Earnings Call Transcript - BLFS Q1 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 BioLife conference. Operator provided instructions were given. I would now like to hand the conference over to your host, CFO, Rod de Greef. Sir, please go ahead.

Rod de Greef, CFO

Thank you, John. Good afternoon, everyone, and thank you for joining us for this conference call to review the operating and financial results for the first quarter of 2021. Earlier this afternoon, we issued a press release which summarizes our financial results for the three months ended March 31st. 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 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 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, BioLife CEO.

Mike Rice, CEO

Thanks, Rod, and good afternoon everyone. Thank you for joining our call. Joining Rod and me today is Dusty Tenney, President and Chief Operating Officer. We're off to a strong start to 2021, so I'll get right to it. In Q1, we booked record revenue of nearly $17 million, a 40% increase over Q1 last year. We gained 80 new customers compared with the full year of 2020's strong count of 213 new customers. The team executed the dry product adoption across the portfolio, and to set the stage for a stellar 2021, we're making an initial increase to our revenue guidance for the full year of 2021, which Rod will speak to in a few minutes. We also expanded our leadership team with the promotions of Marcus Schulz to Chief Revenue Officer and Sir Aebersold to VP Global Human Resources. Lastly, we strengthened our board with the addition of two new directors, Amy deRoss and Rachel Ellingson. I'll make some comments about our three revenue platforms starting with media. In Q1, we booked record media revenue of nearly $9 million, which was up 3% over the same period in 2020, a tough comp when we booked about $1.5 million in COVID-19 related safety stock orders. We gained 16 new media customers, including Celsius Therapeutics, Galvanize Therapeutics, Hypersell, Biosis, and Zilliox. We also received confirmation that our media products will be used in an additional 13 clinical trials for novel cell and gene therapies from customers including Allergan, Juno, Mustang Bio, and Kura. We estimate that our viral preservation media products have been incorporated into nearly 500 customer clinical applications. Of these, our media is used in five approved therapies. CryoStor is used in therapies from Kite, Novartis, and Celgene/BMS. An additional therapy from Bluebird is also using our media. CryoStor is also used in four new therapies that could get approved in the next few quarters. These include ide-cel from Celgene/BMS, a cell therapy from Camida, a cell therapy from Cipla, a cell therapy from Juno, and a cell therapy from Bluebird. We continue to believe that our media franchise, anchored by sticky marquee customers, is the engine that we can leverage to market our production tools and services. Our freezer and thaw platform performed well in Q1. We booked nearly $5 million in revenue, a 60% increase over the same period in 2020. We gained 39 new freezer and thaw customers and completed the development of our new high-capacity controlled-rate freezer family, the first of which was shipped in mid-April to a current CryoStor customer. Our final revenue platform, bio storage, which includes Evo cold chain and SciSafe storage services, booked revenue of $3.1 million, an increase of $2.6 million over Q1 2020. We gained 25 new customers in the platform, including 16 new Evo cold chain users. Demand for SciSafe storage services continues to increase. Regarding M&A, we continued to be active and believe our strategy can accelerate growth and further solidify our position as a leading supplier of class-defining bioproduction tools and services. I would like to give an update on an acquisition, Sterling Ultra Cold. I'll ask Dusty to provide some comments on how we are continuing to integrate all the companies we acquired by focusing on revenue and cost synergies, system upgrades, and organizational efficiencies. Dusty?

