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Biolife Solutions Inc (BLFS) Q2 2019 Earnings Call Transcript

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Biolife Solutions Inc (NASDAQ: BLFS)
Q2 2019 Earnings Call
Aug 8, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the BioLife Solutions' Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Mr. Roderick de Greef, BioLife Solutions' Chief Financial Officer. You may begin.

Roderick de Greef -- Chief Financial Officer

Thank you, Catherine. Good afternoon, everyone, and thank you for joining us for the BioLife Solutions' conference call to review the operating and financial results for the second quarter of 2019. Earlier this afternoon, we issued a press release which summarizes our financial results for the three and six months ended June 30th, 2019.

As a reminder, during the call, we will make certain projections and other forward-looking statements regarding future events or the future financial performance of the Company. 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 as 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're given. The Company assumes no obligation to update any projections or forward-looking statements except as required by law. During this call for the first time, we will speak to non-GAAP or adjusted results and guidance.

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 provide 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, President and CEO of BioLife.

Michael Rice -- President and Chief Executive Officer

Thank you, Rod. Good afternoon, everyone. Thank you for joining the call. I'm very pleased to discuss our Q2 results and provide some details on how the business is performing and what we expect from our recent acquisitions of Astero Bio and SAVSU. Q2 total revenue was $6.7 million, up 29% over Q2 last year. Second quarter revenue growth was primarily driven by a 33% increase in direct sales to our regenerative medicine customers and the 31% growth from our distributors compared to the same period in 2018. In the total of $6.7 million, we generated revenue of $374,000 in automated thaw product sales from our Astero acquisition that closed on April 1st. We gained 51 new biopreservation media customers, with 37 coming from the high growth cell and gene therapy segment.

Notable new cell and gene therapy, biopreservation media customers included BlueRock Therapeutics, [Indecipherable] Caribou Bio, Casebia, Celixir, [Indecipherable] GenCure, Recardio, Neon Therapeutics and Rubius Therapeutics. Also in Q2, we processed 14 additional FDA master file cross-reference letters supporting use of our products and new cell and gene therapy clinical trials. We also saw increased request for scientific product and regulatory support of customers outside the US with a concentration in China. Q2 was our first full quarter of automated thaw product sales. And I'm very pleased to report that we're off to a strong start. We gained 39 new automated thaw product customers in Q2 and importantly, nearly 70% of these were existing biopreservation media customers. It's also noteworthy that several of these orders came through the e-commerce platform of Fisher Scientific which is augmenting our direct selling activity.

The remaining new automated thaw product orders were driven by our own sales and marketing activities to capture the cross-selling opportunity that we stated as a driver for the Astero acquisition. Some notable new automated thaw product customers included Adicet Bio, Beam Therapeutics, Bluebird Bio, BlueRock Therapeutics, Editas Medicine, Pat Pharma [Phonetic] Patheon Biologics, [Indecipherable] and TxCell. Continuing with our automated thaw product opportunity, we're making very good progress and are on track for a Q4 launch of the new ThawSTAR CB cryobag version.

ThawSTAR CB was designed consistently and accurately thaw frozen biologics packaged in cryobags. Free launch demand is building, and we are optimistic that we will achieve the full year automated thaw product revenue guidance we provided of $1 million to $2 million for 2019.

Turning now to our just announced closing of the acquisition of SAVSU, we believe this further strengthens our position as a leading supplier of disruptive enabling solutions used in the manufacture, storage and distribution of cell and gene therapies. SAVSU's evo system broadens our bioproduction tools portfolio and we believe this will provide opportunities for us to increase our footprint and engagement level and our customer cell and gene therapy manufacturing workflow. SAVSU is establishing a critical and highly valued position as the best in class tools provider in the cell and gene therapy distribution ecosystem.

We have a highly competitive go-to-market strategy that offers the most at [Indecipherable] and SaaS technologies, coupled with valuable partnerships that leverage the worldwide sales, marketing and tech support infrastructure of a leading specialty carriers serving the cell and gene therapy space. Since January this year, the evo system has been used in initial shipments for cell and gene therapies by 50 companies, all of whom are in various stages of full product validation and adoption. We look forward to announcing evo product adoption decisions by several marquee cell and gene therapy developers in the coming months.

