Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Q4 2023 Shareholder and Analyst Conference Call. [Operator Instructions] Please also note today's event is being recorded. I would now like to turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions. Please go ahead.

Thank you, operator. Good afternoon everyone, and thank you for joining the BioLife Solutions 2023 fourth quarter earnings conference call. On this call, we will cover business highlights, financial performance for the quarter and 2024 revenue guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the fourth quarter of 2023 and 2024 revenue guidance, 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 speak only as of the date given and we undertake no obligation to update them. We'll 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 the call over to Rod de Greef, Chairman and CEO of BioLife.

Thanks, Troy. Good afternoon and thank you for joining us for BioLife's fourth quarter and full year 2023 conference call. It has been a busy 4 months since rejoining the company as CEO, and I'm encouraged by our team's ability to navigate one of the more challenging environments for the life sciences industry in recent memory, not to mention their consistent execution throughout the organizational changes related to our strategic refocusing on higher margin recurring revenue streams. Over time, BioLife has become the industry standard in terms of biopreservation media and has established itself as a leading provider of premium bioproduction tools and services, the critical picks and shovels that support the fast growing cell and gene therapy industry. This is our mission and I'm convinced more than ever that BioLife is in an excellent position to benefit as the space matures, expanding upon our already dominant share of the market and offering diversified exposure to the nascent industry, which we expect to grow at a 20% to 25% CAGR through 2033. As we look back on an undeniably challenging year for the CGT industry, we recognized that BioLife was not alone as companies large and small felt the impact of inventory destocking, a constrained funding environment and weaknesses in China. Our full year results were certainly impacted by these challenges, but our initiatives to divest the freezer product lines and refocus, helped us exit the year with positive momentum. With encouraging early signs that the macro headwinds facing the industry may have begun to subside, we similarly saw evidence of stabilization and momentum in the CGT industry and our business as demonstrated by our fourth quarter Cell Processing platform revenue growing 11% sequentially over Q3 and across our top 50 biopreservation media customers who will account for 90% of…

Thank you, Rod. We reported Q4 revenue of $32.7 million, representing a decrease of 26% year-over-year, and excluding COVID-related revenue from Q4 of 2022, the decline was 23%. The year-over-year decrease was primarily related to a $6.1 million decrease, or 35% in our Freezers and Thaw systems platform, and a $5.4 million or 27% decrease in our Cell Processing platform, reflecting the industry headwinds and destocking in 2023. However, our sequential growth in Q4 from Q3 for the Cell Processing platform was 11%. As Rod mentioned, we are starting to see positive indicators for future revenue growth for the Cell Processing platform. Turning to our Biostorage and Services platform. Revenue for the fourth quarter was $6.6 million, a decrease of 1% over the same period in 2022, excluding COVID-related revenue from Q4 of 2022, revenue in Q4 2023 increased 26% as the COVID-related revenue was backfilled. Freezers and Thaw systems platform revenue for the fourth quarter was $11.4 million, a decrease of 35% over the same period in 2022. Excluding COVID-related revenue from Q4 2022, revenue in Q4 '23 decrease 32%. Adjusted gross margin for the fourth quarter was 35% compared with 32% in the prior year. The increase in adjusted gross margin was primarily due to product mix related to decreased revenue from our freezer business and lower warranty and scrap expense from our ULT product line. Adjusted gross margin increased approximately 450 basis points sequentially, largely due to increased cell processing revenue and product mix. GAAP Operating expenses for Q4 2023 were $45.9 million versus $93.5 million in Q4 2022. The decrease was largely due to the non-cash asset impairment charge we took during Q4 2022 in the freezer businesses of $40.5 million. Adjusted operating expenses for Q4 2023 totaled $20.4 million compared with $22.1 million in the…

[Operator Instructions] Today's first question comes from Paul Knight with KeyBanc.

Does the LOI allow you to move the freezer assets to discontinued ops for the statements?

Unfortunately, Paul, what we need to do is actually have a signed document, then we can move them into discontinued ops. Obviously, we are working through the final diligence and in parallel crafting -- the legal guys are crafting the documents, so we're hoping 30 to 60 days from today these things will be done, and if we can get it done by the end of March, then they will be considered discontinued operations for the full quarter.

