The current distributors look like this. On the media side, again, it’s the big four, as always, it’s Fisher, VWR, MilliporeSigma, and STEMCELL Technologies, and there are perhaps 30 or so other regional in-country distributors that do a decent job on media. With CBS Freezers, we did inherit a fairly well-known and diverse distribution team around the world with good presence. So we will have a great time just rationalizing this. And from our perspective, it’s just more feet on the street. So, it’s all about a force multiplier to leverage the story.

And what’s the overlap in perceived synergy with CBS, what temperature was CBS operating in for customers and what do you see as the positives of those two together?

Yes, great question, Paul. So with CBS, the products are, pardon me, limited to liquid nitrogen operating temperature range, which is minus, call it 196°C. It’s the coldest extreme for the complete station of metabolism of biologic material. Now, this combined sales team has in their bag, in their arsenal, the ability to offer any freezer that meets whatever the customer’s temperature range might be from -20°C all the way to -196°C.

Okay. And then lastly, regarding the COVID benefit at Stirling, Dusty, what’s your thought there? Does it dissipate as we move into the year? Do we have it visible into ‘22? What’s your thought on the duration of COVID?

Yes. Paul, I think first of all great to reconnect and thanks for the question. I think Mike provided some context there that we are not really at liberty at this point in time just given some of the nature of the placements that we have had with COVID to really get into the mechanics associated with that question. So we will have to defer on that one.

Yes, thank you.

Hi, thanks for taking my questions. Mike, just to start…

Hi, Chris.

Hey, Mike. Just to start, so investors have been attracted to BioLife Solutions because of the favorable mix of highly sticky consumable revenue and just the strong margin profile. Stirling Ultracold appears to be a largely instrument-heavy business that is also dilutive to overall margins. So with this in mind, could you just elaborate why you believe BioLife Solutions is the right owner of Stirling Ultracold?

Definitely. I will start and then I will ask Rod to reiterate some of the points in my remarks. So Chris, for us, this is about the novelty and the disruptive potential of the Stirling portfolio and then our ability to leverage the sticky media customers to expose them to this really cool new equipment offering to solve even more of their problems. And we believe obviously with Dusty and Rod on the ops and the margin side that we will definitely get that back to something a lot more attractive. It’s really hard to find bolt-on acquisitions, Chris, as you know, that would enjoy the margins from the media program that we have had for the last several years, but nevertheless, we believe that we are on the right track here, and customers want to buy from us. So Rod, you might want to expand a little bit on that, if you could?

Yes, sure. I can. Chris, as I mentioned on the call in my prepared remarks, the gross margin profile of Global is not much different than CBS, so currently in the low 30s. But again, as I stated, there is a pretty clear plan that we vetted as well as we could to take those margins into the 47%, right. And once we have done that, then I think you are going to be looking at blended margins overall for the company a few years out of mid-50s at a gross level. And based on the modeling that we have done and we have done quite a bit, both internal and using an independent source, we believe that the EBITDA margin target – adjusted EBITDA margin target that we have set for 30% is absolutely achievable with the combined entity. And in fact, as I mentioned, it’s going to be at a much higher absolute number of adjusted EBITDA.

Got it. Just another question on Stirling Ultracold, could you say what Stirling Ultracold revenue was in 2019, so pre-COVID times? And then in terms of the revenue guidance, $35 million to $37 million, could you clarify if that’s a gross or net revenue figure that needs to be adjusted for potential intercompany eliminations of SciSafe purchases, Stirling freezers?

Yes, that’s a good question, Chris. So, $39 million is a preliminary unaudited number for Global last year in 2020. The base number this year is $60 million. There might be $1 million or $2 million here of RAC revenue that’s sold by CBS to Global, and the balance of it is going to come in the form of CapEx, reduced CapEx on the SciSafe side when they have the move those freezers into the SciSafe operations.

Okay. Last question for me, Mike you referenced in your prepared remarks that there are potential therapies – well, therapies that could potentially receive FDA approval this year. As we think about your 2021 media revenue guidance, does that explicitly include contributions from these new product approvals and commercial scale manufacturing volumes associated with those launches or would that be largely upside or the 2022 dynamic?

