BioLife Solutions Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 9 speakers on the call.

Operator

Welcome to the BioLife Solutions Third Quarter 20 20 3 Shareholder and Analyst Conference Call. At this time, all participants are in a listen only mode. 1. After the speakers' presentation, there will be a question and answer session. I will now turn the call over to Troy Wieserman, 1, Chief Financial Officer of BioLife Solutions.

Speaker 1

1. Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions 2023 Third Quarter Earnings Conference Call. 1. To start off the call, I'd like to give a warm welcome back to Rod DeGreef, our recently appointed Chairman and Chief Executive Officer, who is on the call with me today.

Speaker 1

18. On this call, we will cover business highlights and financial performance for the quarter and reiterate our previous comments on full year revenue guidance. 20. Earlier today, we issued a press release announcing our financial results and operational highlights for the Q3 of 2023, 1, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward looking statements.

Speaker 1

18. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given, 18, and we undertake no obligation to update them. We will also speak to non GAAP or adjusted results. 1.

Speaker 1

Reconciliations of GAAP to non GAAP or adjusted financial metrics are included in the press release we issued this afternoon. 1. Now, I'd like to turn the call over to Rod DeGreece, Chairman and CEO of BioLife.

Speaker 2

Thanks, Troy. Good afternoon, and welcome to BioLife's Q3 2023 conference call and my first call since rejoining the company in mid October. 18. While I think most of you on the call know me, for those of you who don't, I have over 30 years of senior financial, operating and Board experience 1,000,000 in both public and private companies in the medical technology and life science industries. My history with BioLife dates back to the early 2000s and later became Chief Operating Officer until December of last year when I retired and rejoined the Board.

Speaker 2

18. I bring significant strategic and operational experience and a strong understanding of the company's operations, products and customers, 1, as well as solid relationships with the management team and key shareholders. I've been asked several times why I made a decision to return to an operating role at BioLife. 1. And the answer is simple and it comes down to the opportunity.

Speaker 2

The growth potential of the cell and gene therapy market 1, combined with how well BioLife is positioned to participate in that growth, creates a unique opportunity to build on our market leadership position 1 and generate shareholder value. The chance to lead the organization throughout this critical time was extremely compelling, and I can honestly say 1. As stated on our last call and consistent with our peers, both large and small, 1. The macro headwinds and global economic uncertainty experienced throughout the bioprocessing industry related to pharma destocking, 1, a constrained biotech funding environment and China weakness have persisted throughout the Q3. While these challenges have been undeniable, 1.

Speaker 2

We're beginning to see signs of stabilization and they've also presented BioLife with opportunities to adapt as we navigate through these dynamic times. 1. In this spirit, my immediate efforts are to continue the renewed focus on our cell processing and bio storage platforms 1, and to bring the divestiture process of our freezer business to a conclusion as quickly as possible. I'll provide a brief update on our progress there 18. In the mid to long term, our thesis remains intact, and we believe that the company is very well positioned to 1st quarter.

Speaker 2

Take advantage of the underlying growth drivers of what is still a nascent CGT market in order to drive profitable growth. 18. These growth drivers include additional regulatory approvals in multiple jurisdictions and a growing number of clinical trials, 1, geographic expansion and migration of existing approved therapies to second and first line treatment and the longer term growth 18. These tailwinds are further underpinned by a growing interest from large pharma in the CGT space. 18.

Speaker 2

In addition, 1. Our other cell processing tools and BioStorage services are used in 10 relevant approved cell and gene therapies 1, as well as being incorporated in well over 100 clinical trials. In addition to our knowledge, 20. There is not another commercially available cryopreservation media that is in any relevant approved therapy. We intend to couple our core scientific expertise, 1 Industry Reputation and the market position we have achieved with a relatively small but focused team 1 of scientifically oriented sellers to drive the adoption of the other cell processing products in our portfolio.

Speaker 2

With that context, I'd like to say a few words on our revenue platforms, while allowing Troy to speak in more detail through our 18 Financial Results during his portion of the call. For our cell processing platform, revenue for these products were in line with internal expectations 1, and impacted by the same headwinds others in the CGT industry faced in the Q3, resulting in a 29% 1. Within the cell processing platform, non biopreservation media product sales were 20. Essentially flat compared to the prior quarter. However, media revenue decreased $5,400,000 or 32% sequentially.