A signed LOI gets you to move them to discontinued?

No, it does not by itself. A deal does.

But you have LOI signed at this juncture or waiting on LOIs?

No, we have 2 signed LOIs, one for each of the entities, clear terms spelled out. Final diligence is in process with the buyers and the lawyers are working on the security purchase agreement and in the other case an asset purchase agreement.

And then you had positive EBITDA in the quarter, Rod, could you talk to steps taken to get to positive EBITDA?

Yes, I'll let Troy deal with that. Paul.

Yes, Paul, so as you recall, we did a reduction in force towards the end of Q3, so that reduction expenses flowed through Q4. In addition as remarked in my script, we had the increase in cell processing revenue, and then we just we did a control on discretionary expenses such as consulting costs and travel.

And then last question on my side is the 10 more potential cell and gene therapies coming in 2024 relative to 13 -- excuse me, yes, 13 last year. I know it's not probably correct, but why not almost double the level of revenue from approved customers that you gave in the call to get to potential revenue run rate on these approvals? Or what kind of qualifications would you put around that saying, I can't just double my commercial revenue off CGTs approved?

Yes, so a couple things there. When you're talking about a new unique approved therapy, there's definitely a ramp up, right? And if you have followed the IOVANCE conference call, as I did, they were very studious in not saying how many patients they expect it to be able to dose over any kind of near-term timeframe. So there's a ramp. That's one thing. The other thing, Paul, is that we have refined the methodology by which we look at what we call approved therapies, and especially as we look forward to that 12-month number, which is 10, that 10 includes the potential for 3 unique therapies, 3 new indications from an existing therapy, as well as 4 new geographic indications -- or sorry, geographic regions. So that means that those are the drivers that actually increase the number of patients that could be dosed, right? So for instance, Breyanzi could have 3 new indications in 2024. That's not necessarily a new approval in the way that we're looking at things now. So each one of these 3 aspects, whether it's an indication, an expansion of indication, whether it's a geographic region expansion, or whether it's actually a unique approval, in addition to whether a therapy moves from say a fourth line treatment to second line treatment, those are the variables that make up the patient count ultimately in terms of those being dosed. So it's not a, like-for-like.

The last thing promise is, as you get these events happening in a year, I would assume they would do some additional stocking in front of it. Are you seeing that at this juncture?

It's difficult to say. What I would say is when we look at a customer like IOVANCE who probably had a pretty good heads-up that things were going their way. Their '23 purchases were nicely above '22, and their projected '24 is also nicely above '23.

And our next question today comes from Jacob Johnson with Stephens.

Maybe Rod, just first on the freezer sale, I appreciate the commentary in the prepared comments. I appreciate kind of what you just outlined to Paul's question. But, I guess, kind of how confident -- you've got 2 LOIs, it sounds like this will hopefully be over in 2 months. But just how confident are you that this will all be concluded in the next couple of months? And then I heard you mention some maybe outlays related to these transactions. Is there any way to quantify that?

Yes, so I'm not going to get into any details around the specific terms because they're not done yet. With respect to confidence, I'm at 70% to 80%. One of them, the buyer for Stirling knows the business extremely well, so it's not, we don't believe anything's going to come up -- pop out of the woodwork that would be a showstopper for them. A little less so on the CBS side of things, but again, that's a cleaner business at some level, so we don't expect -- and it's a sophisticated buyer, so we don't expect anything to pop out of there. So I'd say 75% to 80% confidence that we'll get it done in that kind of a timeframe. In terms of the cash outlay, again, I'm not going to get specific about it, but what I will say, Jacob, is that there's not -- the size of it will not impact our ability to operate the company with the cash that we have going forward.

That's helpful, Rod. And then on the media side of things, it's good to see it pick up sequentially. Now you're guiding to kind of single-digit growth year-over-year, but obviously much better growth versus kind of the second half trends. I'm just kind of curious, is there any way to kind of quantify how much media -- what media looks like in the first half of the year versus kind of the back half and kind of the run rate you'll be exiting the year at? Or maybe alternatively kind of how you're thinking about some of the headwinds last year sustaining into this year, just as we try to think about '24 and beyond.

