BioLife Solutions Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 9 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Second Quarter 2023 Shareholders and Analyst Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I will now turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions.

Speaker 1

Thank you, Savi. Good afternoon, everyone, and thank you for joining us. With me on today's call is Mike Rice, Chairman and Chief Executive Officer. Earlier today, we issued a press release announcing our financial results and operational highlights for the Q2 of 2023, which is available at biolifesolutions.com. Quarter.

Speaker 1

As a reminder, during this call, we will make forward looking statements. 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 and we undertake no obligation to update them. 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.

Speaker 1

Now, I'd like to turn the call over to Mike Rice, Chairman and CEO of BioLife.

Speaker 2

Thanks, Troy. Thanks, everyone, for joining our call. We have several updates to report and discuss in the near term, but Our business fundamentals and mid to long term growth rates remain intact and we remain confident in our end markets. Our consumables portfolio includes critical inputs for cell and gene therapy bioproduction. And these high margin solutions sold to customers with whom we have very sticky relationships can create enduring shareholder value.

Speaker 2

I'll let Troy speak to the numbers, but on a high level, the macro headwinds and the global economic uncertainty now being experienced across the bioprocessing industry have not just constrained biotech funding and capital equipment purchases, freezers in our sales, but also more recently led to a noticeable destocking and temporary slowdown in demand for our cell processing consumables. Quarter. Our largest distributor also reported slower growth in China, consistent with the comments by several of our peers. 2019. As a result of this inventory destocking and broad lumpiness, we are adjusting our near term forecast for demand and reducing 2023 guidance in line with that of others in the space.

Speaker 2

To be clear, we don't view this environment as a new normal for bioprocessing and bioproduction, but a temporary period of customer disruption. To remind you, our products are critical consumable components required to delivering cell and gene therapies. BioLife is a leading supplier of these solutions and we count the vast majority of commercial and clinical stage CGT players as our core customers. Before discussing our Q2 results and updated outlook for the rest of this year, I'll begin with an update to our Q1 announcement regarding strategic alternatives after considering all strategic alternatives, management and the Board of Directors have concluded that divesting our Sterling and CBS freezer assets will optimize the growth and profitability of our consumable product portfolio and allow the company to focus exclusively on our recurring higher margin streams. It is the right decision for the business, our customers and you, our shareholders.

Speaker 2

To this end and based on the interest and feedback we've received so far, We are now able to fully commit to starting 2024 without the freezer product lines and the impact these have had on our margins, working capital requirements and revenue lumpiness. We appreciate the value of the related IP, products and teams and expect a new owner to be better able to provide global access to these innovative Products. In our earnings release issued today, we provided a pro form a illustration of our first half twenty twenty three results, excluding the freezer businesses and other one time charges. This clearly and strongly reinforces our commitment to divest these assets and we are keenly focused on managing the process to meet our year end completion goal. I'd like to acknowledge the sustained improvement efforts of our leadership team, middle management and line workers at CBS and Sterling, who have put these assets in the best shape ever from the perspectives of quality, operations, supply chain, financial accounting, CRM, HR systems and sales and marketing.

Speaker 2

We appreciate and recognize that operating through a divestiture process can lead to uncertainty for our team members and customers, and I'm proud of and grateful for their dedication and report. We'll proactively communicate updates internally and externally as best we can as the process continues. Now I'll move on to discussing our Q2 performance. To some specifics, in Q2, we sold and shipped products and provided services to 188 new unique customer sites across our 3 products and services platforms. A large portion of our total revenue continues to for manufacturing, storage and distribution products and services.

Speaker 2

In each of the last 6 quarters, we gained over 150 new customer sites and have a strong pipeline of early stage users that we will carefully nurture and support to drive future growth. We now estimate that our BioLife and Sextant cell processing products have been used in or are planned to be used in over 800 customer clinical applications and we remain confident that each customer clinical application, if approved, could generate annual revenue in a range of $500,000 to 2,000,000 we expect to be able to continue to take share from homebrew preservation cocktails as awareness grows with the critical role our engineered media formulations play in reducing risk for CGT Companies. New Q2 customer sites by product and service line included 19 now using bar preservation media, 6 new ThawSTAR users, 17 new EVO cold chain end users, 13 new cryogenic freezer and accessory customer sites, 102 New Sterling ULT Freezer and Accessory customer sites, 21 New BioStorage customers and 10 new cell processing customers now using Sextant products. For our cell processing platform in Q2, we received confirmation that our solutions will be used in at least 24 additional clinical trials for new cell and gene therapies, 20 for BioLife biopreservation media and 4 for Sextant's cell processing tools.