Speaker 2

1. When we reviewed Q3 customer data, we found that approximately $3,000,000 or 55 percent of the sequential decrease 1 was related to reduced purchases by several large direct customers, which we believe is attributable to their efforts to lower inventory levels. 18. The balance of the decrease was split evenly between our smaller direct customers that make up approximately 20% of the overall media revenue 1 and our larger distributors that account for approximately 1 third of total media revenue, and we attribute this to the general macro conditions being felt industry wide. 1.

Speaker 2

On the BioStorage Services side, the flat year over year results mask the strong ex COVID growth of 50% 18. Gary Richardson, our new Chief Revenue Officer, and his team were able to deliver. We will continue to focus on filling our existing bio 20.4 18 as well as look strategically at new sites for further expansion. We are confident that these efforts will result in a return to consistent revenue growth 18 and a robust profitability and cash flow profile. Moving on to freezers, you will recall that the company initiated a strategic review 1 of the Freezer Businesses last May and in August announced that it intended to proceed with divesting its 1.

Speaker 2

CBS and Sterling product lines and refocus its effort on the core recurring high margin cell processing products, 1, as well as building out the BioStorage Services platform. We're fully committed to this effort and are working hard to drive this to a timely close. 18. At the end of October, we received multiple LOIs and still have other parties working through a diligence process. 20.

Speaker 2

Due to the competitive dynamics involved, I can't discuss any specifics. However, I will say that we expect to close on the transactions in early 'twenty four. 18. We believe the financial profile of the company post divestiture of the freezer product lines will immediately benefit from the operating leverage 1, provided by the high margin recurring revenue generated by the core biopreservation media products. As part of the recently announced management changes, 1.

Speaker 2

I'd like to welcome Gary Richardson to the team as our newly appointed Chief Revenue Officer. Gary founded our BioStorage business 13 years ago, which we then acquired in 2020. Since then, he's done a great job expanding that business as part of BioLife and has a proven track record 1,000,000,000 of delivering on revenue commitments and establishing and maintaining large biopharma accounts. I look forward to his contribution as he refocuses the sales team 18 on our cell processing platform. Now I'd like to turn the call over to Troy to review the Q3 financial results.

Speaker 1

1. Thank you, Rod. We reported Q3 revenue of $33,300,000 representing a decrease of 18% year over year and excluding COVID related revenue from Q3 of 2022, the decline was 10%. The year over year decrease was primarily related to a 26% decrease 1 and our cell processing platform. And as Rod noted earlier, with respect to the sequential decline, generally speaking, those same factors of destocking 1 and broader industry headwinds are also applicable to the year over year decline.

Speaker 1

Turning to our BioStorage Services platform. 20. Revenue for the Q3 was $6,600,000 a decrease of 10% over the same period in 2022. 1. Excluding COVID related revenue from Q3 2022, revenue in Q3 2023 increased 50%.

Speaker 1

1. Freezers and Thaw Systems platform revenue for the Q3 was 13,400,000 22, a decrease of 13% over the same period in 2022. Excluding COVID related revenue from Q3 2022, 1. Revenue in Q3 2023 decreased 9%. Adjusted gross margin for the 3rd quarter was 30% 1 compared with 34% in the prior year.

Speaker 1

The decrease was primarily due to lower revenue from our high margin biopreservation media. 18. At the end of September, we reduced our corporate non freezer operations headcount by 10% in order to right size the organization 18. In anticipation of the divestiture of our freezer operations, we recognized cash severance cost of 500,000 $2,400,000 in accelerated stock comp in Q3. In addition, we eliminated discretionary travel and marketing expenses.

Speaker 1

1. GAAP operating expenses for Q3 2023 were $62,100,000 $1,000,000 versus $52,500,000 in Q3 2022. The increase was largely due to a non cash 1 Asset impairment on the freezer businesses of $15,500,000 Adjusted operating expenses for Q3, 2023 $1,400,000 compared with $20,800,000 in the prior year. The increase was largely due to $2,900,000 1 and severance costs. Our adjusted operating loss for the Q3 of 2023 was $14,400,000 compared with $7,100,000 in Q3 2022.