Yes, so we had a conversation with our largest distributor customer, literally they were in our facility here a week ago, and they definitely expressed some confidence in the second half of the year. And I look at them based on the almost 6,000 customers that they sell our media to as sort of a proxy for just the small commercial, maybe even preclinical customer base. So I think there's good news there that the first half of the year might be a bit flat compared to the second half of last year, but that there could be an uptake there. Our commercial customers, based on the projections that we're receiving from them and our larger clinical customers, let's say our top 20, they're also suggesting that the first half is going to be maybe 45% of the total for the year with the back half coming in at 55%. Admittedly, Jacob, our guidance is a bit cautious because it's early in the year, and last year was a tough year, and I don't want to get ahead of -- out in front of our ski tips too much. And we'll be looking throughout the year, every quarter as things change and our customers give us a forecast, a rolling forecast every 3 months. And as those change and hopefully become more positive, then we'll share that, and that would be also shown in our guidance going forward.

And our next question today comes from Steven Mah with TD Cowen.

Could you comment on what you are seeing in terms of your comments of macro headwinds potentially subsiding? I know you had 11% sequential growth in Q4 in cell processing. Any sense how you can share on how Q1 is shaping up? And then also any comments on how the inventory and destocking trends are looking like?

Yes, let me address the last one first, Steven. I think that when we looked at Q3 and Q4, we had 4 and 5 large customers requesting that we push their orders out, and we're talking about 7 figure orders, right? Which was the major reason or half the reason that we had such a cliff drop from Q2 to Q3 last year. And in fact, back even in Q4, we still had that 3 customers asking us to do that. In Q1, so far we've just had the one customer that has asked us to push things into Q2, and so we feel pretty good that that's an indication that from an inventory destocking perspective, things have kind of normalized. With respect to the larger customer, again, that customer that we just had a meeting with that has sort of 6,000, I would say, smaller customers. They are indicating that what they're seeing is a flattening from the second half of last year, and again, have expressed some optimism toward the back half of this year.

I appreciate that. And talking about the Q4, the 11% sequential growth in cell processing. Can you provide any color on the gross margins in Q4? It seemed a bit lighter than we had expect in also in light of the growth in cell processing?

Yes, so on the gross margin, it did increase about 450 basis points sequentially. We're not speaking specifically to product line gross margin, but that would be in line with our expectations at those revenue levels at a consolidated basis, including the freezer businesses.

And then let me sneak one more in any more cost cutting efforts contemplated, or do you think the company is right sized?

Yes, good question. I think generally speaking, we're right sized. I think that there are things on the edges that we can still take advantage of. Clearly, we're really focused on any kind of discretionary spending, particularly travel, and putting a pretty fine filter on who goes where and why. And so it's -- I think we have some opportunities there throughout the year, but nothing like the sort of rift that we did in Q3.

And our next question comes from Thomas Flaten with Lake Street Capital Markets.

Troy, in the guidance you made mention of positive adjusted EBITDA for 2024, can you quantify that, I know you laid out that 16% to 18% adjusted EBITDA margin post freezer in the middle of last year, but is that a number that that's reasonable for us to think about for the second half of the year? Or should it be lighter than that?

Yes, Thomas, that's a good way to think about it, right? When you keep in mind the media levels of revenue in the first half versus second half, right? In our guidance of what we're saying, we're still comfortable with those pro forma numbers that we put out, once the media revenue grows in the second half.

I would add Thomas that, once the freezers are divested, we will be in a position to speak to gross margin and adjusted EBITDA ranges for the balance of the year. We're constrained by certain GAAP requirements in doing that right now, but as soon as those things are gone, we will address that.

Got it. And then, given that Garrie's been in post for a little while now, could you just describe a little bit about some of the initiatives he's had ongoing to kind of up your up your revenue game?

