BioLife Solutions, Inc. (BLFS) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2018 BioLife Solutions Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Roderick de Greef, CFO. You may begin.

Thank you, GG. 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 2018. Earlier this afternoon, we issued a press release which summarizes our results for the three months ended March 31st, 2018. This release is available on the Investor Relations page of our website 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 qualify as forward-looking statements 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 of as 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.

Thanks Rod and good afternoon, everyone. We appreciate your interest in BioLife and are very pleased to report another quarter of strong operating and financial results. In the first quarter of 2018, we continue to grow our business and secure our place as a trusted sole source supplier of critical biopreservation media products to the biobanking, drug discovery and regenerative medicine markets. In Q1, we continued our positive trends with record revenue, increased product adoption, GAAP operating profit and a stronger balance sheet. We are very well positioned for continued growth in 2018. Today, a week before the midpoint of the second quarter, we are continuing to see strong revenue growth, supporting acceleration we reported during 2017 and in the first quarter of 2018. In Q1, we booked record revenue of $3.8 million with 22% sequential growth and 61% growth over the first quarter of 2017. Also in the first quarter of 2018, we gained 36 new direct customers with 19 in the high growth regenerative medicine market segment. Today, we are supplying thousands of customers directly and indirectly through our international network of distributors. Now I'd like to revisit and review our strategic markets and channels. As you know, most important is the regenerative medicine market segment comprised of cell therapy companies, hospital based stem cell transplant centers and contract development and manufacturing organizations. In Q1, regenerative medicine segment revenue was $2.1 million, this was 55% of total revenue with 100% growth over Q1 last year. We ship products to 19 new direct cell therapy customers in Q1 with several of these working to commercialize new T-cell therapies. New direct customers include, [indiscernible] [0:07:06] Maverick Therapeutics, Cytotherapeutics, TCR2 Therapeutics, P-Cure and Windmill Therapeutics. We're early in our engagements with these new customers and look forward to updating you as their cell therapy development progresses and we can confirm adoption of our products in their manufacturing, storage and distribution processes. Today, we believe our proprietary biopreservation media products have been used in more than 275 customer clinical applications, including two approved products and 15 to 20 Phase 3 clinical trials. I'll remind our listeners that this number is likely higher due to the success our distributors have demonstrated in getting our products imbedded in clinical trials. With most distributors, we ship in bulk and they distribute to the end users, so we don't have complete visibility on their reach. We estimate that each customer clinical indication if approved and at full manufacturing scale, represents annual revenue at a range of 500,000 to 2 million. We've established a very strong position as a sole source apply, a proprietary critical reagents used in cell therapy manufacturing with a marquee customer base, sticky relationships, limited commercial competition and a phenomenal growth opportunity. This year, we expect up to three additional regulatory filings by our customers with the possibility for two additional approvals by the end of the year. Next, I'll review adoption of our products in our drug discovery market segment. This segment includes pharma companies and the leading suppliers of live cells used in high throughput screening of new drug compounds. Common cell types include fresh and frozen hepatocytes and induced pluripotent cardiomyocytes. Our customers in this segment use our products to preserve these various cell types, so they will be viable for use in high throughput drug screening. Key customers include, Thermo Fisher, Lonza, Fujifilm and HemaCare. In Q1, segment revenue was 10% of total revenue with 36% growth over the first quarter last year. In our biobanking market segment, customers include public and private cord blood banks, adult stem cell banks, tissue banks, biorepositories, and hair transplant surgeons. Key customers in this segment include Cell Care, CBR, StemCyte, Ticeba and ViaCord. Q1 segment revenue was 8% of the total, with 6% growth over the first quarter of 2017. Turning lastly to our very strong indirect sales channel of domestic and international distributors. In Q1, our distribution partners contributed 27% of total revenue and revenue grew 37% over Q1 last year. It's clear that we have significant sales and marketing leverage from our channel partners. Key worldwide distributors include STEMCELL Technologies, MilliporeSigma, Thermo Fisher and VWR. Based on distributor forecast, we expect continued strong growth from our in direct sales channel throughout 2018. Now I'll turn the call back over to Rod to present our financial highlights for the first quarter of 2018. After that we'll be glad to take your questions. Rob?