Speaker 1

Our GAAP net loss was $29,100,000 18 Q3 compared to $10,300,000 in the prior year. The increase in net loss was due to lower revenue in our processing platform, $15,500,000 non cash asset impairment charge related to Sterling and CBS and severance costs of 2,900,000 20. Adjusted EBITDA for the Q3 of 2023 was negative $3,100,000 compared with positive $1,800,000 1 in the prior year. Our adjusted EBITDA decreased primarily due to lower biopreservation media revenue. 1.

Speaker 1

Our financial profile for Q3 was impacted by a decrease in our high margin biopreservation media revenue 1, which has an out weighted impact on our profitability due to the margin profile and highly leverageable operating costs. 1. Our Biopreservation Media business is well positioned and due to the sticky nature of our products requires minimal SG and A expenses 1st quarter to support revenue growth. Turning to our balance sheet, our cash and marketable securities balance 23, was $42,200,000 compared with $48,100,000 at June 30, 2023. 18.

Speaker 1

Taking into consideration our adjusted EBITDA of negative $3,100,000 cash used in Q3 'twenty three 18 was primarily related to capital expenditures of $2,000,000 and unfavorable working capital of $2,000,000 largely due to the timing of raw material deliveries 1 related to our media products. On October 19, 2023, we closed a $10,400,000 pipe 1. We will be filing 2 S3s in the near term. 1 S3 is related to the registration of shares from the PIPE financing and the other S3 will be a shelf registration 1st to replace our expired shelf registration statement which we believe is good corporate governance and housekeeping. 1.

Speaker 1

Our SVB long term debt balance was $20,000,000 which is interest only through Q2, 2024 with quarterly repayments of $2,500,000 beginning in Q3 of 2024. Turning to 2023 revenue guidance. 18. As we have previously stated, on October 19, we expect to come in at the low end of our guidance issued August 8, 1, which was total revenue of approximately $144,000,000 comprised of cell processing platform approximately $65,000,000 1, which assumes flat to modest sequential growth, BioStorage Services platform approximately 26,000,000 1 and Freezes and Plastics platform approximately 53,000,000. Finally, in terms of our share count, 1.

Speaker 1

As of today, we have 44,000,000 shares issued and outstanding and 46,900,000 shares on a fully diluted basis. 1.

Operator

1st question comes from the line of Jacob Johnson with Stephens.

Speaker 3

1. Hey, good afternoon, Rod. Good to have you back. 18. Rod, thanks for the additional color on kind of the media breakdown.

Speaker 3

I guess, as we think about those buckets, the large direct 1 customers, the smaller ones and the distributors. You're certainly pointing to these headwinds persisting in the 4th quarter. 1. How should we think about maybe some of those pressures alleviating across those buckets maybe as we look into next year?

Speaker 2

18. Yes, good point, Jacob, and thanks for the comment. Listen, I think that 1. When we look at Q4 and we're looking at media revenue on a weekly basis by customer. And so of those three buckets, 1.

Speaker 2

I would say the small direct customers are sort of ratably where we would expect them to be and that 1 is the business that comes in ratably throughout the quarter as opposed to the larger both direct and distributor customers which come in much, much lumpier. So our comment with respect to seeing Q4 come in at or slightly better than 1Q3 is really based on that weekly analysis and what we're seeing. We still have 1. Some room to make up with respect to the larger distributors and larger direct customers, but that's normal. So I I would say at this point in the quarter, we feel good about where we are relative to the guidance we provided on Q4.

Speaker 2

24, we'd like to hold any commentary on 24 to get through the Q4 here because I think that will give us a better sense of 1. What we're kind of seeing, which is we think things have bottomed and perhaps are starting to move back up. We're going through our budgeting process at the moment. Again, on the media side, it's by customer. So I think that we will be in a much better position to speak to 24 when we're ready to put out that

Speaker 3

1. I tried to sync that one by you, Rob. And then just on 1. You haven't lost your fastball. Just Gary, now Chief Revenue Officer and you cut Can you just talk about any changes to the go to market strategy kind of post freezer sale?