A key product differentiator of the SAVSU platform that cell and gene therapy companies highly value is the integrated approach to providing enhanced in-transit protection of these high value and potentially lifesaving CAR T cell and other therapies. Traditional shippers increase the risk of intrinsic biologic payload damage from both mechanical shock and temperature excursions. Both of these events can result in a potential catastrophe for the patient and significant economic loss for the therapy developer. Several companies SAVSU is engaged with, have experienced loss of usable shipments, and the many innovations of the evo system that can reduce in transit payload risk are driving an accelerated rate of product validations. Our outlook is bullish. Rob will provide additional comments on our expectations for evo revenue in a few minutes.

There is a common theme running through the acquisition of Astero and SAVSU. It's all about de-risking clinical trial and commercial cell and gene therapy manufacturing. I'll reiterate again, very important dynamic in the regenerative medicine space that we believe will continue to drive demand for our biopreservation media, automated thought products and evo cold chain management system. The reimbursement environment for our prospective and current customers is evolving into a pay on cure paradigm with payment predicated on a positive patient response to the therapy. We believe this dynamic will support broader adoption of our growing tools portfolio since each product can de-risk the potential of delivering a non-viable dose to the patient. Simply put, delivering a non-viable dose can lead to therapeutic and economic failure.

Our growing portfolio of best-in-class bioproduction tools can derisk development, manufacturing and delivery of cell and gene therapies. Turning now to our worldwide network of distributors, Q2 indirect revenue from distributors was up 30% over Q2 last year. The growth was driven by significantly increased order volume from most of our key revenue contributors.

We continue to see an expanded reach by our distribution partners into the cell and gene therapy space. And in Q2, we provided technical regulatory filing support to several end users outside the USA. Now I'll turn the call back over to Rod to present our financial highlights for Q2.

Roderick de Greef -- Chief Financial Officer

Thanks, Mike. Before reviewing our second quarter financial results, I'd like to make a few comments about our acquisition of SAVSU which we announced earlier today. We issued 1.1 million unregistered common shares in exchange for the 56% of SAVSU we didn't own. SAVSU generates revenue primarily from a monthly rental model with each evo shipper deployed in the field, expected to generate between $4,000 to $8,000 in annual revenue.

At scale, which is expected to be within the next 24 months, we estimate SAVSU's adjusted gross margin will be in the low to mid-60s. For the balance of 2019, we expect the revenue contribution from the evo product line will be relatively modest at $500,000. However, based on the anticipated results of numerous validations, which are expected to be completed in the fourth quarter of this year, we believe SAVSU's revenue in 2020 could be between $4 million to $6 million and we expect a positive adjusted EBITDA contribution in Q4 of 2020 or Q1 of 2021. We will provide more specific guidance for 2020 on our Q3 earnings call.

Moving to our Q2 results, total revenue for the second quarter of 2019 reached a record $6.7 million, representing a 29% increase over last year second quarter revenue of $5.2 million. This quarter's revenue included $374,000 of sales related to Astero automated thaw products we acquired last April.

Organic biopreservation media revenue for this quarter was up 22% compared to last year second quarter. However, excluding the onetime safety stock order, which occurred in Q2 of last year, media revenue this quarter was actually up 28% over 2018. The adjusted gross margin for the second quarter of 2019 increased 72%, compared with 70% in the second quarter of last year. The increase in adjusted gross margin was primarily driven by volume-related reductions in cost of goods sold, slightly higher ASPs both offset by lower margins related to the Astero automated thaw products. Adjusted gross margin for the six month period in 2019 was 72%, compared with 68% in 2018. Adjusted operating expenses for Q2 totaled $3.7 million, compared with $2.4 million in Q2 of 2018. The increase in adjusted operating expenses includes $500,000 related to the Astero automated thaw products, with the balance attributable to increased headcount necessary to support our overall growth and higher performance-based compensation.

Adjusted operating expenses for the six month period in 2019 totaled $7.1 million compared with $4.7 million in 2018. Adjusted operating profit for the second quarter of 2019 was $1.2 million, compared with $1.3 million in the second quarter of 2018. Adjusted net income attributable to common shareholders for the second quarter of 2019 was $1.1 million or $0.04 per diluted share compared with $1 million or $0.05 per diluted share in 2018.