Dusty Tenney, President & COO

Sterling Ultra Cold continues to realize significant market traction, adding 29 new customers during the quarter, totaling over 450 ULT freezer systems globally. Within these new customer footprints, Catalent recently announced a global strategic partnership with Sterling Ultra Cold to establish energy-efficient cold chain capabilities for biologics and emerging modalities, including cell and gene therapies. Sterling's ultra-low temperature freezer system is unique in the market as the only ULT to provide the full range of ultra-low temperatures between minus 20 and minus 86 degrees Celsius in a single system that can operate within any global location by simply changing a power cord. This is ideal for companies that have multiple biological storage temperature requirements, enabling ultimate flexibility to deploy these systems virtually anywhere in the world. Additionally, Sterling has the smallest footprint and highest capacity freezers on the market that are extremely reliable given the application of the proprietary Sterling engine, which has only two moving parts. The combination of these attributes also culminates in Sterling freezers being rated Energy Star, having both the lowest energy use of all freezer systems within its class and the lowest heat output of any ULT on the market, delivering superior environmental sustainability benefits. We also recently completed a proof-of-concept test of our proprietary Sterling engine technology which demonstrated an ability to achieve cryo temperatures at minus 160 degrees Celsius. If commercialized, this potentially disruptive intellectual property could provide even more flexibility to support the expanding cell and gene therapy market. Building off a strong finish to 2020, Sterling delivered its strongest Q1 on record with unaudited revenues of $17.5 million, leveraging substantive capacity increases within our operations. Approximately 20% to 25% of these sales can be attributed to the support of COVID vaccine storage and distribution. The balance of sales falls into a similar historic pattern with roughly 60% of sales within pharma and biotech, 20% within academic and government research, and 20% supporting clinical and biobanking applications. For the balance of the year, the Sterling business does experience some level of seasonality during Q3 given EU summer holidays, slightly offset by U.S. government fiscal year-end spending. During Q4, we have historically experienced a slight pickup as customers spend their year-end capital budgets. These counter-factors are built into the guidance that Rod will share with you later in the call. As I have assumed the role as integration leader for the business, we have begun to identify clear gross synergies in the business that include, but are not limited to, cross-selling products, expanding distribution networks and geographic reach across the portfolio, and opportunities related to the launch of new products across the portfolio. In the second half, given the complementary nature of Sterling into the BioLife portfolio, our focus on cost synergies has targeted supply chain optimization and rationalization of third-party spend, recognizing that there are some typical discretionary expenses in the areas of sales and marketing, information technology, and G&A that can be reduced or eliminated to improve our cost structure. Across the BioLife enterprise, we've already identified several best practices that will be shared to improve operational performance and further enhance our productivity and efficiency, which is critical in the near to midterm. These initial synergy opportunities have been factored into our second-half outlook and guidance. Now I'll turn the call over to Rod.

Rod de Greef, CFO

Thanks, Dusty. As we mentioned on our last call for 2021, we have streamlined our revenue reporting into three categories: biopreservation media, which consists of all media sales; freezer and thaw platform revenue, which includes the freezer and automated thaw product lines; and the bio storage platform, which includes rental revenue as well as bio storage revenue resulting from our acquisition of SciSafe last October. Revenue for the first quarter totaled $16.8 million, representing a 39% increase over last year's first quarter revenue of $12.2 million. Sequentially, total revenue was up 14% over last quarter. Media revenue totaled $8.9 million, which represents a modest 3% increase over the prior year. However, as we have previously discussed, we believe last year's Q1 media revenue included approximately $1.5 million of COVID-related demand pull-forward. So we estimate that a normalized year-over-year growth rate for media this quarter was approximately 25%. Revenue from the freezer and thaw platform totaled $4.8 million this quarter, an increase of 59% compared to 2020, driven by strong freezer sales, including the shipment of our first high-capacity controlled-rate freezer, which had a sales price slightly below $500,000. Our bio storage platform revenue totaled $3.1 million compared to $438,000 last year. The increase in this revenue is primarily attributable to sales generated by our acquisition of SciSafe, which occurred in Q4 of last year. Our adjusted gross margin for the first quarter of this year was 55% compared with 64% last year. The decrease in adjusted gross margin for the quarter reflects the lower margin profile of the acquired product lines, which accounted for 47% of revenue this quarter, compared with 29% of revenue in Q1 of 2020. Adjusted operating expenses for Q1 of 2021 totaled $8.8 million compared with $6.4 million in Q1 last year. The increase was primarily attributable to the inclusion of SciSafe operating costs this quarter, not in place in 2020, and secondarily to increased headcount and stock-based compensation expense necessary to support our overall growth. Our adjusted net income for the first quarter of 2021 was $478,000, or $0.01 per share, compared with adjusted net income of $1.4 million, or $0.06 per diluted share in the same period last year. Adjusted EBITDA for the first quarter was $2.8 million, which was basically flat compared with $2.9 million in the same period last year. It should be noted that both adjusted net income and adjusted EBITDA for Q1 of last year were positively impacted by approximately $1 million based on the flow-through of the COVID-related media demand pull-forward. Our cash balance on March 31st totaled $89 million and is inclusive of the 6.6 million shares issued to shareholders of Sterling. As of May 3rd, we currently have 40.4 million shares issued and outstanding and 42.7 million shares on a fully diluted basis. On our last call, we provided full-year 2021 revenue guidance of between $101 million to $110 million inclusive of an expected contribution of $35 million to $37 million from the Sterling acquisition based on continued strong demand at Sterling. We now expect that the 2021 revenue contribution from Sterling will come in $5 million higher than originally expected, or $40 million to $42 million, and we are increasing our full-year 2021 guidance accordingly to $106 million to $115 million. Now I'd like to turn the call back over to Mike.