Speaker 2

In our storage and storage services platform, which includes EVO cold chain rentals and CySafe storage services, We gained 38 new customer sites in Q2, 21 for biological storage services and 17 for EVO. EVO shipments continue to grow as more end customers are onboarded by our courier partners. It's clear that late stage and approved CGT companies will continue to de risk their reliance on the long term incumbent competitor. Specific to that, a global pharma company with 2 approved therapies continues to work through their evaluation and validation of the EVO platform and now anticipate starting to ramp in the last half of twenty twenty four. Their conveyed demand for EVO, if fully realized, would significantly increase our fleet size and total revenue for the platform.

Speaker 2

On the CySafe side of the platform, we also continue to penetrate further in existing customers and have a very strong pipeline of high value long term contract opportunities and we expect another banner year for CySafe. We continue to evaluate a list of potential expansion locations to increase our global biostorage capacity footprint. Of course, we look for potential synergies to co locate a biorepository within our planned new GMP Media Manufacturing Center of Excellence. On that point, to support this anticipated mid to long term growth, with 2 leading commercial real estate advisory firms that specialize in life sciences expansions, we made progress on our initial assessment of potential locations to build and validate a de novo self processing media production facility. To build sufficient additional capacity to meet anticipated demand for our proprietary high margin recurring revenue media products.

Speaker 2

While the timeline is not yet locked, it's likely this new facility will come online toward the end of 2025. I'll wrap my comments with this. We sell critical CGT bioproduction tools that are sole sourced from BioLife. These are not one time buys, but rather consumables that need to be replenished. We have a strong brand and track record with limited competitive substitutes.

Speaker 2

Our CGT customers participate in an emerging class of therapeutic modalities that are just now becoming real and we naturally expect demand for our products to increase as they progress their programs. The reality is that right now the economy is tighter and the participants in this ecosystem all want to reduce cash burn and are holding less inventory than previously. Growing demand will offset this, But for now, we must weather this moment and with the help of the planned divestitures, we'll make thoughtful adjustments to our operations to become leaner, less complex and a significantly more profitable business starting in 2024. I'll turn the call back over to Troy to present our financials for Q2 and the first half of twenty twenty three. Troy?

Speaker 1

Thank you, Mike. Total revenue for the Q2 of 2023 was $39,500,000 representing a 3% decrease from Q2 2022. And excluding COVID related revenue from Q2 2022, growth was 7%. Revenue growth was driven by a 22% increase in our cell processing platform, offset by a 26% decline in our freezers and thaw systems platform. There was no COVID related revenue in Q2 2023 compared to 9% of COVID related revenue in Q2 2022.

Speaker 1

Cell processing platform revenue for the Q2 of 2023 was $18,700,000 up 22% over the same period in 2022. Freezers and Thaw Systems platform revenue for the Q2 was $13,900,000 down 26% over the same period in 2022. Excluding COVID related revenue from Q2 2022, revenue in Q2 2023 decreased 23%. Storage and storage services platform revenue for the 2nd quarter was $6,900,000 up 7% over the same period in 2022. Excluding COVID related revenue from Q2 2022, revenue in Q2 2023 increased 94%.

Speaker 1

Total revenue for the 6 months ended June 30, 2023 was $77,200,000 representing a 1% increase over the same period in 2022. And excluding COVID related revenue from this period, growth was 11%, which was driven by a 24% increase in cell processing revenue. There was no COVID related revenue during 2023 compared to 9% of COVID related revenue in the 6 months ended June 30, 2022. Cell processing platform revenue for the 6 months ended was $37,700,000 up 24% over the same period in 2022. Freezers and Thaw Systems platform revenue for the 6 months ended was $26,900,000 down 21% over the same period in 2022.

