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Edited Transcript of BLFS earnings conference call or presentation 9-May-19 8:30pm GMT

Q1 2019 Biolife Solutions Inc Earnings Call

Bothell May 22, 2019 (Thomson StreetEvents) -- Edited Transcript of BioLife Solutions Inc earnings conference call or presentation Thursday, May 9, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael P. Rice

BioLife Solutions, Inc. - President, CEO & Director

* Roderick de Greef

BioLife Solutions, Inc. - CFO & Secretary

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Conference Call Participants

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* Paul Richard Knight

Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst

* Suraj Kalia

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* William March

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the BioLife Solutions Inc. first quarter earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Roderick de Greef, CEO. Sir, you may begin.

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Roderick de Greef, BioLife Solutions, Inc. - CFO & Secretary [2]

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Thank you, Ashley. Good afternoon, everyone, and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the first quarter of 2019. Earlier this afternoon, we issued a press release, which summarizes our financial results for the 3 months ended March 31, 2019. The release is available on the Investor Relations web page at our site at biolifesolutions.com.

As a reminder, this call is being recorded and broadcast live on our website. A replay of the webcast will be available through the same link for 90 days.

Before we get started, I would like to remind everyone that during this call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. These statements are subject to many risks and uncertainties that could 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 qualifies forward-looking statements made on this call, 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 are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law.

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

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [3]

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Thank you, Rod and good afternoon, everyone. Thank you for joining the call. I'll start off as usual with some comments about revenue and then cover some other topics. Q1 total revenue was $5.8 million, up 51% over Q1 last year. We gained 25 new customers in Q1 with 19 being new direct cell or gene therapy customers. Cell and gene therapy segment revenue was up slightly compared to Q1 last year, order volume from 1 large customer was significantly lower than last year. The cell and gene therapy space is still in the development phase and customer order volumes can vary based on their demand planning. This customer's orders have rebounded strongly in Q2 and we expect strong demand throughout the rest of the year. Notable names among our new direct cell and gene therapy customers include Beam Therapeutics, InCarda therapeutics and CellforCure, a French CDMO, acquired by Novartis in January.

Also in Q1, we processed 14 additional FDA master file cross-reference letters supporting use of our products and new cell and gene therapy clinical trials. We'd like to provide the names, but we're under NDAs, so this isn't possible.

I can share that 8 of these 14 pending clinical trials are using some form of T cell targeting various cancers.

I'm pleased to report that product adoption in the cell and gene therapy market is increasing, and we're now supporting at least 500 customers in the space. Considering we both ship to 2 of our 4 largest distributors, we believe, this number is significantly higher.

As far as catalysts for the rest of this year, 4 BioLife customers with potential BLA filings or approvals in the U.S. or Europe include Bluebird, (inaudible), Celgene and Kiadis.

From our view, sales order volume, customer quality audits, FDA master file requests, discussions with OUS regulators and customer forecasts all support 2019 as being another strong year of growth.

I should reiterate a very important dynamic occurring in the region in med space that we believe will continue to drive adoption and demand for our biopreservation media and automated thawing products.

The reimbursement environment for our prospects and 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 proprietary biopreservation media products and automated thaw devices since these can derisk the potential of delivering a nonviable dose to the patient.

You've heard us say many times that dead cells don't cure cancer and the combined therapeutic and economic risks our customers are facing should broaden the use of our products as a best practice in the manufacture, storage, distribution and administration of time- and temperature-sensitive cell and gene therapies.

Turning now to our worldwide network of distributors. Q1 was a blowout quarter with 200% growth over Q1 last year. The growth was driven by across-the-board substantial increases from STEMCELL Technologies, MilliporeSigma, Thermo Fisher and VWR.

In Q1, we shipped nearly 300 orders from these 4 distributors and continue to see their reach in capturing early-stage cell and gene therapy customers. I'd also like to share that sales to the growing list of cell and gene therapy contract manufacturers were strong in Q1. Customers in this group include WuXi, Lonza, Hitachi, ApCeth, Miltenyi, KBI and Cognate.

Now to update you on the Astero acquisition. Integration has gone very smoothly and we've already seen benefits from cross-marketing and weaving the automated thaw products story into our discussions with our media customers and prospects.

We've booked several orders so far this quarter and see strong product demand so far to support our guidance of $1 million to $2 million in thawing device product revenue in 2019.

