Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Third Quarter 2018 BioLife Solutions, Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Chief Financial Officer, Roderick de Greef. Sir, the floor is yours.

Thank you, Hughui. Good afternoon, everyone, and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the third quarter of 2018. Earlier this afternoon, we issued a press release which summarizes our results for the 3 and 9 months ended September 30. The 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 bank for 90 days. Before we get started, I'd 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 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 day 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.

Thank you, Rod, and good afternoon, everyone. Thank you for joining the call. We appreciate your interest in BioLife and are very pleased to report another quarter of strong and profitable growth. Revenue from biopreservation media product sales reached a new record of $5.3 million, an increase of 79% over the third quarter of 2017. Continuing a trend over the last several quarters, revenue growth was driven by increase sales to cell and gene therapy customers in the regenerative medicine market and to our domestic and international network of distributors. Notably, Q3 was our second consecutive quarter with net income of more than $1 million. The business is on track, growing and profitable. I'll also note that there were no customer safety stock orders in Q3. In the third quarter 2018, we gained 25 new direct customers with 15 new cell and gene therapy customers in the high-growth, regenerative medicine segment. Today, we are supplying thousands of customers directly and indirectly through our network of domestic and international distributors. I'd like to continue with some detail on the regenerative medicine market segment. Q3 revenue from our regent med segment was $2.9 million or 54% of total revenue and representing growth of 80% over Q3 last year. This is our most strategic opportunity. The alliance for Regenerative Medicine recently issued its Q3 2018 data report. Total funding for Regen Med companies was nearly $3 billion in Q3 with nearly $11 billion year-to-date. I'm glad to report that concurrent with this robust funding, we continue to gain new preclinical and clinical trial stayed cell and gene therapy customers. Of the 15 new customers we gained in Q3, some noteworthy names include Elo-Plex Bio, cells for cells, CCRM, Eurfins, Fat Therapeutics, Flask Works, Wrap-up Therapeutics, Sigilon Therapeutics and Sorrento Therapeutics. We look forward…

Thanks, Mike. As you noted, biopreservation media revenue for the third quarter of 2018 reached a record $5.3 million representing a 79% increase over the third quarter of last year. For the 9 months ended September 30, revenue grew 81% to $14.3 million, up from $7.9 million last year. The increase in revenue for both periods was primarily the result of higher direct sales to our customers in Regen Med space and to our indirect distribution channel. The gross margin for the third quarter of 2018 increased to 70% compared to 63% in the third quarter of last year. For the first 9 months of this year, gross margin was 68% compared to 62% for the same period in 2017. The increase in gross margin for both periods compared to 2017 was primarily driven by volume-related reductions in cost of goods sold and higher blended product ASPs. Operating expenses in Q3 totaled $2.5 million compared to $1.9 million in Q3 of 2017. For the first 9 months of 2018, operating expenses totaled $7.2 million compared to $5.7 million in the first 9 months of 2017. The increase in operating expenses for both periods is primarily the result of higher performance-based compensation expense, increased sales and marketing managers and increase cost related to enhancing our quality management systems. The third quarter's operating profit was $1.2 million compared to an operating loss of $32,000 in the third quarter of 2017. For the 9-month period, operating profit totaled $2.6 million compared to an operating loss of $838,000 for the same period. For the third quarter, net income attributable to common shareholders was $1.2 million or $0.05 per diluted share. This compares to a net loss attributable to common shareholders for the third quarter of 2017 of $425,000 or $0.03 per diluted share. For…

Thanks, Rod. In closing, we delivered another strong and profitable quarter in Q3. The business is on track, profitable and growing. And our revenue will not be negatively impacted by adoption rates approved cell therapies. Q4 order volume and frequency are both robust setting the stage for a strong finish for 2018. Our M&A activity continues as we look to add complementary and accretive businesses to consolidate the cell and gene therapy tool supplier market. We see a bright future for BioLife, our customers and shareholders. I'd like to thank our long-term and new shareholders for their interest in support of BioLife. Now I'll turn the call back over to the operator to take your questions. Hughui?

[Operator Instructions]. And it looks like our first question in queue will come from the line of Jason McCarthy with Maxim Group.

So I was wondering if you could provide a little bit more detail on the customer base and in particular if you could kind of breakdown and just rough estimates of what stage of development customers are at, like what proportion is preclinical, early clinical or electrical, et cetera.

Sure. I can give you some sort of estimate. So we estimate that there are probably 15 to 20 or more Phase III trials our products are used in. In Phase II, there is a large chunk there and an equally large chunk in Phase I in preclinical. So Jason, throughout the year, we've done a really good job compressing the sales cycle, and we have been acquiring new cell and gene therapy customers at a much faster clip, including a lot of the very innovative and well-funded high-profile, what I would call, second-generation CAR T or T cell companies so that's how it breaks down.

