Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Third Quarter 2023 Shareholder and Analyst Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I will now turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions.

Thank you, operator. Good afternoon everyone and thank you for the BioLife Solutions 2023 third quarter earnings conference call. To start off the call, I'd like to give a warm welcome back to Rod de Greef, our recently appointed Chairman and Chief Executive Officer, who is on the call with me today. On this call, we will cover business highlights and financial performance for the quarter and reiterate our previous comments on full year revenue guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the third quarter of 2023, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements be formally as of the date given, and we undertake no obligation to update them. We will also 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. Now, I'd like to turn over to Rod de Greef, Chairman and CEO of BioLife.

Thanks Troy. Good afternoon, and welcome to BioLife's third quarter 2023 conference call and my first call since rejoining the company in mid-October. While I think most of you on the call know me, for those of you who don't, I have over 30 years of senior financial, operating and Board experience in both public companies in the medical technology and life science industries. My history with BioLife dates back to the early 2000s when I joined the Board and raised several rounds of capital through 2013. In early 2016, I returned as CFO and later became trading officer until December of last year when I retired and rejoined the Board. I bring significant strategic and operational experience and a strong understanding of the company's operations, products and customers, as well as solid relationships with management team and key shareholders. I've been asked several times why I made the decision to return to an operating role at BioLife. And the answer is simple when it comes down to the opportunity. The growth potential of the cell and gene therapy market, combined with how well BioLife is positioned to participate in that growth creates a unique opportunity to build on our market leadership position and generate shareholder value. The chance to lead the organization throughout this critical time was extremely compelling, and I can honestly say it should be back. As stated on our last call and consistent with our peers, both large and small, the macro headwinds and global economic uncertainties experienced throughout the bioprocessing industry related to pharma destocking, a constrained biotech funding environment and China weakness have persisted throughout the third quarter. While these challenges have been unable, we're beginning to see signs of stabilization, and they've also presented BioLife opportunities to adapt as we navigate through these…

Thank you, Rod. We reported Q3 revenue of $33.3 million, representing a decrease of 18% year-over-year, excluding COVID-related revenue from Q3 of 2022, the decline was 10%. The year-over-year decrease was primarily related to a 26% decrease in our cell processing platform. And as Rod noted earlier, with a sequential decline, generally speaking, those same factors of destocking and broader industry headwinds are also applicable to the year-over-year decline. Turning to our biostorage services platform. Revenue for the third quarter was $6.6 million, a decrease of 10% over the same period in 2022. Excluding COVID-related revenue from Q3 2022, revenue in Q3 2023 increased 50%. Freezers and Thaw Systems platform revenue for the third quarter was $13.4 million, a decrease of 13% over the same period in 2022. Excluding COVID-related revenue from Q3 2022, revenue in Q3 2023 decreased 9%. Adjusted gross margin for the third quarter was 30% compared with 34% in the prior year. The decrease was primarily due to lower revenue from our high-margin biopreservation media. At the end of September, we reduced our corporate non-freeze operations headcount by 10% in order to right-size the organization in anticipation of the divestiture of our freezer operations. We recognized cash severance cost of $500,000 and $2.4 million in accelerated stock comp in Q3. In addition, we eliminated discretionary travel and marketing expenses. GAAP operating expenses for Q3 2023 were $62.1 million versus $52.5 million in Q3 2022. The increase was largely due to a noncash asset impairment on the freezer businesses of $15.5 million. Adjusted operating expenses for Q3 2023 totaled $24.4 million compared with $20.8 million in the prior year. The increase was largely due to $2.9 million in severance costs. Our adjusted operating loss for the third quarter of 2023 was $14.4 million compared with $7.1 million…

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Jacob Johnson with Stephen. Your line is open.

Hey, good afternoon Rod. Good to have you back. Thanks for the additional color on kind of the media breakdown. I guess as we think about those buckets, the large direct customers, the smaller ones and the distributors, you're certainly pointing to these headwinds persisting in the fourth quarter. But how should we think about maybe some of those pressures alleviating across those buckets maybe as we look into next year?

