Good day. My name is Chantel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the BioLife Solutions Inc. Q2 2022 Earnings Conference Call. As a reminder, today's conference call is being recorded [Operator Instructions]. Thank you. Troy Wichterman, Chief Financial Officer, you may begin your conference.

Thank you, Chantel. Good afternoon, everyone and thank you for joining this call. Joining me on today's call are Mike Rice, Chairman and Chief Executive Officer; and Rod de Greef, President and Chief Operating Officer. Earlier today, we issued a press release announcing our financial results and operational highlights for the second quarter of 2022. As a reminder, during this call, we may make certain projections and other forward-looking statements regarding future events or the future financial performance of the company or its acquisitions. These statements are subject to risks and uncertainties that may cause actual results to different 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 are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law. During this call, we will speak to non-GAAP or adjusted results. 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 recent M&A activity, we believe that the use of non-GAAP or adjusted metrics provides 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, Chairman and CEO of BioLife Solutions.

Thanks, Troy, and good afternoon, everyone. Thank you for joining our call. After my remarks, Troy will present our financials for Q2, then Rod will provide an update on key operational initiatives his team is focused on. After that, we'll be glad to take your questions. Turning to Q2 revenue and customer highlights. I'm very pleased with our team's performance in delivering another quarter of record revenue and in completing key operational initiatives that are driving meaningful improvements in our financial results. Total revenue was $40.5 million, up 30% from Q2 2021 with organic revenue growth of 44% and Biopreservation media revenue growth of 46%. Our growth catalyst and business fundamentals remain intact. And with improved business visibility, we are tightening our full year 2022 revenue guidance, which Troy will cover in a few minutes. I also want to express my confidence in our operations, quality and engineering teams for their sustained commitment to optimizing our production processes, supply chains and QC and QA functions, specifically for our Stirling ULT freezer products. We again realized important sequential improvements in gross margin and adjusted EBITDA and remain confident that we will continue to do so for the rest of the year. I'd also like to echo the strong growth sentiments in the cell and gene therapy space that other life science tools companies have expressed on their recent earnings calls. Now, we'll go right to the noncash and tangible asset write down on the Stirling acquisition. Troy will provide additional color on this, but we're confident that we're now clearly on the upswing of recovery. It's important that we convey our strong belief in the innovation and disruptive potential of this acquired technology, in both our current Stirling products and in our product roadmap for new Stirling engine based smart freezers.…

Thank you, Mike. Revenue for the second quarter 2022 totaled a record $40.5 million, representing a 30% increase over 2021. Organic revenue increased 44%, driven by Biopreservation media revenue of $14.1 million, which was up 46% versus Q2 2021. COVID-19 related revenue accounted for approximately 9% of total revenue in the quarter. Cell processing platform revenue was $15.4 million, up 58% over the same period in 2021 and organic growth was 46%. Freezers and thaw systems platform revenue was $18.7 million, up 6% over the same period in 2021 and organic growth was 23%. COVID-19 related revenue accounted for approximately 4% of the freezer and thaw systems platform revenue. Storage and storage services platform revenue was $6.5 million. Total and organic growth was 65% over the same period in 2021. COVID-19 related revenue accounted for approximately 45% of the storage and storage services platform revenue. Revenue for the six months ended June 30, 2022 totaled $76.8 million, an increase of 60% over 2021 with organic growth of 45%. Adjusted gross margin for the second quarter of 2022 was 36% compared with 43% for the second quarter of 2021, and 33% for the first quarter of 2022. For the first six months of 2022, adjusted gross margin was 34% compared with 47% in the same period last year. The sequential quarterly improvement in Q2 2022 gross margin was largely due to sequential improvement at our ULT platform, as well as favorable product mix. We expect to see increases in gross margin in Q3 and Q4 net of newly granted stock awards. GAAP operating expenses for Q2 2022 was $116.8 million versus $35.8 million in Q2 2021. And year to date operating expenses was $160.6 million compared with $53.6 million in 2021. GAAP operating expenses in Q2 2022 and year to date…