For the six month period in 2019, adjusted net income attributable to common shareholders was $1.7 million or $0.07 per diluted share compared with $943,000 or $0.05 per diluted share in 2018. Adjusted EBITDA for the second quarter totaled $1.9 million compared with $1.7 million in the same period in 2018. For the six month period adjusted EBITDA was $3.3 million compared to $2.3 million in 2018. We ended the second quarter with $19.6 million in cash, compared with $30.7 million at the end of 2018. This decrease as a result of the $12.5 million in cash we used for the purchase of Astero in April. With respect to our current outlook for 2019, we have updated the guidance we provided in March of this year, which includes the impact of acquiring Astero beginning on April 2nd and now SAVSU from August 8th.

We expect total revenue for 2019 will be between $27.5 million and $30.5 million, reflecting year-over-year growth of 39% to 55%. We anticipate that Astero automated thaw products will contribute between $1 million and $2 million in revenue this year, with SAVSU adding another incremental $0.5 million. Our adjusted gross margin for 2019 should range between 69% to 70%, although we expect a modest reduction in our adjusted gross margin going forward as a result of acquiring Astero and SAVSU, we believe that the impact will be limited to between 100 basis points and 300 basis points in 2019. We expect 2019 adjusted operating expenses to be in the range of $17 million to $18 million, which reflects our original guidance, plus the addition of approximately $1.5 million of operating expenses related to SAVSU for the remainder of the year. Finally, we expect to be positive on the operating and net income lines on both the GAAP and non-GAAP basis. I would like to end my remarks with a summary of our share count. We currently have 20.1 million common shares issued in outstanding and a fully diluted share count of 27.4 million.

Now I'd like to turn the call back over to Mike.

Michael Rice -- President and Chief Executive Officer

Thanks again, Rod. In summary, Q2 was another quarter of execution and delivering to our business and growth objectives. I'm glad to share that Q3 revenue is on track at this point in the quarter and we look forward to sharing the results during our November call. BioLife is well positioned for further organic and acquisitive growth. We also look forward to sharing updates related to our M&A strategy and key customer catalysts throughout the rest of the year. I'd like to thank our long-standing and new shareholders for your support of BioLife Solutions.

Now we'll turn the call back over to the operator to take your questions. Catherine?

Questions and Answers:

Operator

Thank you. [Operator Instruction] And our first question comes from Paul Knight with Janney Montgomery. Your line is open.

Casey -- Janney Montgomery Scott -- Analyst

Hi, guys, this is actually Casey [Phonetic] on for Paul. Two quick questions. Hi, guys. Who are the distribution partners in SAVSU? We know it's smart and, but who else is there?

Michael Rice -- President and Chief Executive Officer

Yeah, Casey, so SAVSU is part of what the leading white glove or special carries including [Indecipherable] which is part of UPS. World Courier, which is part of AmerisourceBergen and Quick International.

Casey -- Janney Montgomery Scott -- Analyst

Got you. Okay. And then my second question is what is the trend on gross and operating margins over the next year into 2020?

Michael Rice -- President and Chief Executive Officer

I think that you're going to see, as I mentioned in my remarks, our blended for the year will be 69% to 70%. But as both the Astero revenue and the SAVSU revenue begin to ramp throughout 2020 and beyond, we would expect to see an increase in overall gross margin. So some expansion also driven by the fact that on our core media business based on exist, you know, additional production and additional revenue growth, we would expect to see additional margin expansion there as well. So as long as revenue is going to trend up, we're going to see an expansion on the margin.

Casey -- Janney Montgomery Scott -- Analyst

Got it. Thanks, guys, and congrats on the quarter.

Michael Rice -- President and Chief Executive Officer

Thank you, Casey.

Operator

Thank you. And our next question comes from Raghuram Selvaraju with H.C. Wainwright. Your line is open.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Hi, Mike and Rod, congratulations on completing the SAVSU acquisition. This is actually Phase 1. Just I wanted you guys [Indecipherable] whether or not. Good, good. I wanted you to clarify whether or not guidance for 2019 stipulates positive net income on a GAAP basis or only on an adjusted basis?