Yes, good point, Jacob, and thanks for the comment. Listen, I think that when we look at Q4, and we're looking at media revenue on a weekly basis by customer. And so of those three buckets, I would say the small direct customers are sort of ratably where we would expect them to be. And that is the business that comes in ratably throughout the quarter as opposed to the larger both direct and distributor customers, which come in much, much lumpier. So, our comment with respect to seeing Q4 come in at or slightly better than Q3 is really based on that weekly analysis and what we're seeing. We still have some room to make up with respect to the larger distributors and larger direct customers, but that's normal. So, I would say at this point in the quarter, we feel good about where we are relative to the guidance we've provided on Q4. 2024, we'd like to hold any commentary on 2024 to get through the fourth quarter here because I think that will give us a better sense of what we're kind of seeing, which is we think things have bottomed then perhaps are starting to move back up. We're going through our budgeting process at the moment, again, on the media side, it's by customer. So I think that we will be in a much better position to speak to 2024 when we're ready to put out that guidance, hopefully, early in the year.

Got it. I tried to sneak that one by you, Rod. And then just on -- you haven't lost your fast ball. Just Garrie, now Chief Revenue Officer, and you cut some headcount. Can you just talk about but any changes to the go-to-market strategy kind of post-freezer sale?

Yes. So, I think the profile of the sales individuals related to freezers versus the profile of those selling cell processing tools is pretty different. And so we have a small group of cell processing sales team members who are going to basically work with Dr. AB Matthew here and Sean Warner, who are basically our scientific experts in-house and craft the selling message and the selling strategy and go out and drive adoption for those other cell processing tools that we picked up from Sexton as well, obviously, as the media. But as you know, we are pretty well entrenched on the media side, and it's really about capturing new companies as they come out, but it's -- the opportunity in addition to writing those tailwinds on the media is to increase the adoption of those other cell processing tools. And these sellers, and there's going to be four or five of them, most of which we already have on the team, they're really more scientifically focused, if you will, than the freezer sales individuals, which are more capital equipment focused. So, we're really looking forward to Garrie putting his efforts into that team, married with the expertise that Dr. AB Matthew and Sean brings to the table and see what the results are going to be. We're pretty optimistic about that.

Got it. Thanks Rod. I'll leave it there.

Thanks, Jacob. We'll see you next week.

Our next question comes from the line of Matt Hewitt with Craig-Hallum. Your line is open.

Good afternoon. Thank you for taking the questions. Maybe the first one, regarding the market, and I very much appreciate the market segmentation that you provided. I'm just curious, as you look into areas where there has been some weakness or some headwinds, how much of that is tied to the reprioritization of pipelines versus preservation of capital? We're hearing that both ends of the spectrum, small and large pharma, just being a little bit more cautious and kind of slowing some of their pipeline projects. But is there a way to kind of break out the two? How much of it is budgetary from the customers versus how much of it is just shifting of the pipelines and priorities and that could potentially come back maybe faster?

Yes, I think the large part of the decrease with respect to those several large direct customers, I think that really has to do with internal inventory levels that they're trying to manage tighter than they have in the past. So, I really do think that, that's a transient phenomenon, whether it gets cleared up in Q4 or Q1 remains to be seen. But we're pretty optimistic based on what we see right now that it is truly transient as opposed to any issues with demand, the end demand for their products or any cutback in their R&D program or anything like that. And again, we're subject to some pretty high concentration within that group of customers. So, any one of them wanting to hold back and push out an inventory order for a quarter definitely has some material repercussions for us. I think where you might see some of the other headwinds that you referred to would be in the small direct customers and then, in particular, our largest distributor who has a heck of a lot of a lot of customers basically in the thousands. So, those are a lot of academic labs, small research labs. So, those might be affected much more so than the larger customers with respect to R&D, belt tightening and things like that. And we tried to signal that in the commentary that we had both in my script and in the press release.