Mike Rice, CEO

Thanks, Rod. I'd like to summarize the key takeaways from Q1 and our rest-of-year outlook. We're off to a great start across the portfolio. Travel restrictions are lifting and we're back on the road visiting customers and our sites to meet with team members. We expect 2021 to be an inflection year based on our Q1 results, a very strong Q2 so far, and our confidence in customer demand for our products and services throughout the rest of the year. The Sterling team continues to crush it, and Dusty has played a critical role integrating Sterling into BioLife. Now I'll turn the call back over to the operator to take your questions, John.

Operator, Operator

At this time, I would like to remind everyone, if you would like to ask a question, Operator provided instructions were given. The first question is coming from the line of Chris Lin with Cowen.

Chris Lin, Analyst (Cowen)

Thanks for taking my questions. Hi, Mike, Rod, and Dusty. The number one question I received from investors today concerns Sterling specifically. Investors are asking how differentiated the ultra-low temperature technology is and how difficult it will be for a competitor to enter this space. I know this was addressed on the last call and all of this call, but any increments with details you can provide would be appreciated.

Mike Rice, CEO

Dusty, why don't you take that one?

Dusty Tenney, President & COO

Okay, Chris. Thanks for the question and for the representation of the shareholder base there. I think there's a couple of meaningful points. One is around the market: when you take a look at the ULT market, it's definitely growing mid to high single digits which is, from our standpoint, a key attribute in terms of the investments that we're making to expand the portfolio. I think we're also taking share in the market. Our brand recognition through the COVID period has really increased the visibility of Sterling Ultra Cold in the market and the flexibility of the tool that can be used at multiple different touch points throughout the markets that we're addressing. And I think the third is the opportunity in relation to geographic reach. Right now, as I start to think about the opportunities in that particular space, clearly China comes to mind: we're under-penetrated in that market and by virtue of that that's probably the highest growth market in terms of ULTs. So I think it's those three things: market growth, share gains, and opportunities in markets where we're under-penetrated.

Chris Lin, Analyst (Cowen)

Okay. Thank you. Maybe could you also just address how difficult would it be for a competitor to enter this space? How long would it take a larger competitor to develop this technology?

Dusty Tenney, President & COO

One is the realization that the technology we have, which leverages Stirling, is well protected with patents; the patents have been brought into the BioLife portfolio. For someone to get into the space and establish themselves, especially with the breadth of sales and distribution that we have on a global basis, that's a real tough part, Chris, to be quite honest. And by virtue of that, the ability to get into the market and be successful is a real challenge, especially with the entrenchment that we have with a number of critical customers. One I highlight, of course, was Catalent with the global relationship that we recently established.

Chris Lin, Analyst (Cowen)

Great, very helpful. Just two more questions from me. Apologies if I missed this, but I think you increased Sterling revenue guidance by $5 million for the full year. What's driving the upside?

Dusty Tenney, President & COO

Chris, it's fundamentally continued strong demand that we see coming in both in Q2 in the near-term versus when we put out our guidance back in March. It's been stronger than expected and that's expected to continue throughout the rest of the year.