Thanks, Troy. As I mentioned on our last quarterly call, continued progress at Sterling has allowed the operations team to begin to focus on additional opportunities for improvement for other product lines, and these activities continued throughout the last quarter. Before I get to that, however, I'll start with some comments on the Sterling operation. Based on the operational metrics we track at Sterling on a regular basis, we continue to make progress across board. If I were to pick just one operational metric which summarizes the overall improvements in production and quality, it would be the lead time associated with our large capacity 780XLE freezers, which contributed the majority of ULT freezer revenue in the first six months of 2022. In February of this year, the lead time for this product stood at 10 weeks. And since then, the team in Athens has been able to bring this down to one week, which not only speaks to the overall progress made but also positively impacts our competitiveness. And this decrease in lead time has been achieved with higher first pass yields and a substantial improvement in gross margin compared to Q1 of this year. As part of the overall recovery plan for Sterling, we recently announced internally that we are going to take two ULT freezer products, which are currently produced for us by an outside CMO and bring them back in house. These two products were originally outsourced in 2021 due to space and labor constraints in Athens. We will consolidate the production of these two products at our LN2 freezer manufacturing facility in Michigan. We have the space and the team members there to make it happen and expect the move to be completed in Q4, generating higher levels of quality and modest increases in gross margin…

Thanks Rod. Now I'll leave you with our key takeaways from Q2 and for the rest of 2022. First, demand for our portfolio of class defining bio production tools and services remain strong and we fully expect to meet or beat our full year revenue guidance. Number two, we made real progress addressing supplier and quality issues with our Sterling product line and expect to demonstrate continued sequential improvements throughout the rest of 2022 and beyond. And three, to say it one more time, we remain very confident that we will achieve our Q4 2024 run rate aspirational financial goals of $250 million in revenue, 50 points of adjusted gross margin and 30 points of adjusted EBITDA. Fast forwarding to today, I'm pleased to say that overall, product and service demand so far in Q3 is strong and we're looking forward to sharing our results in November. Now I'll turn the call back over to the operator to take your questions. Chantel?

[Operator Instructions] Our first question comes from Thomas Flaten with Lake Street Capital Markets.

Couple questions with respect to guidance. So there was some really positive news that Rod shared around the improvements at Sterling, yet kind of layered into the write down was reduced revenue expectations and delays in launch. Can you maybe add some color there? Have customers walked away, is it just the natural evolution in the market? Just to get some more thoughts from you on the freezer business in particular?

I'll give a little more color. As it relates to the sales headwinds that I mentioned, no doubt we've had some customers have to buy from somebody else. And the guidance tightening is really just prudent based on the fact that we're not done with the field update yet. Once we get through that, I think everything will be really, really strong and back to the kind of the normal flow. But we're tightening it just a little bit based on that remaining sales headwind, that's what I can say on that.

And then I know we usually don't talk about things below the revenue line from a guidance perspective, but there was a really nice improvement in gross margins. Is that level of improvement something we can continue to see or will it moderate more as we move through Q3 and Q4?

Thomas, I think we'll see it more of a moderate level from Q3 going into Q4. And again, in my commentary I mentioned that was net of newly issued stock grants. Which again, I'd like to remind you too that when we do the adjusted gross margin number, we do not back out stock comp. So stock comp does flow through our COGs and hence the adjusted gross margin.

And then, I'm wondering if you could give some commentary on the stock for cash compensation program, which expired. I think it was August 1st. Just curious to get your thoughts on whether or not that's been extended. I'm assuming no. And just some color there would be great.

We haven't commented on it and it runs actually a little bit longer, but we haven't commented publicly on whether we're going to extend it or not.

Our next question comes from Jacob Johnson with Stephens.

It's Hannah on for Jacob. Good afternoon. A couple questions. Stirling margins were below historic levels last year. How should we think about the timeline to get back to 30% margins, and is there additional opportunity to expand that longer term?