We have an integrated marketing plan underway that includes e-mail outreach, conference exhibits and presentations and an expansion of the field sales team to capture significant share of this market.

On that point, we hired new field-based biz dev Director and are currently recruiting for 3 additional positions. We're also in discussions with our distribution partners to add the ThawSTAR product platform to our distribution agreements.

Turning to our M&A strategy. We continue to believe that there is a consolidation opportunity for BioLife to expand our cell and gene therapy bioproduction tools portfolio to gain an increased share of the spend for tools used in the space. Astero is a great fit, SAVSU continues to make significant progress and we're in discussions on some other exciting opportunities to broaden our toolkit.

On the quality front, we have a full customer audit schedule shaping up and we'll be hosting quality auditors from several existing and new marquee cell and gene therapy customers throughout 2019.

Current headcount stands at around 60 FTEs while several recent additions to our production, QC and QA teams.

Our customer care and logistics teams are keenly focused on delivering a high level of customer service.

Last year, we shipped 80% of more than 3,000 orders the same or next day.

We understand our role in our customers' business and we'll continue to develop and acquire new ways to add more value to our already very sticky relationships.

Now I'll turn the call back over to Rod, to present our financial highlights for Q1.

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Roderick de Greef, BioLife Solutions, Inc. - CFO & Secretary [4]

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Thanks, Mike. Our biopreservation media revenue for the first quarter of 2019 reached a record $5.8 million, representing a 51% increase over last year's first quarter revenue of $3.8 million.

The increase in revenue was primarily the result of higher indirect sales of our CryoStor biopreservation media through our worldwide distribution network.

Gross margin for the first quarter of 2019 increased to 71.5% compared with 64.2% in the first quarter of last year. The increase in gross margin was primarily driven by volume-related reductions and cost of goods sold and slightly higher product ASPs.

Operating expenses in Q1 totaled $3.6 million compared with $2.3 million in Q1 of 2018.

The increase in operating expenses is primarily the result of higher performance-based compensation expense, accounting and consulting expenses and $442,000 of onetime charges including $208,000 of costs related to our acquisition of Astero.

First quarter's operating profit was $491,000 compared to $140,000 in the first quarter of 2018. For the first quarter of 2019, net income attributable to common shareholders was $427,000 or $0.02 per diluted share compared with a net loss of $103,000 or $0.01 per share in 2018.

Adjusted EBITDA for the first quarter was $1.4 million compared with $590,000 in the same period last year. We ended the first quarter with $31.8 million in cash compared to $30.7 million at the end of 2018.

With respect to our outlook for 2019, we reaffirm the guidance we provided in March of this year, which includes the impact of acquiring Astero beginning on April 2. We expect total revenue for 2019 will be between $27 million to $30 million, reflecting year-over-year growth of 37% to 52%.

We anticipate that the Astero automated thaw product line will contribute between $1 million and $2 million in revenue this year. Over the next several years, we believe these products could add 5 to 10 percentage points to our annual organic revenue growth rate and compromise -- comprise up to 15% of total revenue in 2021.

Our blended gross margin for 2019 should range between 69% to 70%. Although we expect a small reduction in our gross margin going forward as a result of the automated thaw product line, we believe that the impact will be approximately 100 basis points.

The automated thaw products currently have gross margins in the low 60s, but with increasing volume, we expect gross margins related to these products will climb into the mid-60s.

2019 expenses are expected to be in the range of $15.5 million to $16.5 million. Approximately half the increase over 2018 is related to the Astero transaction with the balance primarily related to increased headcount in the sales and marketing and quality areas of the company as well as higher performance-based compensation.

Although the Astero purchase will reduce our operating margin somewhat this year, we expect to exit the year in Q4 with an operating margin of approximately 20%, which is slightly higher than our full year 2018 level of 18.6%.

In subsequent years, we anticipate a sustained trend of increasing operating margins with the automated thaw product line providing a positive contribution to our adjusted EBITDA within 12 to 18 months.

I would like to end my remarks with a summary of our share count. We currently have 18.8 million common shares issued and outstanding. Our non-affiliate warrants, which were effectively eliminated in 2018, totaled 195,000 and affiliate RSA's options and warrants brings our fully diluted share count to $26.3 million.