Farther out, Chris, yes, good question. We would expect from most customers, just the sort of pre-approval clinical trial phase revenue we’ve been seeing and continuing on to that. And the big step changes will come obviously, 12 to 24 months post-approval, once they have done what we’ve been articulating now for many of these calls, which is to establish a reimbursement strategy that’s going to be palatable to the payers to get their manufacturing, operations fully scaled up and probably equally as importantly is to get the clinical centers trained up to administer their particular dose because they all have their own nuances. So think about it on a 12 to 24-month ramp post-approval for us to see the large step-up changes in revenue from those, hopefully soon to be approved therapies.

And Chris, it’s Rod here. I want to try to provide a little additional clarity because I’m not sure I fully answered your question. So you asked 2019 revenue – sorry, 2020 revenue, $39 million. Expected Global revenue for the full year of 2021 is $60 million. We have it in terms of contributing to the BioLife fiscal 2021 revenue, $35 million to $37 million based on the fact that we’re not closing the transaction until April 30, May 1.

Okay. Could you just share what 2019 revenue was for Stirling?

Yes. It’s $35 million, Chris.

Okay, great. Thanks for taking my questions.

Sure.

Hey. Good afternoon everybody and congratulations on all the news.

Thanks, Jacob.

Yes. Hi, Mike. Maybe starting on the evo side and congratulations on the customer news there, is there any way to give any color on the revenue potential for evo shipping a commercial therapy? I know it’s a little bit different business model but is there any way to frame up the impact on that relationship?

Not yet, Jacob. Once we get a few more of these commercial therapies, allocating or splitting their shipments, then we would hope to be in a position to do that, but this is the first one, so too soon to try to prognosticate on that.

Got it. That makes sense, Mike. And maybe just try and ask it a little bit different way, just on the guidance, given in 2021 for the services revenue stream, $13 million to $16 million, I guess, kind of a wide range, given the size of those revenues. Maybe if Rod wants to just talk about what are the kind of key swing factors for the low end and the high end of that guidance of evo versus SciSafe?

Sure. It’s two things. One on the evo side, it’s how quickly the large commercial customer that Mike identified earlier, how quickly they ramp up through the year because remember that the business model is a monthly rental program, so the number of doers that go out in a particular month, if it’s delayed by 90 days, it does make an impact. And the other is that what we’ve seen in SciSafe for the last six months is that the orders that carry over there is wrestling with are very significant orders. And so whether you get one or whether you get half of one or how much of it gets into this year versus next year based on the timing of close, there is a lot of variability in that, which is the other reason we have such a relatively large range.

Got it. Thanks for that, Rod. And maybe last one for me and maybe sticking with you, Rod. Just on gross margins, you talked about 50% longer term, but obviously, a few moving pieces in the near-term. Can you give us any kind of color on your thoughts about gross margins as we think about modeling 2021?

Yes. I think you’re going to see something in the neighborhood of low 50s.

Good afternoon everyone. Mike, can you hear me, alright?

Hi, Suraj. Again, hi, Suraj.

Hey. Congrats on the deal, Dusty, Mike, and Rod. So a lot of information provided, Mike. And maybe if I could just parse it a little more, Rod, you were kind enough – and Dusty, you were kind enough to give the numbers from 2019, ‘20 and ‘21 for ULT. How much – if I see from 2020 through ‘21, there is a significant jump. How much of that is COVID related? And I guess to the extent that you can, what was the expected growth trajectory of ULT versus if I may consider organic BioLife, everything that is non-ULT as you looked at the company? I guess what I’m just trying to understand is, is ULT faster growing than what your BioLife was originally?