So we don't provide specific guidance to product line gross margins. But what we will say is that we do expect, as Troy just mentioned, continued improvement in gross margin, particularly in the Stirling facility net of new stock option grants. We do expect that it's going to take some time to get back up into the sort of 30, mid-30 level of gross margin for that particular product line. But we're not going to put ourselves in a box and say when that might happen. We're just confident of continued improvement.

And one quick follow up, as we think about the portfolio of assets and capabilities that you've built up over the years. How are the cross-selling opportunities? Are there any particular products where you've seen traction from cross selling initiatives?

The one example I would point to is the crossover between our Biopreservation media and our Sexton self-processing products, both the HPL media, which is another -- a liquid media, an actual serum replacement media, in this case used in cell manufacturing but also the CellSeal vials, which is a really cool novel, small form factor, final packaging option as a replacement or an alternate for bags for cell and gene therapies. And just to point to one example of that, I can tell you that it's public, but BMS with Breyanzi and Abecma uses CryoStor preservation media but they also use the CellSeal vial, which is really cool. And those were independent conversations underway, but we know a lot of the same decision makers and ultimately that would've resulted in the same final result. And we're obviously looking for those sort of easy wins and early wins that we can go capture that are similar to that story. And we would expect to continue to talk about cross selling for the foreseeable future, and that was a big thesis of the whole acquisition spree. And we're seeing a lot of really good anecdotal wins as a result of expanding the sales team, but also leveraging our key relationships.

Our next question comes from Max Masucci with Cowen and Company.

So storage and cold chain really continues to emerge as a nice contributor to growth. I think the segment has beat our model, and I think from the past five straight quarters. So can you just give us some detail around what's spurring the non COVID growth in storage in cold chain. Obviously, there's been a slew of new launches, but your customers seem to be a bit more forward looking towards solving for logistics and transportation factors compared to, call it, 12 and 24 months ago.

Yes, Max, right on. Well, let's split them out. So on the store services side, that demand is just booming. And let's just revisit the factors. These biopharma companies, they have a build or buy sort of dilemma. Are they going to go and build the buyer repository and staff it and put all the gear in it and maintain it, and all their precious biologic materials into one roof that's very risky. And so there's a real appeal to outsourcing that to a partner such as BioLife. Now with SciSafe who can take really good care of their precious samples and have really good management of that stuff, chain of custody, chain of ID, chain of condition, all those buzz phrases that we toss around, but they are very important, they're critical and it's a key value differentiator for us. And we just can't build stuff fast enough, and we are just really excited about how we are going to continue to expand that platform. And I mentioned earlier that the big 60,000 square foot facility that we're going to be kicking off here fairly soon, so that will be great. We'll fill it up, I'm sure. And on the evo side, I just want to remind you and the listeners here that a couple of years ago when we first started talking about, hey, we have got this approved CAR T-cell therapy company that's looking at evo and they're putting us through this really extensive evaluation and validation and it's taking so long, but are we ever going to get some traction? Now fast forward in mid next year, we are going to be shipping with evo all of the approved CAR T-cell therapy. So definitely worth the wait. And I'll just kudos, shot out to our key…

It seems like a key area of 2022 innovation, exciting to see. So maybe another one just assuming out a bit. I mean, we have seen some competitors make an M&A push in cold chain, UPS announced the acquisition of Bomi Group, Azenta shas made a few acquisitions themselves. So at a higher level as you look across your three distinct business segments, would you point to any one of them and say, in that segment, we're seeing a lot of growth coming from competitive wins or taking share versus just sort of organic penetration?

I mean, we have to look at media buyer preservation media, it's so strong. And it's not just existing customers buying more, it's capturing more customers every quarter, getting confirmation of more planned adoption in clinical trials. So that is the engine that just keeps cranking. And let's remember all of us folks, it's still really early. I mean really early in the CGT approval game right now. There aren't that many, just a couple of handfuls. And while we could probably all agree that that space and at least the US, if not outside US healthcare systems are not going to support 50 CAR-Ts for the same indication, and I think we would agree with that. We don't need that kind of level of adoption for us to drive that really, really strong. So we're just really bullish on that. So it'd be media first and then storage services ultimately. And then I think, not to be all doom and gloom, but we're really bullish about what's unique about Sterling. And particularly once we get the field update done, we can get back to leading with our front foot as opposed to being defensive in some cases. But the product roadmap for Sterling is really innovative and at the right time, we'll be glad to talk about that.