Thanks Mike. As you mentioned, biopreservation media revenue for the first quarter of 2018 reached a record $3.8 million, representing a 61% increase over the first quarter of 2017. The increase in revenue was a result of a combination of more leaders of our biopreservation media sold, primarily to our regen med customers as well as higher realized ASPs from both our direct and indirect channels. As we previously disclosed, included in this quarter's revenue was approximately 380,000 of safety stock orders placed by one of our regen med customers. The gross margin for the first quarter of 2018 was 64.2% compared with 60.8% for the first quarter of last year. The gross margin was higher due to increased production to support higher product demand when compared to 2017. Operating expenses for the first quarter of 2018 totaled $2.3 compared with $1.9 million in the same period in 2017. Expenses for the quarter reflect higher performance based compensation expense and additional cost related to expanding our quality management system. We achieved an important milestone this quarter, realizing the company's first operating profit which totaled 140,000 for the quarter compared to an operating loss of 464,000 in the first quarter of 2017. The net loss attributable to common shareholders for the first quarter of 2018 was 103,000 or $0.01 per share compared to a net loss of 870,000 or $0.07 per share for the same period in 2017. EBITDA for the first quarter of 2018 was positive 73,000 compared with negative 603,000 for the first quarter of 2017. We generated positive cash flow from operations of 392,000 in the first quarter of 2018 compared with cash used by operations of 169,000 in the same period in 2017. We ended the quarter of 2018 with 7 million of cash compared to 2.3 million at the end of the first quarter last year. Since March 31, we received a total of 5 million in cash proceeds for the exercise of outstanding warrants. Turning now to guidance for 2018, based on the strength of our first quarter revenue, which we pre-announced on April 2, we increased our full year revenue guidance to 14.5 million to 15.5 million, which represents a 32% to 41% increase over 2017. We anticipate continued gross margin expansion throughout 2018 and based on the first quarter's results, we are increasing our expected gross margin range to 63% to 65%, up from the previous range of 62% to 64%. Our view on operating expenses remains unchanged and we continue to expect full year operating expenses in the range of 9 million to 9.5 million. Finally, now that GAAP operating profitability has been achieved, we expect it will continue for the full year of 2018. Now I'd like to turn the call back over to Mike.

Thanks again Rod. In closing, Q1 2018 was another confirming period of performance and execution that illustrate our unique value proposition and potential for growth. Our position as the leading supplier of proprietary critical biopreservation reagents used in cell therapy manufacturing and secure. And we also continue to look for additional growth opportunities. I would like to thank our long term and new shareholders and look forward to sharing our Q2 results. Now I will turn the call back over to the operator to take your questions. GG?

[Operator Instructions] And our first question is from Jason McCarthy from Maxim Group. Your line is now open.

Thanks. Two questions for me. Mike, can you give us a little bit more color on what the therapeutic categories, the upcoming regulatory filings will be for your customers maybe not specifically the drug, but maybe kind of what areas that these drugs are focused on? And the other question is, back in March, there was an interesting paper that came out that compared your media, BioLife's media to homebrew it was published in Nature. Can we expect more head-to-head studies scenario that I thought was lacking in the space you know over 2018?

Hi Jason. Great questions. So to answer the first one, the clinical indications for the potential proof that I mentioned are in blood cancers and solid tumors. And to your second point, sure, you know we're always looking for additional proof sources and evidence that can illustrate the superior preservation efficacy that our products can provide. And you know we do that on a daily and a weekly basis, so you could expect to see some more of those types of studies being published throughout the year.

Great, thank you.

You're welcome.

Thank you. Our next question is from Suraj Kalia from Northland Securities. Your line is now open.

Good afternoon, gentlemen. Thank you for taking my questions. Congrats on a great quarter.

Thanks Suraj.

So Mike and Rod, forgive if these are sort of down questions and I'll try hopefully you all can help us out. The 36 new customer you will find up this quarter, how should we look upon, you are obviously maintaining guidance and I am curious you know on this call, how should we think about the cadence of the flow through of some of these customers through the year? And Rod for you, the gross margins between the full buckets, obviously you have raised guidance, can you give us some additional color how to think about through as the year progresses? Thank you for taking my questions.