Got it. That's super helpful. And then regarding the freezer divestiture, it appears and -- maybe correct me if I'm wrong, but it appears that you're now targeting early I think last quarter, the conversation was you expected to have that done by the end of the year. How is that process proceeding? What's -- how are you looking at that? Thank you.

You bet. It's proceeding. And I think the sort of delay into Q1 really has more to do with some late entrants, which are legitimate potential buyers of the company. So, we wanted to have them in the mix and take advantage of whatever they may come forth with, so that's really what it's about. We've got two holidays coming up. So, just practically speaking, I wanted to level set and let people know that it's unlikely to happen in Q4. One or both could -- it's possible, but it's more likely in early Q1.

Understood. Thank you.

You bet.

Our next question comes from the line of Paul Knight with KeyBanc. Your line is open.

Hi Rod. When -- what event do you need to move this on to discontinued ops?

Yes, Paul, since I've been back, I've spent too much time with auditors and know too much about the gap around discontinued ops. It's very complicated. And basically, what we need is a signed deal in hand that the Board has approved to be able to put things into discontinued ops. In short, that's really the test.

And what's your view on the burn rate of the company this year? And what you think the burn rate would be ex-sterling?

Well, I don't want to get into too much detail. We're in the middle of our budgeting process, Paul. And so I think we're going to have a much better idea of non-freezer BioLife with respect to adjusted EBITDA and cash flow. But what I would say is that we would be positive adjusted EBITDA in Q3 here had it not been for the freezer business, and that's irrespective of the fact that our media business was down as low as it was.

Okay. Thank you.

You bet.

Our next question comes from the line of Steven Mah with TD Cowen. Your line is open.

Great. Thanks for the questions. Lot of ground already covered. So just two follow-ups., So maybe just to continue on the line of questioning on some of these larger direct customers. And Rod, you said that some of these direct customers could come back faster as they kind of recover from destocking. Just maybe if you can give us a little bit more color on what gives you that confidence? And we've been hearing that as well from some of the other bioproduction companies that they're seeing a bottom with regard to destocking headwinds. So, would just love to get a little bit more color on what you're seeing out there?

Sure, I'll give you an anecdotal situation that we just literally ran into last week. So, a large customer, I'll try to minimize the specifics, but requested postponing the delivery of their order by a quarter, and we'll do that for them. And yet then, two weeks later, they call us back and say, guess what, we didn't have as much as we thought. So, we'd like to get 10% of that order actually in-house before the year-end. So it's that kind of situation, and that's not the only one that suggests to us that perhaps they've gone too far. It certainly shows in my mind, a lack of complete management and transparency within their own organization about what they need. Many of these large customers have multiple operations that purchase from us, but they all come under the same corporate umbrella. So it's almost as if at some level, the left hand doesn't know what the right hand has, and they open the freezer and they see that there's not enough cryo store and they say, no, we better go buy some. So, that is going on. And so that's a bit of a reversal from what we've seen. And again, anecdotally, but that's what we're facing.

Okay. No, that's super helpful. And then last question. I just want to make sure, when you said the freezer divestiture process will close likely in early 2024, does that mean that you guys are close to signing a definitive agreement? And is that something that you guys are going to disclose when that's signed? Thank you.

Yes, fair question. I think that we're not going to announce the signing with a definitive agreement. We will obviously announce the close of a transaction, but we're -- for competitive reasons, I'd rather not say exactly where we are with the different parties. I'm sure you'll appreciate that.

Yes, fair enough. Okay, appreciate it. Thank you.

Thank you.

Our next question comes from the line of Thomas Flaten with Lake Street. Your line is open.

Hey, Rod, welcome back. I don't want to push the freezer business questioning too far, but do you foresee or can you help us understand if this will be a single transaction for both businesses or more likely to be two transactions?

Yes. Thanks Thomas. And what I can say there is that both options are on the table. That's the best I can do given the competitive dynamics that we're involved in. So, there are parties that want both, and there are parties that want each.

Got it. And you mentioned starting to review potential locations for a new SciSafe facility. Anything you can share there with respect to location, most likely Europe, most likely US, maybe even Asia?