Speaker 1

Excluding COVID related revenue from the same period in 2022, revenue decreased 18%. Storage and storage services platform revenue for the 6 months ended was $12,600,000 up 1% over the same period in 2022. Excluding COVID related revenue from the same period in 2022, revenue increased 96%. Adjusted gross margin for the Q2 of 2023 was 35% compared with 36% for the Q2 of 2022. Adjusted gross margin for the 6 months ended June 30, 2023 was 36% compared with 34% from the same period in 2022.

Speaker 1

GAAP operating expenses for Q2 2023 were $54,800,000 versus $117,100,000 in Q2 2022. And full year 2018. For the 6 months ended, GAAP operating expenses were $106,100,000 versus $161,300,000 for the same period in 2022. Adjusted operating expenses for Q2 2023 totaled $22,200,000 compared with $20,300,000 in Q2 2022. Adjusted operating expenses for the 6 months ended were $6,800,000 compared with $40,400,000 for the same period in 2022.

Speaker 1

The increase in operating expenses was primarily driven by increased headcount and infrastructure costs to support our long term growth objectives. Our adjusted operating loss for the quarter of 2023 was $10,400,000 compared with $5,700,000 in Q2, 2022. For the 6 months ended, adjusted operating loss was $21,000,000 versus $14,100,000 for the same period in 2022. Adjusted EBITDA for the Q2 of 'twenty three was negative $1,200,000 compared with positive $1,200,000 for the Q2 of 2022. For the 6 months ended, adjusted EBITDA was negative $2,200,000 compared with positive $44,000 for the same period in 2022.

Speaker 1

Next, I would like to turn to our pro form a first half twenty twenty three financial profile excluding Sterling and CBS. Our revenue for the first half of twenty twenty three would have been 51,500,000 with a 52% adjusted gross margin and approximately 16% to 18% of adjusted EBITDA. Our cash and marketable securities balance at June 30, 2023 was $48,100,000 compared with $56,900,000 at March 31, 2023. Taking into consideration adjusted EBITDA of negative $1,200,000 cash used in Q2 2023 was primarily related to unfavorable working capital adjustments of $4,700,000 largely due to the timing of raw material deliveries related to media and capital expenditures of $2,200,000 Turning to 2023 revenue guidance. Management is updating full year guidance to reflect expectations for its existing business.

Speaker 1

Total revenue for the year is now expected to be in the range from $144,000,000 to $158,000,000 reflecting a year over year decrease of 11% to 2%. Excluding COVID-nineteen related revenue, this would represent a year over year decrease of 3% to an increase of 6%. Revenue guidance for 2023 does not include any COVID-nineteen related revenue. Total revenue expectations for 2023 include the following platform contributions. Cell processing platform, dollars 65,000,000 to $74,000,000 a decrease of 5% to an increase of 8% over 2022.

Speaker 1

Previous guidance for this platform was estimated to be $89,000,000 to 93,000,000 based on our customers' updated forecasts, we expect a quarterly sequential decrease of approximately 30% in Q3, followed by a 40% sequential improvement in Q4. Freezers and Thaw Systems platform $53,000,000 to $56,000,000 a decrease of 21% to 16% compared with 2022. Excluding COVID-nineteen related revenue, year over year decrease of 18% to 13%. Previous guidance for this platform was estimated to be 70 $2,500,000 to $79,000,000 Storage and Storage Service Platform, dollars 26,000,000 to 28,000,000 decrease of 2% to an increase of 6% over 2022. Excluding COVID-nineteen related revenue, year over year growth of 61% to 74%.

Speaker 1

Previous guidance for this platform was estimated to be $26,500,000 to 30,000,000 The updated forecast reflects the macroeconomic issues seen by our peers and a significant decrease in and anticipated 2023 sales from our largest biopreservation media direct customer. While the updated forecast from our customers are disappointing, We remain confident in the mid and long term growth potential for BioLife. I would like to note revenue from biopreservation media from 2020 to our anticipated 2023 forecast would be over a 35% compounded annual growth rate. Finally, in terms of our share count, as of today, we had 43,500,000 shares issued in outstanding and 46,000,000 shares on a fully diluted basis. Now, I'll turn the call to Mike.