And then I'll just wrap up here, just looking at my monitor here, a reminder that we're likely to remain in a volatile market environment for SIMD cap stock. So great to see positive adjusted EBITDA progress on the margins and you exited the quarter with around $47 million in cash. So it's just a broad based question. The cash is obviously -- it's dwindling lower than it's been in recent quarters, but you're also turning the corner on profitability. So I guess, how are you thinking about how comfortable you feel with that cash balance? I mean, is there a certain level that you don't want to go below, do you feel like you have all the access to funding in place to, I would imagine, fund more of the internal growth initiatives but eventually return to an M&A strategy over time.

As you mentioned, we did have a positive adjusted EBITDA quarter. And as I mentioned in my commentary, a lot of that cash was tied up in working capital, in particular, AR. We had a lot of AR due to late orders in the quarter, so that really built AR balance. And then as far as needing cash or raising cash, we do not foresee the need to raise cash with our current operations.

[Operator Instructions] Our next question comes from Suraj Kalia with Oppenheimer.

Troy, forgive me if I misunderstood your comments. The impairment charge, was there any change in the long term ULT revenue outlook? And part of the reason I ask is, how is that being incorporated? And Mike, please feel free to jump in, how is that being incorporated into the 2024 $250 million outlook that you all have maintained still?

I'll take the last part first and Troy can talk about the first part. Yes, super insightful question Suraj, and the good positive answer with confidence is that noncash adjustment, as I mentioned on the call, it doesn't affect our confidence and our ability to hit those exiting 2024 financial aspirational goals, bot in the least. Troy, do you want to take the first part?

Suraj, the valuation and the result really was how the discounted cash flow worked out. And as I mentioned in my commentary, there were a few changes in assumptions, such as higher cost, slightly lower revenue expectations and higher cost to completion. So those are really the three main factors that contributed to the impairment.

But there was no change in the long term revenue outlook for ULT. Right Troy?

It was slightly lowered, yes, as I mentioned in my commentary. But as we also mentioned too, the Biopreservation media is exceeding our expectations. And again, that's the highest margin product we have in our portfolio. So again, giving us confidence in our long term goals.

So Mike, when I look at $250 million, right, in a couple of years, COVID is what 8% of FY ‘22 or estimated to be, so roughly around $15 million, right? If ULT, there has been a slight compression and you look at next year, just trying to understand what are all the moving parts, especially, for example, what contribution evo is going to be or you all have thinking through from Novartis and Gilead. Just kind of walk us through the -- how the different valves and the cylinders are firing, or at least as we look out over the next two years?

Well, I think I'll start by asking Troy to remind us all that in our sort of exiting 2024 analysis, the revenue split from, let's call it, consumables reagents versus instruments. Let's just cover that part first, then I'll make a comment…

So consumables, over 60% of the $250 million and capital equipment, which would be the freezers and thaw systems, under 40% of the $250 million.

So against that perspective, Suraj, I would say that we're not going to quantify evo revenue by customer or anything else like that, but we're bullish about what we can grow that into. And we've got obviously internal modeling about where that can go and what the TAM and the [SAMs] are and things like that. But Biopreservation media, super strong, super strong and storage services as well. Those are the key levers that are going on. And then the instrument side as traditionally as you would imagine like other companies, not nearly the margin profile. Yet, very complimentary and as some of the parts kind of portfolio we can offer our customers, we're anticipating obviously a certain amount of pull through and crossover from having a broader portfolio.