Michael Rice -- President and Chief Executive Officer

No, I did say that -- it's both operating and net income positive on a GAAP and non-GAAP basis.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Okay, great. Thank you.

Michael Rice -- President and Chief Executive Officer

You bet.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

And for the SAVSU acquisition, I assume revenues will be categorized as part of the distribution segment. Can you provide some color as to what you might expect in terms of the breakdown revenue from SAVSU within the distribution segment?

Roderick de Greef -- Chief Financial Officer

Yeah. So even though SAVSU's revenue is really primarily run through those distributors that Mike just mentioned, we do intend to break out our revenue by product. So we would have biopreservation media, we would have automated thaw and we would have evo systems. That would be the three buckets, less about the channel.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Okay, great, thank you. And in terms of the Astero distribution effort, have you done this? Is this closely overlapping with BioLife existing distribution segment? And how many sales people have you added in relation to the Astero distribution effort?

Roderick de Greef -- Chief Financial Officer

Yeah. High degree of overlap on for sure. You know, as we mentioned, you know, 70% of the folks that bought thaw devices in the quarter were existing media customers. That's really helpful. And we're just getting our cross-selling and sales and marketing engine ramped up. So we would expect that overlap and opportunity to continue. And we want to capture a lot of that for sure. We have added two sellers and we have a few open recs now. So we definitely know where we're going to put people. And our intention is to have all the field assets promoting all the products. We can leverage the best of all the technologies and bring in experts as needed depending on deal stage.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Excellent. Thank you, I'll jump back in the queue for now and then ask later on if I have a chance. Thank you so much for answering my question.

Roderick de Greef -- Chief Financial Officer

You're welcome.

Operator

Thank you. [Operator Instructions] And our next question comes George Zavoico with B. Riley FBR. Your line is open.

George Zavoico -- B. Riley FBR -- Analyst

Hi, everyone. Great quarter. A lot of interesting stuff going on, of course.

Michael Rice -- President and Chief Executive Officer

Hi, George. Thank you.

George Zavoico -- B. Riley FBR -- Analyst

So a quick question about headcount before your story on SAVSU acquisition. How many employees did you have and how many do you have now? So what's the change?

Michael Rice -- President and Chief Executive Officer

So I think, George, the rough numbers are -- pre-SAVSU, mid-60s, adding about 25 or so. So you can see we're getting up there and it's an efficient team. We've got the right people in the right spots. And we do have a, you know, a nice handful of [Indecipherable] round out some of the teams that need a few more resources.

George Zavoico -- B. Riley FBR -- Analyst

And then Astero was just a handful as well.

Roderick de Greef -- Chief Financial Officer

That's correct. 4 to be exact.

George Zavoico -- B. Riley FBR -- Analyst

So it's really great to see always new customer always this cross-reference request for FDA master files and all that. This is mainly still for products -- industry products that are in the development, various stages of development. Everything from, I think, preclinical to registrational trial. I think the inflection point or perhaps an inflection point, of some of which you may have more than just one, will be even more of these products actually hit the market. Can you break down how many might be like in Phase 3 or preregistration -- that might predict when you might see sort of a steeper incorporation of your -- reservation product.

Michael Rice -- President and Chief Executive Officer

Sure. It's a great question. It's certainly a top of mind that. We try to analyze that through several different metrics. But, you know, nobody has the crystal ball, right, that can provide a lot of specificity. I think it's nice to say that the comments that we would make go like this. Nearly all the revenue today comes from not approved products, but from this clinical trial basket of customers. However, we have perhaps three to five additional approvals and or be late submissions that will happen in the next couple of quarters.

And we believe that the key sort of series of fresh inflection points are big step changes in the revenue are still out in the next three to five years. As you can imagine, having 10 to 20 or even 50 customers with approved therapies versus the situation that we have in the day. So we've got a wonderful growth opportunity ahead of us. And we're certainly not resting on our loyals, we continue to fill the pipeline with early stage companies. So the total universe of folks who are either currently using or intending to use our stuff in clinical trials is growing at a really rapid rate.