Speaker 2

1. Yes. So I think the profile of the sales individuals related to 1. Freezers versus the profile of those selling cell processing tools is pretty different. And so we have 1, a small group of cell processing sales team members who are going to basically 1.

Speaker 2

Work with Doctor. A. B. Matthew here and Sean Warner who are basically our scientific experts in house and 18. Craft the selling message and the selling strategy and go out and drive adoption for those other 1.

Speaker 2

Cell processing tools that we picked up from Sexton as well obviously as the media. But as you know, we are pretty well entrenched on the media side and it's really about capturing new companies as they come out. New companies as they come out. But it's the opportunity in addition to riding those tailwinds on the media is to increase

Speaker 4

1st quarter. The adoption of those other cell

Speaker 2

processing tools and these sellers and there's going to be 4 or 5 of them most of which we already have on the team. So we're really looking forward to Gary putting his efforts into that team, married with the expertise that Doctor. Abi Matthew and Sean bring to the table and see what the results are going to be. We're pretty optimistic about that.

Operator

1. Our next question comes from the line of Matt Hewitt 1 with Craig Hallum. Your line is open.

Speaker 5

Good afternoon. Thank you for taking the questions. Maybe the first one, regarding the 18. And I very much appreciate the market segmentation that you provided. I'm just curious as you look into 1.

Speaker 5

Areas where there has been some weakness or some headwinds, how much of that is tied to the reprioritization of pipelines versus 1. Preservation of Capital. We're hearing that at both ends of the spectrum, small and large pharma just being a little bit more cautious and kind of slowing Some of their pipeline projects, but is there a way to kind of break out the 2? How much of it is budgetary From the customers versus how much of it is just shifting of the pipelines and priorities and that could potentially come back maybe faster?

Speaker 2

18. Yes. I think the large part of the decrease with respect to those several large direct customers, I think that really has to do With internal inventory levels that they're trying to manage tighter than they have in the past. So I really do think that that's a Transient phenomena, whether it gets cleared up in Q4 or Q1 remains to be seen. But we're pretty optimistic based on what we see right now That it is truly transient as opposed to any issues with demand, the end demand for their products or any cut Back in their R and D program or anything like that.

Speaker 2

And again, we're subject to some pretty high concentration within that group of large direct customer. So any one of them wanting to hold back and push out an inventory order for a quarter definitely has some material repercussions for us. I think where you might see some of the other headwinds that you referred to would be in the small direct customers 1. And then in particular, our largest distributor who has a heck of a lot of customers basically in the 1,000. So those are a lot of academic labs, small research labs.

Speaker 2

So those might be affected much more so than larger customers with respect to 1, R and D belt tightening and things like that. And we tried to signal that in the commentary that we had both in my script and in the press release.

Speaker 5

Got it. That's super helpful. And then regarding the freezer divestiture, it appears and maybe 1 Correct me if I'm wrong, but it appears that you're now targeting early 2024. I think last quarter the conversation was you expected to have that done by the end of the year. How is that process proceeding?

Speaker 5

How are you looking at that? Thank you.

Speaker 2

You bet. It's proceeding and I think the buyers of the company. So we wanted to have them in the mix and take advantage of whatever they may come forth with. So that's really what it's about. We've got 2 holidays coming up.

Speaker 2

So just practically speaking, I wanted to level set And let people know that it's unlikely to happen in Q4. 1 or both could, it's possible, but it's more likely in early Q1.

Operator

1. Our next question comes from the line of Paul Knight with KeyBanc. Your line is open.

Speaker 6

Hi, Ron. When what event do you need to move this on to discontinued ops?

Speaker 2

Yes, Paul. Since I've been back, I've spent too much time with 1. Auditors and know too much about the gap around discontinued ops. It's very complicated and basically what we need Is a signed deal in hand that the Board has approved to be able to put things into discontinued ops. In short, that's really the test.

Speaker 6

18. And what's your view on the burn rate of The company this year and what we think the burn rate would be ex sterling.

Speaker 2

1. Well, I don't want to get into too much detail. We're in the middle of our budgeting process, Paul. And so I think we're going to have a much better idea 1st quarter of non freezer BioLife with respect to adjusted EBITDA and cash flow. But what I would say is that 1.