Mike, quickly and I'll hop back in queue. You guys have obviously made a lot of progress in different initiatives, and there is a cross fertilization effort going on between the different segments. Mike, whichever bucket you all want to position it as, right? Whether it's consumables and capital or Biopreservation and storage, and this and that, different buckets. How should we think about the number of customers in each bucket, so that we can sort of start triangulating, okay, this is where average revenues per customer, because there are a ton of new customers being added every quarter. Just help us understand -- you get where I'm headed. I'd love some guidepost just to help us start thinking about where we are headed.

So I think I can give you some rough ranges right now, and then we'll think about maybe in a more formal way if we could put that out. But generally speaking, we have Biopreservation media customers in a range of 4,000 to 5,000 ranging from approved companies to a single research in a lab was going to buy one bottle of media in a year, okay. But definitely weighted and heavily concentrated amongst the clinical side and the late stage and/or the approved customers augmented by a couple of really key distributors who move a lot of media product. In the freezer platform, that's more in the range of hundreds of customers, right? And then the other platforms are less than that, just that's probably the level of detail I’d want to disclose on this call.

Our next question comes from Yuan Zhi with B. Riley.

This is [Brennan] on for you on Yuan. After a $70 million impairment charge, how much of the remaining goodwill on the balance is related to the ULT freezer?

That's a different analysis. We are one reporting units, so goodwill is not affected.

So great quarter for Biopreservation media. Can you break down how much of the growth is driven by volume and how much of that is driven by price increase? Our channel check shows a year-to-date increase on listing price of 9% in some of your media products in third party channel?

Yes, it's definitely weighted by volume. We're just cranking it. I mean current customers, approved customers, there could be some price appreciation just not coming to mind in the last quarter. I know we did a price in increase that was effective one, one in the first quarter. But we have some flexibility to do that based on PPBs and that constrained somewhat by some certain supply agreements, but it's definitely a volume game here and we were killing it. You heard Rod's comments about doubling the batch size, so we can not only meet demand for media but also replenish our safety stocks. And again, I would just remind everybody that it's still early game here, right. These 10 approved products we're in, I mean, those are products that weren't in existence from an approved standpoint three years ago. So this is really early. And look, you can hear it in my voice. The upside on Biopreservation media and related consumables, once we're locked in as a sole supplier, it's just tremendous. We've got so many shots on goal. And even if there was tremendous attrition from the current clinical trial bucket of applications, this thing is going to rock for years to come.

Last question from us. We want to hear more about the growth potential for the evo platform. So wondering if you can share what's the portion of the total shipment volume of CAR-T products that are using the evo platform? And if you can comment on what can drive higher adoption in customers' planned shipment?

I don't want to cite a shipment market share estimate right here. I can tell you that with the first customer that we won, they've intimated to us that we are getting between 50% and 80% of their shipments. And you can do a little path and you can figure out using 350 grand as a dose divided by 2, because it's an apheresis plus a final product in their reported revenues, you can figure how many patients were dosed and we are getting a lion share of that, which is great. The other ones not as much yet but those are very early wins and coming on board. And there's an actual limiter and that's the pace at which the clinical centers get trained up on receiving the therapy in a new package, right? So little bit of work that the pharma company has to do -- with the couriers to get the receiving clinicians up to speed on what's this new thing. And you guys might know the evo, I mean, it looks state-of-the-art. It doesn't look like anything like these old traditional really ugly LN2 containers that these things have been shipped in for years. So as innovative as it is from a design or technology side, it's equally as potent from just an aesthetic. And the clinicians love it because it doesn't scare the heck out of these pediatric cancer patients when this goofy old grayer base thing is wheeled into their room and there's this gas hissing out and all that. So yes, we got a really differentiated offering and it's going to take off. But we're always going to track that. And over time, if we feel that we have confidence in some evo shipment or CAR-T shipment market share data, then we're of course going to be proud about that and put it out, little bit early for that now, though.

We have reached the end of the question and answer session. I’ll now turn the call back over to Mike Rice, CEO for closing remark.

Thank you, Chantel. And thanks again, everyone for your interest in BioLife. Have a great evening and the rest of the week. Good night.

This concludes today conference call. You may now disconnect.