Chris Lin, Analyst (Cowen)

Okay, great. And last question: Mike, could you just help us unpack the media strength in a bit more detail? Is the growth being driven by the addition of new customers, or is it due to existing customers increasing utilization as they progress through clinical trials?

Mike Rice, CEO

Yes, thanks Chris. Great question. I'm glad to provide some detail. It's both, but the biggest impact comes from existing customers that progress to clinical trials and need more media. We're also acquiring new media customers and continue to do so at a fast clip. They don't buy very much in the early phases or even in the preclinical phase, but we're capturing the market very well. But what's clearly the biggest factor is existing customers progressing through and needing more as their enrollment increases and as they advance to later stages of development.

Chris Lin, Analyst (Cowen)

Great, thanks for taking my question.

Operator, Operator

Operator provided instructions were given. The next question is coming from the line of Jacob Johnson from Stephens.

Jacob Johnson, Analyst (Stephens)

Hey, good afternoon, Mike, Rod and Dusty.

Mike Rice, CEO

Hi Jacob.

Jacob Johnson, Analyst (Stephens)

Hey, I guess first question maybe just on the sequential growth in the services segment. It looks like Evo revenues picked up nicely sequentially. Can you confirm if that was the case, and any color you want to talk about the growth in that segment?

Rod de Greef, CFO

Yes. As I commented earlier, we are trying to streamline the revenue categories, because both thaw and Evo right now represent less than 5% of total revenue. When we plug Sterling into the mix next quarter, that segment will even be smaller, more like 2% or 3% of revenue. So calling that out as a separate line item is not something we're going to do. What I can say is that there was some sequential growth on the Evo side, but the bulk of the increase was the bio storage revenue from SciSafe that had a nice bump up. We are seeing strong growth and have decent visibility as that unfolds because typically there are contracts — some pretty large ones — that are signed with specific timelines associated with when that revenue starts to kick in. So we're pretty confident and optimistic about that contribution this year.

Jacob Johnson, Analyst (Stephens)

Okay, got it. Thanks for that Rod. Maybe one other question: on the freezer and thaw segment, you did just shy of $5 million in revenues during the quarter. If I back out Sterling, you're guiding to something like $15 million to $17 million for that segment for the year. Was there any one-time benefit in the quarter? Or is there similar seasonality in this segment to the seasonality that Dusty outlined at Sterling?

Rod de Greef, CFO

Yes, I think we're going to see something similar in Q3 to what Dusty highlighted. Relative to Q1, we certainly had a strong quarter with the core product lines that the company has been selling. We introduced the high-capacity controlled-rate freezer which has a very high ASP nearing $500,000, and you don't have to sell many of those to have a positive impact on the revenue line.

Jacob Johnson, Analyst (Stephens)

Okay, got it Rod. And then maybe just one big picture question: you put out this $250 million revenue goal in the next three or four years. Now you have these newly defined segments. How should we think about the growth profile of each of those segments to get to the $250 million goal? Should we assume they're all growing similarly or expect one or two segments to be more important growth drivers?

Rod de Greef, CFO

Rather than get specific around growth rates, here's how we view it: we would expect just slightly over 50% of the $250 million to come from the freezer and thaw product platform now that we have Sterling on board. About 30% would come from media, and roughly 20% we would expect to come from storage.

Jacob Johnson, Analyst (Stephens)

Got it, thanks for that Rod and congrats on the quarter.

Rod de Greef, CFO

You bet. Thank you, Jacob.

Mike Rice, CEO

Thanks Jacob.

Operator, Operator

Operator provided instructions were given. The next question is from Thomas Flaten from Lake Street Capital.

Thomas Flaten, Analyst (Lake Street Capital)

Good morning guys. Thanks for taking the questions.

Mike Rice, CEO

Hi Tom.

Thomas Flaten, Analyst (Lake Street Capital)

I might be pushing a little bit here, but Mike you've said that you'd likely see expansion from commercial product approvals in the 12 to 24 month window. You've got a couple products that meet that criteria. Is it too early to see if that thesis is bearing out in terms of multiple expansion from products you're selling to those commercial products?