Speaker 2

Thanks, Troy. I'll summarize 2 key takeaways from Q2 and today's call. First, we are committed to investing Sterling and CBS by the end of the year. The first half twenty twenty three financial pro form a without freezers, again, clearly and strongly reinforces our decision to divest these assets and we are keenly focused on managing these process to meet our year end completion goal. We're committed to starting 2024 with a rationalized portfolio comprised of recurring higher margin streams to create the most shareholder value.

Speaker 2

And 2, demand for our portfolio of class defining bioproduction tools and services in the exciting CDT market is modulated by customer production throughput and their inventory management strategies. We remain confident in the mid- to long term growth rates, but demand softened in Q2 and we expect this to persist for the rest of the year. We are very well entrenched and intent on maintaining our position as a premier enabling CGT tools and services provider. We anticipate a recovery of some magnitude in 2024 and for the rest of this year, we will continue to focus on getting closer to our key customers, running the business efficiently and completing divestitures of Sterling and CVS. Now, I'll turn the call back over to the operator to take your questions.

Speaker 2

Savi?

Operator

I will take a moment to now compile our roster. Our first question comes from Jacob Johnson with Stephens.

Speaker 3

Hey, Good afternoon, Mike and Troy. Hi, Jason. Hey, first. Hey, on the Cell Processing segment, I guess, just kind Qualitatively, investors have been worried about destocking for some time in the industry. I'm just curious kind of Why you're seeing it now?

Speaker 3

Why didn't you see it earlier? And then 2, just on the China piece, is there any way to frame up how much exposure Yes, to China, the distributors. So I'll start there.

Speaker 2

Yes, great questions, Jacob. Well, I guess I'd say as it relates to destocking, While several customers are probably experiencing this, it's really one customer and it's a top ten customer who's gone through an inventory sort of management rationalization strategy and that's kind of where they've ended. But I have to say not to blame our customers for It's not uncommon for us to get updates to demand, which are vastly different from what may have been communicated even as recently as a couple of weeks. So we're doing the best we can To get our arms around that, but as I mentioned, we have to get closer to them, so we can just have a tighter, more real time update as to what they're seeing for demand. And Hopefully, they'll be consistent and their order flow will follow the most recent projections that have been given us.

Speaker 2

So that's the story there. It's really one customer. Now to the second part of your question on China, I'll say that this large distributor has conveyed to us that their demand for our products in China through their secondary and tertiary distributors and maybe there's some direct in there, but it's flat year over year. Now they're not on our calendar year, so things are a little bit misaligned in terms of looking at quarters, but that's pretty significant because they are our largest indirect customer and so That's meaningful. As far as trying to quantify those in dollars, we're not ready to do that right now, but it's not meaningless, it's material.

Speaker 3

Okay, fair enough. And then maybe just on the guidance for cell processing, If I heard Troy right, I mean, I think we're looking at revenues there being down maybe 30% next quarter and then maybe A little bit down the single digits in the 4th quarter. I guess the question there is on the destocking, How long could this play out? Is this a 1 quarter phenomenon or kind of a 2 quarter phenomenon? Or is there any risk that spills in to 2024.

Speaker 3

And I guess similar question, how confident are you in returning cell processing to growth in 2024?

Speaker 1

Yes, Jacob, I'd just like to reiterate what I said in my script and that was a sequential decline. So from Q2 to Q3, a 30% decline and then a sequential increase from Q3 to Q4 of 40%. And then I'll let Mike handle the destocking question.

Speaker 2

Yes. So as it relates to the persistence of this Jacob, our sense is that This is getting worked through right now and we've got better visibility now. And we don't believe that we're going to have swings destocking swings of this magnitude that we're going to have to talk about in the future quarters, okay?

Speaker 3

Okay, got it. And then just last question, Mike, I think in the press release and in your prepared comments, you said you don't plan to enter 2024 with the freezer business. Does that mean the freezers will be you expect Those businesses to be sold by the end of this year or is that just referring to the discontinued operations treatment?