Sure. I think the reality is around media revenue that the opportunity to drive revenue with existing customers is very limited as it relates to media revenue because they're going to use what they're going to use. So the opportunity on the media revenue is to understand where we are not, which, when you look at a 70% market share on commercially-sponsored clinical trials, as I mentioned, there's some place to go there, right? And we are going there to understand what if anything they're using, do they even have a cryo-preservation interval at this time or are they using fresh product. So that there's an exploratory phase going on there? I think where we do have the opportunity to actually move the needle from a revenue perspective is the cross-selling of the tools that we acquired from the Sexton acquisition and layering those into the market position that we have on the media side. So there is definitely that going on where there's a handful of scientifically-oriented salesmen taking those products and starting to set up meetings with those media customers to show them, basically introduce them to the Sexton product line, whether it's hPL, whether it's the CellSeal vial line. And I think we're starting to get some traction just based on some meetings that I'm seeing on the calendar, et cetera, with some of our larger customers, so that that's an opportunity for growth here as we go through the year.

And then one quick final one, if I might. Would you be willing to comment on across the SciSafe facilities, what level of capacity you're currently at?

Yes, I'd say if you blended it, we're, we're probably in the 75 or 80% kind of range.

And our next question comes from Matt Hewitt with Craig-Hallum.

This is Jack on for Matt. So you recently received 2 approvals in Q4, and received 2 more so far this year. How should we think about the ramp of utilization of the biopreservation media? Do customers have inventory on hand in anticipation of the launch, or do they typically wait for the launch to commence and then take on additional product?

I think they definitely buy in advance of the approval. I think we saw that just using IOVANCE as an example, where I mentioned earlier that their '23 purchases were up above '22, not just around the clinical trials, but in anticipation of an approval we believe. We think that what we see from them projection wise for '24 is more reflective of what they think the patient dosing numbers are going to be. It's interesting that when we look at the dosing volume product used per patient, let's say for sure this particular application, this therapy uses the most of anything we have. But they don't give us projections. They've again specifically not provided the investment community with any projections about numbers of patients dosed, but I would say that they keep a safety stock on hand, generally speaking of between 3 and 6 months on the outside. And I think what we saw late last year was a movement from 6 months to more like a 3-month safety stock.

[Operator Instructions] Our next question comes from Michael Okunewitch from Maxim Group.

So I guess one of the things that I do want to ask is, as you get towards the removal of the freezer business and returning to EBITDA positive on a full year basis and with a decent cash pile, do you start the process of looking into additional product lines that you could bring in or do you look more towards letting things settle and kind of waiting for better clarity on the direction of the market environment?

I think we start by looking at the product line that we have right now, both in terms of products and services, understand the investment required to drive those products forward. Clearly, there are certain external opportunities that we would take a look at, but we're going to be very selective. And just to be general about it, I would say we're early to be looking at those things. And unless something very special comes across our desk, that's probably from a looking outside standpoint, something we would do more in 2025 versus this year. We have a lot of work to do this year, both in understanding how to drive adoption of the current product line as well as implement systems so that the business runs more smoothly.

And then just one more, and you did touch on this a little bit on one of the prior questions, but I'd like to see if you could provide a bit more color on what the impacts of the freezer business looked like on adjusted EBITDA this past quarter?

Yes, unfortunately we're a one-segment reporting company. So we don't provide that information, but as Rod mentioned, we do look forward to providing further clarity once the divestiture process is complete.

And our next question is a follow up from Paul Knight of KeyBanc.

Rod, I got to give a shout out to the services group and the 26% growth rate ex-COVID. How was this happening and why can't this go on like for a long time?

Yes, I think some of it Paul had to do with expansion from one of our very large customers and some business that they had and that we were able to get. Not to diminish the other activity that Garrie and his team did, but that was a bit of a one-off that I would say accounts for probably half of that growth. It's one of our larger customers on the storage side. We have an excellent relationship with them and are kind of their go-to when it comes to expanded storage needs.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Thank you, Rocco. So in closing, I'd like to say that despite the relatively cautious outlook for 2024 that we're providing at this stage, we do strongly believe that the fundamental thesis remains intact and that the company is very well-positioned to take advantage of the underlying growth drivers of what is still a very nascent CGT market, to drive revenue and profitability not only this year, but in years to come. We believe our biopreservation media is the industry standard and intend to leverage that market position to drive adoption of the other tools and services in our portfolio. Thank you for your time today and we look forward to updating you on future calls and meeting with some of you at the Cowen Conference in Boston next week.

This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.