BLFS: Product Sales Top $1M For First Time

Zacks Small Cap Research

By Brian Marckx, CFA

Q3 Results:
Product Sales Top $1 Million For First Time


BioLife Solutions (BLFS) announced financial results for the third quarter ending September 30th.  While the streak of 12 consecutive quarters of setting a new revenue record was broken, revenue in Q3 was the second highest in the company's history (only bested by the $2.3 million posted in Q2 of this year), was 76% higher than our estimate, and included just over $1 million in product sales, an all-time record (beating the previous record of $942k set in Q2).  As revenue from product sales, as opposed to contract manufacturing, is what we think will be the long-term driver of the top line as well as a major catalyst to increasing value of the company as a whole, this is a significant milestone.  Also noteworthy is that revenue through the first nine months of 2013 of $6.7 million has already surpassed the low end of previous full-year revenue guidance of $6.5MM - $7.0MM (which was affirmed with Q2 earnings release), gross margin came in relatively strong and much better than what we anticipated and operating expenses as a percentage of revenue were well below what we modeled.

BLFS again 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.

Total revenue of $2.2 million was up 29% from the same period in 2012.  Importantly, this was the first quarter since early 2012 that product sales, as opposed to contract manufacturing, was the major impetus to the top line growth.  Product sales increased 61% yoy to $1.0 million while contract manufacturing revenue was up 11% to $1.2 million.  On a sequential basis, total revenue fell about 7% but product sales increased 6% with contract manufacturing falling almost 16%.

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.  And since then BLFS further expanded their potential for growing product revenue via an expanded agreement with STEMCELL Technologies and an agreement with SAVSU Technologies for exclusive distribution of that company's thermal packaging products.  The list of products and clinical trials in which BLFS storage media are being used also continues to grow.  According to the lists (updated as of Sept 2013) posted on the company's website, CryoStor is being used in more than 70 pre-clinical and clinical trials, including several Phase II and Phase III trials, and HypoThermosol is being used in about 15 pre-clinical and clinical trials including Phase II and Phase III trials.  BLFS noted in today's earnings release that the total studies and hospital approved uses in which their products are being used is now currently at about 100.

Q3 gross margin was 41.0%, up from 35.4% in Q3 2012 and better than the 35.6% in Q2 2013.  Q3 2013 gross margin benefitted from the relatively strong product sales, which are higher margin than contract manufacturing revenue.

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 $999k in Q3, or 46% of revenue, compared to our $855k, or 69% of revenue, estimate.  Net income and EPS for Q3 were ($310)k / ($0.00), compared to our ($599)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
<_st13a_place _w3a_st="on">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.  <_st13a_city _w3a_st="on">

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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 and just yesterday (11/13) being named to the Deloitte 2013 Fast Technology 500 list.  In August BLFS announced that STEMCELL Technologies, with which BLFS has had an ongoing relationship with since 2009, will use CryoStor in the launch of over 50 primary cell products which will be marketed to researchers. We also expect future revenue to benefit from an agreement BLFS penned in September with SAVSU Technologies whereby they will act as exclusive distributor for that company's thermal packaging products.  SAVSU's containers are used to ship temperature sensitive biologics, are used in the stem cell and regenerative medicine markets and should be a complementary fit for BLFS's sales team and to the company's storage medium products.

Cash
Q3 cash flow from operations was an outflow of $13k.  Ex-changes in working capital, cash flow from operations was an outflow of $178k.  BLFS exited the quarter with $79k in cash and equivalents, roughly flat from Q2.   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 did not provide full year guidance with the Q3 earnings release.  We note that through Q3 BLFS has already surpassed the low end of their previous full-year revenue guidance of $6.5MM - $7.0MM, which was affirmed with the Q2 earnings announcement.

Our Outlook
We have made some upward revisions to our model following Q3 results given that we have underestimated revenue and earnings for most of the last five quarters.  Our fundamental outlook remains intact.  We now model 2013 revenue and EPS of $8.5 million and ($0.01), revised up from $7.3 million and ($0.02) prior to Q3 results.  We look for this to grow to $14.9 million and $0.01 in 2016.

We are maintaining our Outperform recommendation.  Our per share price target, which is based in comp valuations, has moved from $1.00 to $1.20.

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

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