Mike Rice, CEO

A bit still too early Thomas. We're in five approved therapies using CryoStor now. I mentioned four more that could get approved in the next several quarters. The takeaway is that CryoStor and HypoThermosol are used in so many customer clinical applications. There's going to be attrition among programs; we're not going to have dozens of approved therapies against the exact same indication. However, the market can support many programs. We have many shots on goal and we believe that over the next three to five years, if the FDA staffs up and fast-tracks application review, we could see 10 to 20 new approvals each year starting in 2025. We're involved in a large number of those opportunities where there's tremendous upside on the media side alone.

Thomas Flaten, Analyst (Lake Street Capital)

Great. And then as a slightly bigger picture question, as you look out at the universe of potential acquisition opportunities, is there a skew toward product versus service? Or are you opportunistic across the board?

Mike Rice, CEO

The immediate response is opportunistic. If we can find consumable, repeatable revenues with media-like margins, of course we'll try to find those first. Those aren't growing on trees and there aren't that many left, but we do have some targets that could be meaningful for us, and we're active.

Thomas Flaten, Analyst (Lake Street Capital)

Great. One final one: Dusty, could you repeat the seasonality comments you made in the prepared comments? I'm not sure I caught them properly.

Dusty Tenney, President & COO

Yes, Thomas. The phrasing I used centered on the fact that in Q3 there is a slight downturn driven by European summer holidays, but it is slightly offset by U.S. government fiscal year-end spend. The second reference is Q4, where we normally experience a slight pickup by virtue of year-end capital spending.

Thomas Flaten, Analyst (Lake Street Capital)

Excellent. Thanks so much and congrats on the quarter, guys.

Dusty Tenney, President & COO

Thank you.

Mike Rice, CEO

Thank you.

Operator, Operator

Operator provided instructions were given. The next question is from Mike Gokay from KeyBanc Capital Markets.

Mike Gokay, Analyst (KeyBanc Capital Markets)

On the media, was there any commercial stocking revenue in 1Q that was in preparation of the two commercial launches that were approved in 1Q, and then looking forward, baked in the guidance you're implying that pretty significant step up in media. Can you talk to the visibility of that and any numbers baked into the potential commercial approvals that you mentioned earlier?

Mike Rice, CEO

Thanks Mike. I'll take the first one. Yes, we would expect the companies that recently got approved to be meaningful customers for us in this calendar year. Whether or not their order flow is attributable specifically to stocking or gearing up for commercialization, we're not going to break that out. But they should be meaningful customers and meaningful revenue contributors to media.

Rod de Greef, CFO

Yes Mike, as we've talked about in the past, we have a significant revenue concentration in the media business and the bulk of those customers we have supply agreements with, and they provide us with forecasts which gives us decent visibility. It's gotten a little choppier over the last 24 months versus before that, but it gives us decent visibility. Customers are also placing orders out through the balance of the year that correspond to those forecasts, so we have pretty good visibility on a chunk of that media business and are pretty confident about where it is.

Mike Gokay, Analyst (KeyBanc Capital Markets)

Great, thanks. And then Dusty on the Sterling side: the first-quarter revenue for Sterling was $17.5 million which kind of gets you to $70 million for the full-year on a run-rate basis. But the overall guidance implies about $60 million once it's run into the BioLife mix. Can you talk to those dynamics and how much revenue was baked into the new Catalent announcement?

Dusty Tenney, President & COO

If you look at the business profile and linearize, given the strong demand we saw in Q1 and the continued build-out of capabilities, a linear extrapolation would put us in that $60 million to $70 million range. However, we expect a slight downturn in Q3 due to seasonality, and we've built those dynamics into the guidance Rod shared. The Catalent relationship was accounted for as part of the guidance: they are expanding globally and we have an incredible relationship that has been built over the last two to three years.

Mike Gokay, Analyst (KeyBanc Capital Markets)

Perfect. Thanks for the time, guys.

Mike Rice, CEO

Thanks Mike.

Operator, Operator

Operator provided instructions were given. The next question is from Carl Byrnes from Northland Capital Markets.