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

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [5]

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Thanks again, Rod. In summary, Q1 is in the books as a strong start for 2019. I'm glad to share that Q2 revenues so far in this quarter is strong and we look forward to sharing our results on the August call. BioLife is well positioned for further organic and acquisitive growth. We look forward to sharing updates related to our M&A strategy and key customer catalysts throughout the year. I'd like to thank our long-standing and numerous new shareholders for your support of BioLife. I will turn the call back over to the operator, to take your questions. Ashley?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Suraj Kalia with Northland Securities.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [2]

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Congrats on the nice quarter. So Mike, you provided a bunch of information. And can you give us the status of your new customer adds? And forgive me, I've got 3 calls going on at the same time. Have you given directionally, how you think about the status of new customer adds as we progress through the year? I believe last year you added I think 84 give or take, you'll have added 25. Just kind of give us the cadence of how you see and how do you see this impacting, if you could reconcile with your annual guidance?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [3]

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Sure. And good question Suraj. So I don't want to say it's a free for all, but the number of new participants is clearly increasing at a wonderful pace and we're in a great position. So with our existing customers, our referral business, our marketing activities, we would expect to outpace last year's number of new customers. Q1 was a great start to that. We're just getting going. So we're not going to forecast the total number, but directionally, it's all going the right way.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [4]

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Got it. And Mike, regen med, at least year over -- obviously, Q1 '18 was very strong. Is it just a tough comp? Or were there any other dynamics also? Because I mean you guys were pretty decently in the double digits year-over-year growth all throughout last year. Just any color there would be great.

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [5]

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Yes. Fair question Suraj. I think I'll ask Rod to provide a little more detail there.

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Roderick de Greef, BioLife Solutions, Inc. - CFO & Secretary [6]

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Yes. So Suraj, last year in '18, in Q1, there was a $380,000 safety stock order within the number of $2,150,000 of regen medicine. So if you were to pull that out, it would be $1.8 million. And therefore, the -- if you did that, it would look more like a 24%, 25% growth in regen med year-over-year.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [7]

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But there is no seasonality or anything that it is just -- or is the seasonality that is -- as we progress through the year, should we see a tick up in the growth rate also?

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Roderick de Greef, BioLife Solutions, Inc. - CFO & Secretary [8]

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Yes. I think there's not seasonality in the sense of the timing of the year, but there is variability with respect to customers' clinical trial process, the stage that they are at, enrolling patients, et cetera. So there is some, call it, lumpiness to the business. But we do expect it to continue to be in the double-digit growth on the regen med side throughout the year. I think what we saw in Q1 of this quarter or this year really just reflected one customer. And because we have a bit of a revenue concentration, that did have a definite impact on the overall results.

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [9]

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That's right. And Suraj, I would add that this customer's orders are strong and everything we're seeing through our forecasting mechanism supports the guidance that we just reiterated. So, so far so good. Everything's fine.

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Suraj Kalia, Northland Capital Markets, Research Division - MD & Senior Research Analyst [10]

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Got it. And one last question, Mike and I'll hop back in the queue. So Mike, I would say over the last 6 months, the FDA has put us -- put out I believe a policy directive just talking about the explosion in cell and gene therapies, you and I have talked about this off-line. I think so there was a blurb recently about increasing reimbursement, CMS talked about for CAR T also. I was wondering if you can just characterize what your street intelligence is telling you. How does that affect? And also if I could throw it in then, this might be an unfair question, forgive me. Have you all had any discussions on Kymriah, just given the issues that they have had with their cryopreservation media? Congrats, again.

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [11]

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Thanks, Suraj. Yes. I'll answer the latter part first. Well, we can't comment on specific customers unless we've already publicly disclosed and we haven't said things about Novartis in the public domain, so no additional color there. I think, Suraj, the lens that we're looking through when we see the January 2019 FDA statement and the direct communication we're having with a number of customers, is supporting the notion that late-stage clinical trial developers who have particular pain, if you will, or they are undergoing inefficiencies in their manufacturing process through a number of reasons, which could be translated to lower cell yield or higher variability, there is a much more broader listening and a stronger listening for that in consideration to make these changes. So we're in discussion with customers of that ilk, or prospects of that ilk in both camps. And I'd just like to say stay tuned and when we're able to talk about that, I can assure you, we will.

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Operator [12]

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And our next question comes from the line of Paul Knight with Janney Montgomery.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [13]

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Rod, could you start with the $442,000 in charges, $208,000 was Astero, what was the remainder?