I think in the near-term, Suraj, the answer to that is yes. I think that the organic growth that we would look at is, again, in that sort of 25% to 30% range, excluding Stirling. And so there is going to be a bump in the Stirling revenue this year, in part related to COVID, but also in part related to just an increase in demand. And we do expect that increase in demand, irrespective of any future COVID activity, to continue. And so therefore, there’ll be a significant contributor, and we expect them to grow at that – at the lower end of that range. So again, it’s driven by two things. One is that the current Stirling gross margins are in the low 30s, right? And those are expected to expand to the mid- to high 40s, which would then, at that point, give an overall blended – again, we’re looking in the crystal ball a bit. So it depends on how much of the revenue is comprised of media, thaw, etcetera. But the point being that, if they get into the mid to high 40s, then the blended gross margin for the company would be somewhere in the mid-50s, okay. It could be a little bit better, but that’s what we are thinking now. And so when you then adjust out all the things that we adjust out, we feel very strongly that we can attain the 30%. And if you recall, Suraj, the narrative for the last 18 months for BioLife has been that, yes, we recognize that the trade-off was to remain a one product pony that had a great margin profile but had serious risk with respect to customer order patterns and perhaps ultimate customer growth. And so we wanted to mitigate that by embarking on the acquisition strategy we did, fully understanding that in the near-term, and that’s defined as 12 to 24 months from the time we started that strategy, we would have declining margins until the point where the revenue scale and now my stated goal of $250 million. At that point in time, we are very comfortable talking about a 30% adjusted EBITDA margin that has mid-50s gross margin associated with it.

Yes. Good question, Suraj. I think rather than answer that directly, I think I’ll just refer to our previous response, which is, this company understands how material important this is, significant this would be for us to be able to disclose the relationship. We’re not quite there yet working through their multi-layer approval process, but I’m confident perhaps at some point, we will get that approval. But before then, out of respect for relationship, we’re just not going to disclose the name.

Hey, this is Michael Okunewitch on the line for Jason. Thanks for taking the question, and congratulations on the announcement. Seems like a pretty big add to your overall business. But I’d like to ask a bit generally. You invested pretty heavily into the Ultracold freezing and the cold chain logistics. So I’d like to touch on what you anticipate to be the key drivers for growth in this business area? Obviously, COVID-19 kind of thrust Ultracold chain into the public consciousness, but it’s really – it’s just the first mRNA vaccine, a lot more in the pipeline. So what are the areas where you expect to really drive growth in this respect?

Yes, Michael, good question. I think in a nutshell, sticking to our knitting within cell and gene therapy, it’s going to be about the pace of approvals, right. So we all know the ARM data. We know how many clinical trials are out there. We’ve now been really clear about our estimates of how many clinical trials our media is used in. I articulated on the call in my remarks a little earlier today that we believe that the decision by this large pharma company to split off their commercial shipments and to award parts of the business to more than one logistics partner and to use more than one container. So they have got some risk mitigation. We believe will be the norm over the next few years. So it won’t be a winner-take-all scenario, and we are really, I think, strongly configured to compete into take a decent amount of share of those shipments. So in a nutshell, it’s really going to be about the pace of approvals and then our ability to see the EVO adoption increase based on this key win and also through the great work that our courier partners are doing.

Alright. Thank you. And then I have one more on the actual Stirling freezers themselves. So how does the energy requirement compare for Stirling versus a more traditional compressor-based freezer? And how does that kind of translate into operational cost savings?

Yes. I think to frame it out, Michael, the basis of our savings, which is an energy star rating, an important element in terms of the strategy that the business was born roughly about 10 years ago. And what that does, it provides a material benefit as it compares to our compressor systems, anywhere between 10% and 50% less energy being used. So when you start to think about the application of our freezers versus a traditional compressor-based freezer, the infrastructure that many of our partners have realized is the fact that they can eliminate a lot of HVAC, i.e., more cooling to offset some of the heat, but also they are getting a material benefit associated with the less energy use. And when you start to multiply that, especially with multiple different systems, there is a significant benefit that many of our customers are parenting by virtue of using the Stirling freezer system.

Alright. Thank you. And I just want to ask one more if you don’t mind. How does the target use case vary for the Stirling Ultracold that, that 20 – that 20 to 86C range compared to the CBS nitrogen based?