Carl Byrnes, Analyst (Northland Capital Markets)

Question and congratulations on your progress. Looking at media sales of $8.9 million, up 3%, and I think $1.5 million was related to COVID safety purchases in 2020. You mentioned normalized growth would be approximately 25% year-over-year. Has the impact from the COVID safety purchases in 2020 baked off at this point?

Rod de Greef, CFO

Yes, I think what we saw early last year was demand pull-forward. We were uncertain at the time whether it was permanent safety stock or pull-forward. At this point we feel confident to say it was demand pull-forward and was used throughout 2020, which likely resulted in somewhat lower demand later in 2020. We think there is zero impact in Q1 of this year from that issue — it's behind us — but it does create lumpiness. The best way to calibrate media growth is to look at year-to-date numbers as we go through 2021; that will smooth out the bumps from 2020.

Carl Byrnes, Analyst (Northland Capital Markets)

Got it, that's very helpful. As a follow-up on the Catalent expanded agreement: if I recall correctly, there was a commitment in addition to being a preferred vendor of 100 freezers. Can you quantify what spend or timing you would expect to garner from that?

Mike Rice, CEO

Yes, we have an agreement with Catalent. The specifics around the 100 freezers are tied to them getting their facilities in place. At the time their facilities are ready, we'll be deploying those systems. Those orders have been earmarked and are baked into our outlook but will most likely take place over the back half of the year.

Carl Byrnes, Analyst (Northland Capital Markets)

Excellent. Thanks so much and congrats again.

Mike Rice, CEO

Thanks.

Operator, Operator

Operator provided instructions were given. The next question is from Suraj Kalia from Oppenheimer.

Suraj Kalia, Analyst (Oppenheimer)

Good afternoon, everyone. Dusty, I want to make sure for Sterling we understand the incremental COVID-related business. From the last call, there was something between $10 million to $20 million that was COVID-related. Help us sort that out so we can normalize Sterling on an ex-COVID basis.

Dusty Tenney, President & COO

Suraj, as a framework, roughly about 20% to 25% of the $17.5 million we reported in Q1 we directly attribute to revenues targeted for COVID. That math equates to roughly $3 million to $4 million in Q1. There's a declining focus on COVID now, and most of the bookings we experienced in Q1 were outside the COVID environment. We're seeing the market come back in pharma and biotech, bio-banking dynamics, and clinical trials where our products play an important role. From a guidance perspective, we're reporting that COVID-related contribution is declining and being picked up by other market areas within the business.

Suraj Kalia, Analyst (Oppenheimer)

And specifically for Sterling, Dusty, would I be off in thinking that the incremental COVID contribution is in that 20% to 25% range you mentioned? Also, Mike, on revenues per customer: can you give us directional thoughts on that metric and where you're headed given cross-selling efforts?

Dusty Tenney, President & COO

Yes Suraj, the COVID portion for Sterling in Q1 was roughly in that 20% to 25% range.

Mike Rice, CEO

Suraj, on revenues per customer, it's more complicated now that we have more to sell. We're still working to get much better visibility on how many customers in any given quarter buy one, two, three, four or all of the solutions. We had some modest increases sequentially from Q4 to Q1, but we're still refining the database and how we'll present that metric. The good news is it’s working: we saw a sequential increase in Q1 despite travel restrictions, and now that we can visit customers again, we expect cross-selling to accelerate and capitalize on the core media customer base.

Suraj Kalia, Analyst (Oppenheimer)

Got it. Rod, last question for you: gross margins took a step-down with the acquisition. When Sterling starts flowing through in Q2 and beyond, how should we re-model the P&L from a gross margin perspective?

Rod de Greef, CFO

On an adjusted basis, there will be some dilution to gross margin because the Sterling operation has been running somewhere in the low 30% range. If you take our current blend and then apply the expected Sterling percentage of revenue, you'll get a lower adjusted gross margin than before. We had a strong gross margin in Q1 at CryoStor, in large part thanks to the shipment of one very large freezer that has significantly better margins. On the Sterling side, there's a path to significant margin improvement as we progress through the year, particularly in Q4 and then further into 2022. Our expectation is for margins to return on an adjusted basis to the mid-50s; we feel confident we'll get there.