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Roderick de Greef, BioLife Solutions, Inc. - CFO & Secretary [14]

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Yes. We've got about another $85,000 in consulting, Paul, and about $150,000 related to a severance arrangement we entered into with a long-term employee here.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [15]

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Okay. And Mike, your distributor revenue hitting $3.1 million, up 200%. What was -- what -- what was behind that big uptick?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [16]

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Paul, it's a great observation. And I think we're in years past we didn't have a lot of visibility into the segments that these distributors are selling into. We're getting a lot more now. And while we can't say exactly how much of that revenue is probably ending up into end users that we would quote or classify as regen med or cell and gene therapy. It's our belief that many of them are. So the overarching comment I would make about that increase and what's driving it is -- it's the cell and gene therapy space, the funding, the level of activity, even going upstream where a lot of these distributors tend to plant the early seed. So our sense is it's all related to the frothiness, if you will, and just the frenetic activity and pace of activity within cell and gene therapy.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [17]

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Did you add any new distributors in the quarter, Mike?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [18]

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None of note.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [19]

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Okay. And then geographically, how big is Asia? What are you doing in that market? Or are you hitting it via your distributors?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [20]

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Yes. Right on. So predominantly, we're serving the Asian market through distributors. And of the 4 of that, that we've all talked about for the last many quarters: STEMCELL Technologies, MilliporeSigma, Thermo Fisher and VWR, they all have reasonable presence and many have significant feet in the street and sellers and distribution and other infrastructure over there. So that's working fine. But we also do support a number of customers directly who are able to buy our products and import directly without any hassles. We work through a lot of that stuff. So my sense is that the approach to Asia-Pacific is working fine right now. Would we like it to all be direct revenue with higher gross margin? Sure. But we don't really have the resources right now to enable that. So I think the plan right now is working fine.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [21]

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And lastly, Mike, could you talk about peak revenue? Or I should say a revenue you expect from approved therapies. Is it -- what is that range? Is that range changed in your view as you watch the commercial rollout of various products in the market? So that's my last question.

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [22]

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Yes. Great. So thanks, Paul. All really good questions. Well, our sense is that it's still too early to try to make some revisions because as you know we're in just a small number of approved therapies. So the range that we've been talking about for the last several years of $500,000 to $2 million as -- albeit, it's wide range, but as a sort of a ballpark of where things might land, I think that still holds. We'll see. It will be curious to watch that range shift over time. Early in the call, I mentioned a few customers that are on the cusp of approval and/or filings. So as Rod likes to say, that's not a light switch or a step change in revenue immediately, but we're definitely going to keep our eye on that. And as the data supports modifying that range, we're certainly going to do that. Good question.

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Operator [23]

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And it looks like our next question will come from the line of William March with Spring City Partners.

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William March, [24]

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I was just calling kind of following up on what you were talking about previously with the concept of using the distributors and maybe just like a bigger picture question. As you start folding in Astero, potentially SAVSU later this year and kind of build out a bigger portfolio of products, how do you think about getting the scale to be able to go direct to support all of these new products that you're acquiring?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [25]

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Yes. Bill, fair question and a good one. Something that we think a lot about here and we've done a lot of white boarding about the pace at which we might be talking about that. I think for right now things are working. We're going to obviously continue to watch Astero, make our consideration of SAVSU at the right time. We have some other deals underway, as I alluded to. So that'll be just an opportune time for us to put all of that on the board and look at those respective sales teams that come with some of these deals, see where people live, what sort of geography they can cover, what kind of reach they have and so it's certainly something that we're doing a lot of inside baseball on right now, but I think the short answer is just stay tuned. When we can articulate that and demonstrate that the plan is executing against our goals, we'll certainly do that.

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William March, [26]

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Got you. And maybe just one follow-up on that front. As you think about some of the foreign markets right now, do you have any direct presence in Europe and Asia? Or are you relying solely on distributors there?

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [27]

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Yes. None at this time, but certainly something we're looking at and it's right up there on the list of considerations when we think about, where is the growth in the market coming from and what's the best way to capture that and doing all the various sensitivity analysis that you would imagine.

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Operator [28]

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And ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Mike Rice, for any closing remarks.

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Michael P. Rice, BioLife Solutions, Inc. - President, CEO & Director [29]

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Thank you, Ashley. And thanks, everyone. We look forward to speaking with you when we report our second quarter results. Good afternoon.

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Operator [30]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone, have a wonderful day.