I think it would be in the US. We have a very nice site in Amsterdam that still has some room. So, it's very well-positioned there next to Schiphol Airport. So, we're good, I think, in Europe. So it will likely be a very strategic location in the US, which, again, Garrie's strategy has been to identify an anchor tenant, if you will, which basically, when you sign that transaction or that agreement covers the fixed cost of that new facility, and then we fill it after that. And so it's very subject to the several conversations that are going on in different places in the states relative to identifying and locking down that anchor tenant.

Got it. And then just one quick final one, if I might. I know there's a lot of interest in understanding obviously what the forecast looks like for next year, but maybe even more importantly, kind of a midrange forecast. I know you previously had the 2025 numbers out there. You feel comfortable enough to map that out, what that midrange forecast might look like?

I don't have a specific timeframe, but I'll throw a piece of data to that that we find pretty interesting. So, we're currently in -- the media that is, is embedded in 11 approved cell and gene therapies. And when we look through 2024, it's anticipated from the data we have at least that there's another 19 potential approvals in the process, 12 of which were embedded in. So, it's possible that by the end of 2024, the number of therapies that our media is in has doubled. So, that -- to us, that's a very inspiring number and looks good for what 2025 and beyond would bring for us.

Excellent. Appreciate taking the questions. Thanks.

You bet.

Next question comes from the line of Michael Okunewitch with Maxim Group. Your line is open.

Hey guys. Thank you for taking the questions. So, I guess I'd like to see if you can give any color on how the current challenging biotech environment could be impacting the longer-term opportunity within cell and therapy? I guess how much of your longer-term opportunity do you see being driven by larger biopharmas who may be able to readily invest into cell and gene therapy versus smaller biotechs, where you may have more trouble with access to capital?

Yes, I think that it's a good question. A very -- I'd say 20% of our revenue on the media side comes from what we call those small R&D companies labs, et cetera. I think the majority of our revenue, 50% of our direct revenue comes from approved therapies. And I should say companies that have approved therapies. And as that number gets bigger, I believe that as a percentage of total media revenue, that is going to get bigger in addition to the fact that when we get a small company on board, particularly early stage, it takes several years for the revenue level as they go through preclinical into Phase 1 into Phase 2 to actually have any substantive impact on our revenue line. So, while from our perspective, the more the merrier, if there is a little bit of a shakeout in the early stage of things, that's -- we don't believe that's going to impact us much, if at all.

All right. Thank you for that. And then just one more for me, and I'll hop back in the queue. When you're looking at the sale of the freezer business and the potential to free up what could be a decent bit of capital, how do you look at deploying that? Do you think that this is something where you could look at additional M&A? Are there any areas that you would be looking at? Or do you believe the best use of that capital could be to just help with the return to profitability?

Well, for sure, the focus is on profitability, right, that's number one. With respect to where capital would be deployed, it's going to be deployed in the business segments, if you will, the product lines that we believe are going to drive profitable growth. So, we want to invest in our growth. Is it possible that some of that may be inorganic? Sure, it's possible, but it's certainly not a focus. And if it was going to happen from an inorganic standpoint, it would be very, very adjacent to our current core technology. So, really, it's about putting the capital to work against the product lines that we know can grow and profitability over time.

All right. Thank you very much for taking my questions.

You bet.

There are no further questions at this time. Mr. De Greef, I'll turn the call back over to you.

Thank you, operator. In closing, it's been a busy few weeks since I stepped back into an operating role. And while it's clear we have work to do, I'm confident that BioLife will not weather the storm but emerge stronger, more agile and well-positioned for success. The more I dig in, the more enthusiastic I am about the opportunity that lies ahead of us. I'd also like to acknowledge and thank our team members for their unwavering commitment to drive BioLife's mission forward as a leading provider of cell processing tools and biostorage services to the CGT and broader biopharma markets. Thank you all for your time today, and we look forward to updating you on future calls and meeting with some of you at the Stephens Conference next week.

This concludes today's conference call. You may now disconnect.