Okay. And then relating to SAVSU, can you actually discuss some of the potential synergies of offering media shipping and logistics from a single company should you choose to exercise the option to purchase?

Excellent commentary and observation, Jason. Yes, that's clearly a driver in our incremental investment and our option to eventually acquire the company should we decide to do so. While the call points and decision-makers aren't necessarily identical amongst cold chain management containers and media, there is a lot of synergy there in the conversations, because they're all tools related to preserving this very precious biologic source material and the final manufacturing cell and gene therapy products. So strong degree of overlap and synergy and an opportunity for us to leverage existing leaderships in one part of a company to identify the decision-makers than another part related to the other part of the offering. So yes, great comment.

Our next question in queue will come from line of Dylan Dupuis with B. Riley.

So I just was hoping you guys can comment a little bit more on the SAVSU AveXis deal and how this might influence the potential decision to acquire the remaining outstanding shares or outstanding equity in SAVSU?

Well I'll just start and talk a little about what we know publicly about AveXis' potential geographic regulatory approvals. And Rod, perhaps you could perhaps just recap a bit about the option and when we might choose to do that and why the decision will we made at that time. So what we learned is in reading public information about AveXis is that they filed a BLA in the U.S. in the month of October. I believe, a few months ago or more, they filed an MMA in the EMA, and they have a pending or current regulatory filing in Japan. The net of all of it is, if they can be approved in each of those 3 geographies by, call, at the end of June or the first half of next year. And so once those approvals are gained, we'll have better insight in working with our colleagues at SAVSU to understand the adoption rate how revenue might ramp. Rod?

So Dylan, I think you recall, the purchase option we have was 18 months from the day we signed the deal. So we have about 15 months or so left to take advantage of that option. It is a fixed price so we're not worried about that changing or moving away from us in any way. So the fundamental driver with respect to the timing of making that final acquisition is 100% related to, at what point will consolidating their financial statements, the immediately accretive or very accretive in the near-term so that's really the driver from the timing perspective. As Mike said, we're on the board, we're very clear about what's happening and how things are unfolding. And if the revenue or adoption of the technology goes more quickly than we think then - and that - it's reflected in their financial statements, we'll pull the trigger then. If it takes a little bit longer, we'll do it then and that's why he negotiated an 18-month window as opposed to anything shorter.

[Operator Instructions]. Our next question in queue will come from line of Paul Knight with Janney.

This is Mike on for Paul. First question, what's the capacity utilization at your Seattle facility and further, where do you see operating margin headed when that facility is at full capacity?

Yes. So I think it's fair to say that we're running at somewhere in the neighborhood of 20% to 30% capacity. We just recently opened up our second clean room here of the 2 that we have. So when you say operating margin or do you mean gross margin with respect to climbing the capacity ladder there?

Both.

Okay. So I think we don't want to guide too far out into the future, Mike, but what we have said in the past when we were doing $11 million is that we were doing in the low 60s, mid-60s, we said if we could double revenue into the 20s that we would see a margin in the neighborhood of 70 to 72. And I think the last two quarters clearly demonstrate that, that's possible. If you asked me where it could go if we're doing $30 million, $40 million or $50 million, I think you'd be looking in the mid-70s and potentially a little bit higher. That would be an overall objective. From an operating margin perspective, I think the range of 30 to 35 is achievable depending on the revenue level that we have in a couple of years out.

Okay. Thanks, Rod. And then, Mike, lastly, there seems to be a bill of a Phase II clinical trials in Regenerative Medicine. Do you see we're approaching an inflexion point where we could see a wave of Phase III trials or Phase II trials move into Phase III?

Yes, good question, Mike. Hard to say. Don't have a good complete visibility on that. What I would do is just refer you back to the remarks by FDA Commissioner, Gottlieb, from as far as bio at the last conference and more recently about an interest to accelerate approvals and his prognostication that we could have 3 or 4 approved products on the market within the next year or so. And so I think that's all good for anybody downstream of a Phase III. It will all help, but again, it's all data-driven science and approvals so fingers crossed. I think the unique opportunity where BioLife is that because we have so many customers targeting similar indications, we have many shots on goal and any single customers, clinical trial failure will be mitigated, because we'd have another couple of customers right behind them or at the same time targeting the same clinical indication.

[Operator Instructions]. Gentlemen, at this time, I'm currently showing no further questions in the queue. I'd like to turn the program back over to Mike Rice for any additional closing comments.

Thank you, Hughui. Thanks, everyone. Good afternoon.

Thank you to all of our participants for joining us. This does conclude today's conference. Thank you for your participation. You may now disconnect and have a wonderful day.