Well, I think there are two applications that basically cover the entire cold chain here, Michael. So when you start to think about -20°C to -86°C, our system, unlike any compressor system, can be tuned to any temperature between those respective temperature ranges. So we basically cover every single temperature point between -20°C and -86°C. And traditionally, when you take a look at the workflows, especially in the end markets that Mike and Rod talked about, there are a lot of biological materials that basically are mandated to support that in addition to the vaccines that are more prominent with regards to the temperatures that we just highlighted. When you start to think about the even colder temperatures, so the deep temperatures, a key temperature point, of course, is less than -135°C. At -135°C, that’s the glass transition temperature. Mike noted this in terms of the fact that biological activity is stopped. And typically, this is the temperature range in which cell and gene therapies are most noted to ensure that that biologic coactivity, especially when it gets to researchers and the cell and gene therapies that are being developed ultimately meet the efficacy requirements that are being driven from the manufacturers. So those two temperature ranges basically are all focused on biological material, but each of those respective temperatures provides a biological benefit that customers use in the markets today, whether that be clinical trials, cell and gene therapy, biobanking, etcetera. And the fortunate aspect that we have here is combining those two, now we, as Mike said, cover the entire cold chain temperature range that’s ever so critical for every single biological material in the world today.

Thanks, Michael.

Hi, good afternoon guys. Thanks for taking my questions.

Hi, Thomas.

Just a quick one on SciSafe, during the last quarterly call, there was a suggestion there was some upside to that $2.7 million COVID deal, and you’ve obviously raised your guidance from $9 million to $12 million. Is that all COVID deal or is there other business expansion that’s nestled in that increase in guidance?

Yes. Good question. And probably just best to stick to our line that we’re just not going to talk about COVID revenues just based on the guidance we received from a bunch of federal agencies. So I would like to answer and give that kind of detail, but it’s a little early for us to do that.

Sure. If you can’t quantify it, but if at least we could do kind of a qualitative answer. If you look – if you think about the Venn diagram of customer overlap, I know there are some names that were thrown out during the prepared remarks. But could you help us understand what the overlap is in customers between Stirling and the legacy BioLife businesses?

Sure. Somewhat qualitatively, I can say that there are some customers that do use our media and also contract with SciSafe for storage. But I don’t want to get into how many or who they might be.

Okay. Fair enough. And then, Rod, I was wondering if you could help us a little bit with how to think through the middle of the P&L this year? Obviously, there is going to be a big change to the middle for the second quarter, but could you help us think about because you’re not going to be EBITDA – or sorry, accretive until next year. Can you just help us think through what that looks like from a spending perspective?

Well, I think that – here’s what I can say because we purposely chose not to give guidance below the revenue and a little bit of gross margin. We’ve got a lot of moving parts. And so what I will say is that if you looked at the operating expenses for Q4 that while we may have somewhat of – some growth in 2021 based on both activity and just gearing up to become a larger entity, it’s probably not going to be the same growth that you saw from 2020 to 2019.

Okay.

And that’s ex Stirling, right? That’s just the BioLife at the end of the year kind of thing.

Thank you. Good afternoon. Thanks for taking the questions and congrats on the deal.

Thank you.

I’m wondering if you could talk about the demand from non-vaccine-related players in terms of biostorage? And has there been maybe a rush to secure space with the increase in demand from vaccines?

Yes. I don’t think we want to go there, Marc. I think we’re going to just going to stick right to it and say, we’re just not going to give any granularity on SciSafe other than how Rod has articulated how we’re going to report that in one of the three buckets going forward this year.

Got it. Understood. In the prepared remarks, you did talk about expansion in the U.S. and Europe related to Biostorage. Could you talk about maybe some color on the location and level of investment we can expect?

Definitely not. Based on the guidance from the federal agencies, there is one thing we’re definitely not going to talk about, and that is where we’re going to be and what might be stored in those facilities. We’d like to, but that’s the guidance. So we’re going to respect that. Thanks, Latiff and thanks again everyone for your interest in BioLife. We are all really inspired to share this good news, and BioLife is now even better configured for even more continued growth. We have a very strong team here that executes every day to satisfy our customers, and the performance of this team is simply amazing. I wish all of you and your families good health and safety, and we look forward to speaking with you when we report our first quarter results. Good night.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.