Mike Rice, CEO

John, why don't you queue up the next question from Marc Wiesenberger.

Operator, Operator

Certainly. We have Marc Wiesenberger from B. Riley Securities in the queue.

Marc Wiesenberger, Analyst (B. Riley Securities)

Thanks. Over the medium term, can you talk about growth expectations for liquid nitrogen freezers from CBS versus the Sterling product line and how the go-to-market strategies might differ? If Sterling looks to get into much lower temperatures around minus 160 degrees Celsius, how would that impact demand for LN2-based systems?

Mike Rice, CEO

Dusty, why don't you speak to our integrated freezer platform and how the sales team will address both product lines?

Dusty Tenney, President & COO

Marc, one of the biggest attributes of Sterling coming into the BioLife business is that we have roughly 15 direct selling resources complemented by a strong distribution network that now overlays all freezer sales. Those sales resources will sell both the Sterling line and the CBS line. Most customers deal with several different modalities in their research. Our mechanical freezers focus on targeted therapies using blood and other samples typically in the minus 80 regime; the CBS LN2 space focuses more on cells and tissues. These modalities are complementary because many customers work across all biological materials, giving us a natural extension to speak with similar customers for both Sterling and CBS offerings. As Mike noted, we also have opportunities to sell other parts of the portfolio — media and storage — opening doors to cross-sell and strengthen market penetration. With critical mass, we can leverage the go-to-market pathway to serve temperatures from minus 20 up to minus 196 degrees Celsius.

Mike Rice, CEO

To the part of Marc's question about whether Sterling at minus 160 would displace LN2: where LN2 infrastructure exists, certainly not. We'll have everything in the portfolio to offer what customers need. In places without reliable LN2, a mechanical solution that achieves cryogenic temperatures could expand opportunities. It's complementary rather than a straight displacement in most cases.

Rod de Greef, CFO

Marc also asked about growth rates for LN2 versus mechanical. We are not going to give specific growth rates for those segments at this time; the freezer platform now includes both lines and thaw products, and we are focused on execution.

Marc Wiesenberger, Analyst (B. Riley Securities)

Got it, that's a lot of information and very helpful. The Catalent partnership announcement was very nice; as CDMOs play a more prominent role in cell and gene therapy development and manufacturing, can you talk about how you expect your relationship to evolve with Catalent, and more broadly, what percentage of sales CDMOs represented in the past and what they could be over time?

Rod de Greef, CFO

A couple of years ago we could put a finger on the percentage of media revenue from the top CDMOs, but now it's more complicated because we sell more products and have more relationships. We can do some research and follow up with you. The takeaway is we expect to replicate to some degree the success we've had with Catalent. We're already selling at least one solution in the portfolio to all CDMOs in the cell and gene therapy space, and by leveraging our customer service and corporate reputation, we expect to be able to replicate or realize other CDMO relationships that use multiple solutions like Catalent does.

Marc Wiesenberger, Analyst (B. Riley Securities)

Great. One last question: could you potentially quantify duplicative costs that will be taken out of the system throughout the year and timeline for those rationalizations?

Rod de Greef, CFO

I don't think we want to quantify that at this time. We still have a lot of work to do and Dusty is leading that effort. One concrete example: on the SciSafe side, Gary is a user of Sterling freezers. To outfit a new European location this year, we're going to save approximately $2 million in CapEx by moving Sterling freezers in there versus buying from some other vendor.

Marc Wiesenberger, Analyst (B. Riley Securities)

Very helpful, Rod. Thanks.

Rod de Greef, CFO

You bet.

Operator, Operator

We do not have any further questions at this time. Presenters, you may continue.

Mike Rice, CEO

Thanks, John. Thanks everyone for your interest in BioLife. It's clear we've built a very special culture here that we're extending to our acquired companies. This team is totally customer-focused and that dedication is paying off as evidenced by our operating results. We're looking forward to sharing our Q2 results with you. Good night.

Operator, Operator

This concludes today’s conference call. Thank you all for participating. You may now disconnect.