Thanks again Suraj. So the question that you posed to me, you know it's interesting Suraj, of these 36 new customers with 19 being in the cell therapy with a broader region in med space, I'm happy to tell our listeners that most of those were inbound inquiries you know so they've heard about us through our own marketing, reference customers, evidence on our web page so on and so forth. So that's great. That speaks to us that we are getting the news out and BioLife's high profile and well established. With regard to the cadence, I think the cautious watchword would be you know it will be slower first. These customers they hear about us, they try the product, it takes them some time to actually complete first an evaluation and then a validation. So I would be very cautious to guild folks to not think that each one of those you know is I mean we're going to turn into a you know a significant customer. It does take some time. But we are close to them and we support them, so it will expect to have a closer handle on how their validation and their clinical development goes. But it is early and they tend to buy a little at first and obviously as you've heard us say and call is passed. You know a Phase 1 customer might generate 10,000 or 25,000 in revenue, Phase 2 perhaps and double that, Phase 3 you know a few hundred thousand and once approved, somewhere in a range typically about $0.5 million to $2 million dollars a year with some very nice outliers on the high end depending on the clinical indication. Rod?

So, Suraj, with respect to gross margin, with the qualifier that in any given quarter, production may not completely match demand, which would then change or impact the comment I'm about to make. But given the fact that most of our cost of goods the very substantial part of it is fixed or fundamentally fixed at these levels of production. So we have a great amount of leverage, and so to the extent that we're able to produce more to fulfill the demand then we do expect to see an increasing trend of margin expansion throughout the year. We're still being a bit conservative on this guidance. We bumped it up a percentage point but there's opportunity there for sure for the year, but we just need to see you know see it come to fruition throughout the year.

Thank you.

Thank you. Our next question is from Paul Knight from Janney Montgomery. Your line is now open.

Hi Mike. How are you? Congratulations.

Thank you.

On these 36 new customers, what was the net add, I mean were you losing customers, was there a net add number that you're aware of or no?

Yeah, Paul, great question. It's a little tricky to have a definitive running tally by the nature of the way we sell because we do support several hundred customers directly and so that's where this addition would play. But the distributors are finding many, many new customers and they don't report to us with any sort of regular frequency how many unique new customers they ship product to. I tend to ask them maybe twice a year or so. So my initial sense is this is a net add for sure, but the net add is probably grossly understated, due to the fact that we just don't have good visibility and how the distributors are doing. My sense is we're not losing a lot of customers in the indirect model and we're certainly not losing a lot of customers with our direct relationship. So the number of new customers in the quarter is most certainly much higher than that but we can speak to just the direct side where we have the visibility.

Yeah. And then you were up sequentially in Q2 last year, I know you are kind of implying flattish kind of Q2 this year. What's going through your head on that?

Are you speaking of revenue, Paul for the quarter?

Yeah. Sorry, sorry, sorry, yeah.

Yeah. Well I think I would just limit my remarks to that here we are week before the midpoint in the quarter. The order flow and size and magnitude frequency is very strong, so the bow around that common I would make is that we look forward to reporting our second quarter results.

Sure. Okay. And then lastly, what are you hearing about at the academic level on the region or the specifically CAR T therapies, what's the pre-clinical pipeline look like?

Paul, great question. And I think the activity level is very robust and we get some glimpse of that through some of our distributors that tend to focus in that particular sub segment. But I think for you and for our listeners I'd also point out the fact that today the Alliance for Regenerative Medicine published their Q1, 2018 day report and funding in this space is again with total space with several billion dollars so. We're just - we're in a good spot right now and a good time and our place as a very unique sole source supplier, it is very secure, it was sticky relationship. So I think to flow through that we would expect to see assuming some of these academic projects do work will continue for several years. And the interest in the space is really phenomenal right now.

Okay. Thanks.

You're welcome.

Thanks you. Our next question is from Jason Kolbert from H.C. Wainwright. Your line is now open.

Hi, guys. You talked a little bit about the stocks purchased in the quarter. How big were those purchases, how much do they represent and what's the cycle at which people will tend to replenish stock even if they haven't used it, so that we can get an idea that, is this something that's ongoing that has a multiplier effect as revenues spilled? And then the second part of my question which is also related is, help me understand how margins we can make and where those - what's for years from now, revenues sort of double on that double I guess?

