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BLFS: Revenue Growth of Almost 60% in 2013

By Brian Marckx, CFA

2013 Full-Year Revenue Pre-Announcement of ~$9.0M, Beats Our $8.5M Estimate

Yesterday (1/6/2014) BioLife (BLFS) pre-announced full-year 2013 expected revenue of $9.0 million which is about 6% higher than our $8.5 million estimate and represents growth of 59% from the $5.7 million generated in 2012.  This implies Q4 2013 revenue of approximately $2.3 million (compared to our $1.85 million estimate), growth of 14% from Q4 2012.  Q4 2013 revenue will also nearly be a new quarterly record (current quarterly record is $2.33 million, set in Q2 2013).  BioLife has done an impressive job of growing revenue over the last few years with revenue increasing by 33% in 2011, 105% in 2012 and 59% expected for 2013.

We have updated our model for this pre-announcement.  We are maintaining our Outperform rating and $1.20/share price target.  See below for access to our full 14-page report on BLFS.

Debt Conversion Significantly Shores Up Balance Sheet, Improves Risk Profile

In an 8-K filed on 12/16/2013 BLFS disclosed agreements with the two debt holders of the company’s promissory notes to convert the notes to equity.  Under the agreements, the entire (approximately) $14 million of outstanding company debt and interest will be converted to common stock in connection with the next equity issuance.  The notes are secured by all of the company’s assets and accrue annual interest at 7% (payable at maturity).   As a reminder the maturity date of the notes had been extended several times, the most recent of which was announced in June 2012 – extending the maturity date to 2016.

And while we have noted, since initiating coverage of BLFS in July 2012, that the latest maturity extension had reduced liquidity risk, the large (and growing via accruing interest and amendment concessions) outstanding debt balance has kept the risk profile of the company elevated.  Conversion of the debt to equity will significantly shore up the balance sheet and materially improve the company’s risk profile.

And while conversion will significantly increase the share count, the number of new shares issued through conversion will likely be only a small fraction (perhaps 10% - 15%, depending on the price/share of the next equity issuance) of what it would have been if the debt was converted just 18 months ago due to a substantial increase in the stock price over that time.

As we noted in our initiation report back in July 2012, extension of the debt maturity also provided management more time to act opportunistically, to continue to deliver improving financial and operational results and to convert the debt at a higher stock price, thereby reducing any dilution to existing shareholders.  That is exactly what has happened.   BLFS stock price is up from $0.08 in early July 2012 to about $0.60 today (and recently traded as high as $1.40), which is reaction to the robust revenue growth, significantly improved operating income and cash flow, and operational progress over the last several quarters.

We expect the improved risk profile upon debt conversion to also be reflected in the valuation of the company.

The debt conversion agreement along with a reverse stock split (between one-for-four and one-for sixteen), which was also announced in mid-December, is expected to be executed in order to meet the requirements for an uplisting of the shares to NASDAQ.

We will update our model (mostly related to interest expense and outstanding share count) following the proposed debt conversion.      

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

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