Speaker 2

It means that we based on the interest level received to date and where we are with the pitch books and the parties, We would expect that we can complete both divestitures by the end of the year.

Speaker 3

Got it. Okay. Thanks for taking the questions.

Speaker 2

You're welcome.

Operator

Our next question comes from Chad Wieczynski from TD Cowen.

Speaker 4

Hey, you have Chad Wachowski on for Steven Ma. When it comes to the new facility, Could you just speak sort of to how you're rationalizing that if you can reduce the working capital burn by exiting the freezer business. How do you prioritize a new facility versus investing and doubling down in your current portfolio?

Speaker 2

Yes, Chad. Good question. And maybe we weren't crystal clear about this, but this what we'd like people to take away is that The fundamentals of demand for the cell processing business, while softened as a 2 to 3 quarter trough, so to speak, not a new normal, that's not the way we view it. Outlooks for their own increase of doses over time as driven by the 5 catalysts that we've been talking about every quarter, all of which can increase the number of doses that We have to be ready, which means we have to start right now looking at the current capacity in Bothell and Indy and be planning to meet that demand and have room further demand in addition in the new facility. So this is all about portfolio rationalization and CapEx going where it can actually provide the biggest impact and that's really all about media production and bio storage capacity in the form of new CySafe facilities.

Speaker 4

Understood. And on the freezer business, are you able to quantify or just give an update on some of the improvements that you've made Over the past few months and how has that sort of impacted the ongoing negotiations?

Speaker 2

You bet. Yes, thanks for asking. In the pitch books, we have a lot of data in slides that speak to, as you can imagine, would be of interest to prospective buyers. So what is the state of quality in this freezer operation? I'm speaking primarily about Sterling to a much lesser extent about CBS.

Speaker 2

Guys, give us some color on, so what did you inherit? What did you do to fix it? And what are the results in terms of fewer initial at the line failures and then obviously fewer out of box failures and fewer first 30, 60, 90 day customer negative experiences. All of those metrics are going much better. They're all drastically reduced from even a few quarters ago.

Speaker 2

So we've done a tremendous lift here and the shout out Clearly goes to our quality engineering teams to look at all those failures, find the root causes, implement sustainable fixes and get at that. That was not a light undertaking, but as I mentioned in my comments earlier, the products in those portfolios have never been in better shape from all those dimensions that I mentioned, quality being the very first one. So it was a ton of that work, including some supply chain initiatives, but really looking at What are we going to do as people are putting things together, making sure that we're getting material and then doing things right the first time and not passing along defects as a product moves down the production line. So that was a tremendous intensive exercise with a lot of people in the company, both there in Athens, but also generally amongst our quality ops and engineering teams and yes, the results speak for themselves. And clearly, Whoever ends up as the emergent winner in these divestiture processes are going to be able to recognize that, and I'm sure they'll value that.

Speaker 4

Appreciate the color and thanks for the questions.

Speaker 2

You're welcome.

Operator

Our next question comes from Amanda Young with KeyBanc Capital Markets.

Speaker 5

Hi, guys. This is Amanda Young on for Paul Knight from KeyBanc. My first question is, would you be able to update us on the cell and gene therapy landscape. Previously, your peers have talked around 10 BLA approvals in 2023. I'm just kind of curious how the approval landscape is shaping out?

Speaker 2

Sure. We can give some qualitative response to it, Amanda. Thanks for the question. Well, I think It's no surprise if you were to hear us say that, particularly for earlier stage CGT companies, they're in a challenging environment right now. This is all about how do they powder dry, but the onus is really on them to have very well designed clinical trials that have really rational inclusion and exclusion criteria, so they get just the right patients and they can get data that's meaningful.

Speaker 2

They just can't afford to have a footfall because they might not have enough powder to So we do watch that. And while that certainly impacted some of our early stage companies that we're engaged with, I think generally Not so much about the number of approvals because we don't really have a crystal ball there, but there's just it's just clear that the manufacturing bottlenecks Some of our key customers are experiencing, whether they make stuff directly or they have CDMOs do that for them, those bottlenecks are having an impact, whether it's related to that old planning or whether they're relying on some other component that they just can't get, which means they just can't complete final dose. So there's some of that going on as well. That manufacturing throughput is a real issue. However, having said all that, We know the customer concentration from the customers who have approved therapies.