Speaker 2

We would be positive adjusted EBITDA in Q3 here had it not been for the freezer business and that's irrespective of the fact

Operator

1. Our next question comes from the line of Steven with TD Cowen. Your line is open.

Speaker 7

Great. Thanks for the questions. A lot of ground already covered, so just two follow 18. So maybe just to continue on the line of questioning on some of these larger direct customers. And Rod, you said that some of these direct customers could come back faster as they kind of recover from destocking.

Speaker 1

1st quarter. Just maybe if you

Speaker 7

can give us a little bit more color on what gives you that confidence. And we've been hearing that as well from some of the other 1. They're seeing a bottom with regards to destocking headwinds. So, yes, we'd just love to get a little bit more color on what you're seeing out there.

Speaker 2

1. Sure. I'll give you an anecdotal situation that we just literally ran into last week. So large customer, I'll try to minimize the specifics, but requested postponing the delivery of their order by a quarter and we will do that for them. 1.

Speaker 2

And yet then 2 weeks later they call us back and say, oh, guess what, we didn't have as much as we thought. So we'd like to get 10% of that order So it's that kind of situation and that's not the only one that suggests to us that Perhaps they've gone too far. It certainly shows in my mind, a lack of complete management From us, but they all come under the same corporate umbrella. So it's almost as if at some level the left hand doesn't know what the right hand has and they open the freezer and they see that there Not enough cryo store and they say, oh no, we better go buy some. So that is going on and so that's a bit of a reversal from what we've seen.

Speaker 2

And 1. Again anecdotally, but that's what we're facing.

Speaker 7

Okay. No, that's super helpful. And then last question, Just want to make sure, when you said the freezer divestiture process will close likely in early 2024, 1. Does that mean that you guys are close to signing a definitive agreement? And is that something that you guys

Speaker 4

are going to disclose when that's signed? Thank you.

Speaker 2

Yes. Fair question. I think that we're not going to announce the signing of a definitive agreement. We will obviously announce 1st quarter. The close of the transaction, but we're for competitive reasons, I'd rather not say exactly where we are with the different parties.

Speaker 2

I'm sure you'll appreciate that.

Speaker 1

Yes, fair enough. Okay, appreciate it. Thank you.

Speaker 2

Thank you.

Operator

1. Our next question comes from the line of Thomas Flanagan 1 with Lake Street. Your line is open.

Speaker 4

Hey, Rod. Welcome back. 1. I don't want to push the freezer business questioning too far, but do you foresee or can you help us understand if this will be a single transaction Both businesses are more likely to be 2 transactions?

Speaker 2

Yes. Thanks, Thomas. And That's the best I can do given the competitive dynamics that we're involved in. So there are parties that want both And there are parties that want each.

Speaker 4

Got it. And you mentioned starting to review potential locations for a new Cy 1 Safe Facility. Anything you can share there with respect to location, most likely Europe, most likely U. S, maybe even Asia?

Speaker 2

I think it would be in the U. S. We have a very nice site in Amsterdam that still has some room. So it's very well positioned there next to Schiphol Airport. So we're good I think in Europe.

Speaker 2

So it will likely be A very strategic location in the U. S, which again, Gary's strategy has been to identify an anchor tenant, if you will, Which basically when you sign that transaction or that agreement covers the fixed costs of that new facility. And then we fill it after that. And so it's very subject to the several conversations that are going on in different places in the States Relative to identifying and locking down that anchor tenant.

Speaker 4

Got it. And then just one quick final one if I might. 1. I know there's a lot of interest in understanding obviously what the forecast looks like for next year, but maybe even more importantly kind of a mid range forecast. I know you 1 You previously had the 2025 numbers out there.

Speaker 4

Do you have any sense of when you might feel comfortable enough to map that out, what that mid range forecast might look like?

Speaker 2

1. I don't have a specific timeframe, but I'll throw a piece of data at you that we find pretty interesting. So We're currently in the media that is, is embedded in 11 approved cell and gene therapies. 1. And when we look through 2024, it's anticipated from the data we have at least that there's another 19 potential 1 approvals in the process, 12 of which were embedded in.

Speaker 2

So it's possible that by the end of 'twenty four, The number of approved therapies that our media is in has doubled. So that to us that's a very inspiring number 1. And looks good for what 'twenty five and beyond would bring for us.