Hi, Jason. Thanks. A little bit difficulty hearing but I think we have the gist of your questions. So with safety stock, in Q1, as we previously disclosed a little bit of color on that and Rod in your mind are listeners in just a minute of the magnitude that's one customer. We don't see that as a trend that we think is really going to take off. So it's a little bit early to try to predict how much of any quarter's revenue would come from safety stock. I think we'll just kind of see how it goes throughout the next few quarters. And particularly as some of these customers get over the goal line to get approval and they're really looking to shore up their entire supply chain to make sure that they never have a disruption and being able to make cells. Rod, you want to remind listeners about Q1 at least?

So, specifically in Q1, we had approximately 380,000 of safety stock orders from one customer which represented about 10% of the revenue. So that's specific to Q1. And if I understood your other question Jason, it was around what would our margins look like as we look out two or three years assuming a double and another double in revenue. And what I would say at this point in time is when we look at it double in revenue, you'd be looking at margins sort of in the low 70's to mid-70's.

Okay. Perfect. That's very helpful. Thanks and congrats on all the progress.

Thank you. Our next question from Fred Ore [ph], a Private Investor. Your line is now open.

Thank you. I want to do a little PR first. I've been involved with your stock for about a little over a year, stock price has doubled in that timeframe. I attribute that to the senior management of the company, you fix the balance sheet last year. You've done tremendous job managing expenses, you've done a tremendous job promoting your product. And I think we shall all be thankful we've got such a strong management team at this little company.

Thanks for your comment, Fred. I appreciate it very much.

Now, don't go taking pay raises, okay, not really big ones. I understand we've got some stock through into inventory for one customer of 10% of your revenues in the first quarter. And may be growth can allow the second quarter match the first quarter maybe not. Let's just say for the moment, we have two quarters of $3.8 million reported. The midpoint of your guidance then projects out to two sequentially flat quarters in the second half of the year. And I heard your comments about the pace at which new customers may or may not lamp their demand as they validate the products within their logistics systems. But the combination of a lots of new customer adds and two commercial launches in place, one of which is doing phenomenally well. It just seems to me that the midpoint of your sales guidance seems very well and I'm not trying to push you to increase, because you're not going to, but I just wanted to voice my opinion, it seems like an easily achievable goal. And while I admire all the questions we got from the analytic community. I just - I don't know I just feel like given your customer accounts and given the success of some of the product launches, commercial product launches and the possibility of late year product launches based on approvals. Let me circle back and can ask that. Yes, there are one or two approvals within your customer base. Will they occur early in the year so that a commercial launch can impact your sales this year or is that an uncertainty item for you?

So, all good questions. I would say just about the second question there. There may be commercial approvals but as we've gone out of our way to say whenever we have a chance. A commercial approval is not a light switch impact on our revenue because there's - these adoption curve is slow. So I would say that there would be little to no impact this year. Now to your bigger question, which is also fair, we also go out of our way to try and say that our objective with respect to guidance is to put numbers out that reflect the business as we see it today with some pretty high level of confidence. And we want to meet or beat our guidance simple as that. So we are committed to revising our guidance. We're not shy about doing that as you can see we've already done here for the first quarter based on how we see things developing throughout the years. So we're going to be transparent about how we see the business and if it looks - if we become more bullish and it looks like that number is going to be higher than we will come out and make a revision upward to the guidance.

Okay. And thanks very much on especially on your approvals not impacting this year's revenues, that's very helpful to me. And I will remain slightly more bullish on management on the sales outlook. But thank very much for your response.

Thank you. I appreciate it.

Thank you. Our next question is from Brandon Osten from Venator. Your line is now open.

Hey, guys. How are you doing?

Hi, Brandon.

Just wanted a clarification there and as you said that 19 direct new customers, is that right?

That's right.

How many direct customers do you have now?

Several hundred. Yeah, those 19 were in region, for the quarter is 36, Brandon.

Right. So who is the other 17?

They are in the other segments. They're comprised of new customers in the drug discovery in the biobanking space.

In the drug discovery and this is not the distributors or just the distributors?

That's correct. This is not the distributors, that's correct.

It is not the distributors, okay. Okay. Great, thanks guys.

Super. Thank you.

Thank you. [Operator Instructions] At this time, I'm showing no further questions. I would like to turn the call back over to Mike Rice, CEO for closing remarks.

Thank you, GG, and thanks everyone. Good evening.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.