Speaker 2

We have a decent sense of the revenue that comes from the therapy production versus their other clinical trials or validation work, things like that, not total precision, but a decent assumption that we can get to and all those metrics are going the right way. So we remain completely of the mindset that over time and when I say over time, I mean in the midterm that cell and gene therapies will become the primary first line treatment modality for these large disease states and not just blood cancers and solid tumors, but these really big patient populations including vision loss, movement disorders, stroke, you name it. So it's still early. That's what we have to keep reminding ourselves, Right. We have to keep thinking that there will be fits and starts and the macro behind all this is certainly not helpful.

Speaker 2

But fundamentally, we believe in the science and we believe that we're engaged with the customers will be the winners because these are global biopharma companies who are again very smart and they've obviously now all realize that cell and gene therapies are not pills that can stay on a shelf at room temperature. There's a whole cold chain infrastructure and other things that you have to do, So you can best take care of these very sensitive time and temperature sensitive doses, so you don't ruin them along the way. And that's clearly where our products come in. This is about risk mitigation, giving them the best chance to have the most viable cells, which obviously impacts dose potency, which can then be the decision between whether or not the patient's response leads to reimbursement or not. So we're in a good spot, but it is early.

Speaker 5

Absolutely. That makes a ton of sense. And then just one follow-up question. How is the funding environment looking from your perspective as of today.

Speaker 2

Well, I think without realizing the specific reason you're asking, Just try to presume that. If you're talking about companies who need to raise funds to fund operations, that's challenging. If you're talking about The ability to raise funds to make a strategic acquisition that would fit, there's a lot of interest for that. And I'm not going to give any more color comments about What we might be looking at or not, but just suffice to say that it really depends on the reason for the question. There are certainly funds around if Folks are interested to do something strategic where it makes sense.

Speaker 5

Absolutely. Appreciate your time guys and thanks for the questions.

Speaker 6

Welcome, Amanda.

Operator

Our next question comes from Matt Hewitt with Craig Hallum.

Speaker 4

Hi, this is Jack

Speaker 7

on for Matt. Thanks for taking

Speaker 6

our questions. Just to dig a little

Speaker 7

bit deeper in the funding environment, have you been seeing increase in order delays In relation to the tightening biotech capital funding environment.

Speaker 2

Well, I have to be careful here, Jack, to not make general statements because we sort of bifurcate the CGG customers into 2 buckets. Those that have approved therapies and those are the global biopharma companies. And while they're certainly tightening their belt, they need this stuff. They need our stuff because if they can't get our stuff because of poor inventory management or other decisions, which would lead them to not have enough of our stuff In their plant, then they're done. And they can't make a dose.

Speaker 2

And if they can't make a dose, they can't get paid for it, to state the obvious, right? And those with again, with the one exception of the one customer whose destocking was really a result of them implementing a maybe on a more austere inventory management strategy and However, they chose to communicate that to us, albeit with a bunch of changes that are very dynamic. That's that thing. Now for everybody else, The non approved companies who are still in the clinical trial phase, it depends on the size. We've got a lot of those that are early stage and so you bet they're slowing down.

Speaker 2

There are reasons why they're delaying enrollment or they're reducing enrollment, whether it's not so much access to beds, but it's more about access to funds, They can keep going and do what they need to. So we are seeing some of that for sure. But again, we try to focus on the twentyeighty rule, particularly as it relates to how concentrated our customer revenue and we just have to get better to understand what they're going through and to try to navigate through what they're telling us with the hope that they don't tell us something drastically different a week or 10 days later or 2 weeks later, which can be obviously seen as a bit of a curveball, which makes not only our production planning really difficult, but it certainly makes the extent to which we inform our internal plan and our guidance based on those inputs from key customers challenging as And we're not alone in that regard. We're not blaming our customers. We're just trying to say that we've got to do everything we can to make sure we're as close We can and we get really consistent information from them to the extent that they can behave in a more consistent way, that's going to be better for all of us.