Speaker 4

Excellent. Appreciate taking the questions. Thanks. 1.

Speaker 1

You bet.

Operator

Next question comes from the line of Michael Okunovich with Maxim Group. 1. Your line is open.

Speaker 8

Hey, guys. Thank you for taking the questions. 1. So I guess I'd like to see if you can give any color on how the current challenging biotech environment nineteen. Could be impacting the longer term opportunity within cell and gene therapy.

Speaker 8

I guess, how much 1. Of your longer term opportunity, do you see being driven by larger biopharmas who may be more able to readily invest 1. Into cell and gene therapy versus smaller biotechs where they may have more trouble with access to capital.

Speaker 2

1. Our revenue on the media side comes from what we would call those small R and D companies, Labs, etcetera. I think the majority of our revenue, 50% of our direct revenue comes from Approved therapies. And I shouldn't say approved therapies, I should say companies that have approved therapies. And as that number gets bigger, 18.

Speaker 2

I believe that as a percentage of total media revenue that is going to get bigger. In addition to the fact that when we get a small company on board, 1. Particularly early stage. It takes several years for the revenue level as they go through preclinical into Phase 1 into Phase 2 to actually have any impact on our revenue line. So while from our perspective, the more the merrier, if there is a little bit of a shakeout in the early stage of Thanks.

Speaker 2

We don't believe that's going to impact us much, if at all.

Speaker 1

1. All

Speaker 8

right. Thank you for that. And then just one more for me and I'll hop back in the queue. When you're looking at the sale of the freezer business and the potential to 1st What could be a decent bit of capital. How do you look at deploying that?

Speaker 8

Do you think that this is something where you could Look at additional M and A, are there any areas that you would be looking at? Or do you believe the best use of that capital could be to just help with the return to profitability?

Speaker 2

1st quarter. So we want to invest in our growth. Is it possible that some of that may be inorganic? Sure, it's 1. It's possible, but it's certainly not a focus.

Speaker 2

And if it was going to happen from an inorganic standpoint, it would be very, very 1st quarter. So really it's about putting the capital to work 18. Against the product lines that we know can grow and drive profitability over time.

Speaker 1

1. All

Speaker 8

right. Thank you very much for taking my questions.

Speaker 2

You bet.

Operator

1. There are no further questions at this time. Mr. Degrief, I turn the call back over to you.

Speaker 3

1. Thank you, operator.

Speaker 2

In closing, it's been a busy few weeks since I stepped back 18. And while it's clear we have work to do, I'm confident that BioLife will not only weather the storm, 18. But emerge stronger, more agile and well positioned for success. The more I dig in, the more enthusiastic I am about the opportunity that lies ahead of us. 1.

Speaker 2

I'd also like to acknowledge and thank our team members for their unwavering commitment to drive BioLife's mission forward 18 as a leading provider of cell processing tools and biostorage services to the CGT and broader biopharma markets. 1. Thank you all for your time today and we look forward to updating you on future calls and meeting with some of you at the Stevens Conference next week.

Operator

1. This concludes today's conference call. You may now disconnect.

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Key Takeaways

  • Leadership change: Rod DeGreef returned as Chairman and CEO with over 30 years of industry experience and is refocusing the company on its cell processing and BioStorage platforms.
  • Q3 financial performance: Revenue was $33.3 million, down 18% year-over-year, with cell processing revenue down 26% and biopreservation media sequentially down 32% due to customer destocking, while BioStorage Services grew 50% ex-COVID.
  • Stabilization signs: Management sees destocking headwinds as transient and expects Q4 revenue to be at or slightly above Q3 levels, with a bottoming and recovery anticipated in early 2024.
  • Freezer business divestiture: Multiple letters of intent are in hand and the company expects to close the sale of its Sterling and CBS freezer lines in early 2024 to sharpen focus on high-margin core products.
  • 2023 guidance reaffirmed: Full-year revenue is expected near $144 million, comprising approximately $65 million from cell processing, $26 million from BioStorage Services, and $53 million from freezers.
A.I. generated. May contain errors.
Earnings Conference Call
BioLife Solutions Q3 2023
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