George Zavoico -- B. Riley FBR -- Analyst

And right now you have in one approved product just kind of -- right. Am I correct in remembering that?

Michael Rice -- President and Chief Executive Officer

That's correct.

George Zavoico -- B. Riley FBR -- Analyst

Okay. And the last question regarding the ThawSTAR for cryobags.

Roderick de Greef -- Chief Financial Officer

Yes.

George Zavoico -- B. Riley FBR -- Analyst

This, I imagine, is a little bit more complicated device than for them than the earlier one. Is there a -- in terms of potential market, is the market for the bags greater than the market for the other product, for the tubes.

Michael Rice -- President and Chief Executive Officer

Well, it certainly could be. And I guess, George, I'd say that to answer the question of the complexity of the device. Well, that's bigger, obviously, because the form factor of a cryobag dictates that the product needs to be bigger. But the user interface is extremely simple. It's basically, you know, start this thing up, pick up our profile, put the bag in, draw your shots. It does its thing, it pops open, when it's done in a way you go. And then there are some -- there are some ancillary markets that we might consider down the road. But we're certainly focused right now at capturing a significant share of the spend -- the pending spend or the future spend for fine devices for cell and gene therapies that are packaged in bags.

George Zavoico -- B. Riley FBR -- Analyst

Is each one of these bag thawing devices applicable to bags of different sizes? Or do you need a different one for each different bag size?

Michael Rice -- President and Chief Executive Officer

Yeah, great question. So -- RCB certainly accommodates in several different bag sizes and the device is smart enough to know. How much to heat and where to heat based on the profile of the bag that's inserted.

George Zavoico -- B. Riley FBR -- Analyst

Okay. And what you're -- if you can reveal it. What's your maximum price for the two devices?

Michael Rice -- President and Chief Executive Officer

Yeah. So I'll -- just roughly characterize the current list price per vial and then the proposed range of a list price for the bag version. Okay. So that the ASPs on the vile devices run from $2,000 to $5,000 depending on the model and whether there's customization involved in the algorithm. On the bag device we're looking at an ASP of somewhere in the neighborhood of $15,000 little higher perhaps. Part of that, George is going to be dictated by the ultimate split between distribution sales versus direct sales.

George Zavoico -- B. Riley FBR -- Analyst

Okay. Very nice. Thank you very much.

Michael Rice -- President and Chief Executive Officer

Thanks, George.

Roderick de Greef -- Chief Financial Officer

Thank you, George.

Operator

Thank you. We have a follow up from Raghuram Selvaraju's line with H.C. Wainwright. Your line is open.

Michael Rice -- President and Chief Executive Officer

Hello, Raghuram [Phonetic].

Roderick de Greef -- Chief Financial Officer

Hi, Raghuram.

Operator

Please check your mute button.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Oh, hi. Sorry about that. Thank you for taking my question again. They R&D reported in the most recent quarters reflected of future levels or if you expect any entrenchment toward the level reported in the first quarter of this year.

Roderick de Greef -- Chief Financial Officer

Yeah, good question. We definitely had a blip in our R&D expenditures in Q2. Two reasons, one is the addition of the Astero, R&D personnel. And then we've also spent some not insignificant funds in the actual development with third-party engineering groups for the bag device. So I would expect to see a similar number in Q4. Sorry, Q3 with some moderation back down in Q4. But going forward, certainly it's going to be higher than it has been in Q1.

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

Great. Thank you.

Michael Rice -- President and Chief Executive Officer

You bet.

Operator

Thank you. And I'm showing no further questions. I'd like to turn the call back to Mr. Mike Rice for closing comments.

Michael Rice -- President and Chief Executive Officer

Thank you, Catherine, and thanks, everyone. Good afternoon.

Operator

[Operator Closing Remarks]

Duration: 26 minutes

Call participants:

Roderick de Greef -- Chief Financial Officer

Michael Rice -- President and Chief Executive Officer

Casey -- Janney Montgomery Scott -- Analyst

Raghuram Selvaraju -- H.C. Wainwright and Company -- Analyst

George Zavoico -- B. Riley FBR -- Analyst

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