Speaker 6

Okay, that's helpful. I appreciate the color.

Speaker 2

You're welcome, Jack.

Operator

And our last question comes from Thomas Flaten with Lake Street.

Speaker 1

Hey, good afternoon guys. I appreciate

Speaker 8

you taking the questions.

Speaker 2

Hi, Tony.

Speaker 8

Just so that we're hey, guys. Just to make Sure, I'm not misattributing the sequential downtick in the Q3. That's I'm assuming due to more than the destocking by the one customer, It's more of a kind of a blended macro impact or is I just want to make sure I understand that because it's a pretty significant like almost $6,000,000 down in the Q3 relative to the Q1 for the cell processing revenues.

Speaker 2

Yes, right on Thomas. Appreciate you asking. A couple of customers are quite a bit of that, so it's not just one and it's based As best as we have right now from customer forecast and other analysis of the all other bucket and those ordering patterns against the macro backdrop. That's what we're forecasting right now. So that's what we're guiding to and we certainly are not sandbagging nor are we being overly exuberant.

Speaker 2

We're really trying to use the best information we have right now to both make sure that everybody in the call realizes What we would not want you to do is take the difference between the first half results against the guidance and just split that up equally amongst Q3 and Q4. We've got some empirical data to say that's not the right way to look at the business. That's what we're giving the specificity around a Q3 over Q2 sequential cliff, if you want to call it a cliff, with more than a modest recovery in Q4, which ultimately combined with the first half results will get us to that updated guidance picture.

Speaker 8

And then going back to a discussion that occurred at the Analyst Day a few months ago, given the CapEx spending constraints. Are you seeing increased demand for storage services? And if so, how do you feel about capacity to take that demand on board at this

Speaker 2

That's a really intuitive question, Thomas. Yes, and thanks for reminding everybody about that. We have a really robust opportunity pipeline. We're sort of okay for now, but we do have to. And again, obviously divesting the freezers puts the company in a much better position, both from a cash perspective, less complex business, less distraction, so on and so forth.

Speaker 2

We're going to have to be very intentional in 2024 as we look to giving Gary and our entire storage services team the space they need because they've got folks who want to fill it up.

Speaker 8

And then if I may one final one. Troy, any thoughts on EBITDA for 2023 just to help us in the middle of the P and L?

Speaker 1

Not at this time, Thomas. If you just look at our current EBITDA for the quarter, I would say that given the dynamics here, right, with the high gross margin media and the product mix shift away from that in the short term, I think you can see that EBITDA margin and gross dollar number probably is not going to improve significantly throughout the year Until the quarter, I appreciate you taking

Speaker 8

the questions. Thank you.

Speaker 2

Thanks, Thomas.

Operator

Since there are no other questions, the queue is now closed. I will turn the call back over to Mike Rice for closing remarks.

Speaker 2

Thanks, Savi, and thanks again everyone for your interest in BioLife. We certainly look forward to providing updates throughout the rest of the year on our progress and we are intent on setting the stage for our banner 2024. Good evening.

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Key Takeaways

  • BioLife plans to divest its Sterling and CBS freezer businesses by year-end 2023 to focus on higher-margin, recurring cell and gene therapy consumables.
  • The company experienced a temporary destocking by key biotech customers, notably one top-10 customer, leading to a near-term slowdown but emphasizing this is not the “new normal.”
  • Q2 2023 revenue totaled $39.5 million (down 3% YoY), with the cell processing platform up 22% offset by a 26% decline in freezers and thaw systems; adjusted gross margin was ~35%.
  • BioLife added 188 new customer sites in Q2, now participating in over 800 clinical applications, underscoring strong mid- to long-term adoption of its biopreservation media and cell processing tools.
  • Updated 2023 guidance projects total revenue of $144M–$158M (an 11% to 2% decline YoY), with a ~30% sequential drop in cell processing revenue in Q3 followed by a ~40% rebound in Q4.
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Earnings Conference Call
BioLife Solutions Q2 2023
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