BLFS: Deja Vue, Another Revenue Record

Zacks Small Cap Research

By Brian Marckx, CFA

Q2 Results:
Another New Revenue Record, 12th Straight Quarter of Sequential Revenue Growth

BioLife Solutions (BLFS) announced financial results for the second quarter ending June 30th.  The company extended what has been a recurring theme with revenue setting another all-time record (beating the $2.2 million posted in Q1 2013, which was the previous record) and revenue increasing for the 12th consecutive quarter.  Total revenue increased 112% yoy and 8% sequentially.  Product revenue also set a new record - which we view as a particularly positive event given that that product sales, as opposed to contract manufacturing revenue, is what we see as the long-term driver of BLFS's top-line as well as a major catalyst to increasing value of the company as a whole.  Also significant is that Q2 total revenue increased sequentially (+8%) despite zero licensing revenue in Q2 and $609k in licensing revenue in Q1 (representing 28% of total Q1 revenue).

BLFS pointed to growing demand for their preservation media products from the regenerative medicine market as a reason behind the growth in product sales - at least some of which came from new customers.  As a reminder, BLFS recently added headcount to prepare for an anticipated increase in product demand - which looks like it is coming to fruition.

But while product sales set a new record, growth from contract manufacturing remained the main impetus for the total revenue growth.  Contract manufacturing revenue was $1.4 million in Q2, up from $341k (+307%) from Q2 2012.  Contract manufacturing revenue continues to benefit from the multi-year contract that began generating revenue in Q2 2012.  Meanwhile, Q2 total product sales were $942k, an increase of 25% yoy and 22% sequentially.  Product sales to direct customers ($811k) were up 63% yoy and up 33% sequentially.  Indirect customer sales ($130k) were down 49% yoy and down 19% sequentially.  On the products side, we continue to expect sales to grow over the long-term with meaningful near-term contribution coming from customers using HypoThermosol for clinical trial purposes as well as in the hair restoration field, where the biopreservation media continues to gain market share.  During Q2 BLFS entered into a deal with HemaCare to market the HypoThermosol and CryoStor product lines which instantly broadens BLFS's distribution and customer footprint and should help further catalyze product sales growth.

Q2 gross margin was 35.6%, down from 41.5% in Q2 2012 and from 52.1% in Q1 2013, the latter which benefitted from the $609k in licensing revenue.  Q2 2013 gross margin was affected by relatively high revenue from contract manufacturing, which is lower margin.

As we've noted in the past, management has done (and continues to do) a nice job of managing operating expenses while at the same time significantly growing revenue.  Operating expenses were $912k in Q2, or 39% of revenue, compared to our $873k, or 54% of revenue, estimate.  Net income and EPS for Q2 were ($283)k / ($0.00), compared to our ($434)k / ($0.01) estimates.

On the operational side of the business, management continues to be actively engaged in building greater awareness of their products.  The company's Chief Technology Officer, Dr. Aby Mathew (a recognized expert in the field of biopreservation), has spearheaded this effort and represented BLFS at the 19th Annual Meeting of the International Society for Cellular Therapy in Auckland, New Zealand in April.  Dr. Mathew made a presentation entitled, "Roadmap for Cell/Tissue Stability Gap Analysis and Clinical Qualification of Biopreservation Excipients/Ancillary Reagents."  In addition, BLFS products were cited in various other oral and poster presentations during the conference.  Then in May Dr. Mathew made a presentation titled "Critical Stability and Biopreservation Considerations for Manufacturing, Storage and Clinical Delivery of Cell and Tissue Products" at the Terrapinn World Stem Cells & Regenerative Medicine Congress in London.  As we've noted in our ongoing coverage of BLFS, these awareness building efforts are key to driving education about the benefits of the company's preservation media and something that we believe will pay dividends in the form of greater interest in and uptake of their products.

Other notable developments include the (as noted) agreement with HemaCare which beefs up BLFS's marketing/distribution capabilities and BLFS being named by Seattle Business Magazine as one the top 100 best companies to work for in Washington State.

Cash

Cash flow from operations was an inflow of $207k.  Ex-changes in working capital, cash flow from operations was an outflow of $52k.  BLFS exited the quarter with $76k in cash and equivalents, roughly flat from Q1.   BLFS notes in the current 10-Q that, "We believe our current cash and cash provided by operations will satisfy our working capital requirements, debt obligations and capital expenditures for the foreseeable future." 

2013 Company Guidance

Management's current guidance for 2013 remains unchanged from that which the company provided with Q1 results.  Guidance for 2013 includes revenue in the range of $6.5MM - $7.0MM (implying growth of 15% - 24%), GM in the range of 38% - 41% (compared to 40.5% in 2012 - the potential contraction due to anticipated revenue growth from contract manufacturing), operating expenses increasing ~10%-20% and operating and net income improvements over 2012 (-$308k / -$512k).

Our Outlook

We have made only minor adjustments to our model following Q2 results with our fundamental long-term outlook remaining intact.  We model 2013 revenue and EPS of $7.3 million and ($0.02) and look for this to grow to $13.1 million and $0.01 in 2016.  While our current year revenue estimate is slightly higher than the top end of management's guidance, we note that company guidance has been somewhat conservative in the past.

We are maintaining our Outperform recommendation.  Our per share price target, which is based in comp valuations, has moved from $0.90 to $1.00. 

A copy of the full research report can be downloaded here >> 
 BioLife Report


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