Q4 2020 BioLife Solutions Inc Earnings Call
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded share do you require any further assistance. Please press star zero I would now like to hand the conference over.
To your host CFO Roderick degrees Sir Please go ahead.
Thanks, Latif good afternoon, everyone and thank you for joining this call.
Earlier today, we issued two press releases. The first was our announcement of the signing of a definitive merger agreement to acquire global cooling, Inc. Better known as Sterling Ultra cold, a leading U S based developer and manufacturer of ultra low temperature freezers. The second press release detailed our Q4 and full year 2020.
Financial results and operational highlights.
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.
These statements are subject to risks and uncertainties that may 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 qualifies 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 there given the.
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.
Non-GAAP or adjusted financial metrics should not be viewed as an alternative to GAAP. However in light of our 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 CEO of Biolife solutions. Thanks, Rob and good afternoon, everyone. Thank you for joining our call. We're very pleased to present the background strategic rationale on synergies.
Well as the potential financial impact of our just announced acquisition of Sterling Ultra cold.
A company that's been on the news quite a bit. These last few months due to their support of COVID-19 vaccine distribution and point of care storage.
Before I get to Sterling I'd like to give some color on how we finished last year I'll provide some quantitative data, but I'll leave most of the detailed revenue presentation to rod.
To set the context, it's important to review how active the cell and gene therapy space is right now and.
In 2020 total funding for companies participating in the space was nearly $20 billion.
A 50% increase over 2019.
Industry sponsored clinical trials increased by 154 for 2019 and several therapeutic candidates could get approved this year.
'twenty 'twenty was a banner year for Biolife with total revenue of 48 million up 76% over 2019, 'twenty 'twenty media revenue grew 32% over the prior year.
We gained over 200, new direct customers with new end users across the portfolio, including media Thaw Evo cold chain C. B S freezers and Si safe storage services additional.
Additionally, our two largest distributors sold and shipped our preservation media products to nearly 3500 different customers.
This is truly remarkable and speaks to how well our direct sales team and distribution partners are planting seeds for future growth.
Further to our media franchise since 2016, we processed nearly 300 cross reference request for our U S. FDA Master files to support media use in human clinical trials.
In 2020, we added 63, new media customers and we also added 75, new customer clinical trials, using our media, including 34th quarter alone. It's not a perfect data match up but if we take the arm data on 154, new clinical trials in 'twenty 'twenty, it's possible our market share is nearly 50% of these.
Considering we added 75, new trials last year.
We continue to believe that our media franchise are really sticky marquee customers is the engine that will continue to leverage to market are growing by our production tools and services portfolio too.
To date, our bio preservation media in Houston for approved cell therapies.
Skarda into cargoes from kite Bianchi from Celgene and syntech low from Bluebird.
Cryo store is also used in for new therapies that could get approved this year. These include IDE cel from Celgene on Madhu myself from gamete of cell sit Lasalle from Janssen on English sell from Bluebird. So we could start to see the anticipated growth in customer approvals this year.
And continuing for several years, considering our large installed base of media customers still in the clinic and marching toward filing for approvals in various geographies.
Turning to our thoughts star products, although the pandemic significantly limited our ability to sell on site in person at customer and prospect locations. We gained 11, new customers in Q4 last year and 29 for the full year of 2020.
Turning to our Evo cold chain management platform, we continue to gain traction and added 14, new customers in Q4 last year.
A large pharma company, we've been working with secure some portion of their commercial shipments has confirmed that they've completed their regulatory update filings, citing the evo platform in the U S and Europe.
And we're on schedule to commence a series of monthly deliveries of evil containers to our courier partners to support customer shipments using Evo next quarter we.
We believe that over time this customer decision to Derisk cold chain management by approving more than one container and logistics provider will become the norm and we will have a strong opportunity to compete across the landscape of cell and gene therapies.
In the last few months, we also on boarded two new Courier partners with Biochem and Fisher Bio services, joining world Courier and quick as approved Evo partners targeting the cell and gene therapy space.
With our CBS freezer platform again, the pandemic curtailed much of our onsite selling activities. However, we finished last year on a strong note and gained 19 new customers in Q4 2020.
Rounding out my recap.
Our bio storage services team had a very strong Q4 and full year 2020, we gained six new customers in Q4 and set the stage for significant growth this year with expansion underway in the U S and Europe.
Starting with this call on onward based on the guidance on request. We've directly received from several government agencies were not going to discuss size save customers an involvement with COVID-19 vaccines. So just a heads up for when we get to the Q&A portion of this call.
In summary, we're really pleased with what we accomplished last year and are confident about our organic growth potential and how the acquisition of Sterling will take biolife to the next level.
Now turning to the transaction joining around me on the call today is Dusty Tenney. The current CEO of Sterling Ultra cold, who will be joining biolife solutions. After we close the transaction as our new President and Chief operating Officer Dusty.
Dusty has a proven track record of scaling high growth businesses at Brooks automation and before that at Perkin Elmer.
And I'm really looking forward to his contributions and scaling the business, we're thrilled to welcome Dusty and the entire Sterling team to the Biolife family.
With our acquisition of Sterling, we're now guiding 2021 total revenue in a range of $101 million to $110 million and have set our next revenue goal that $250 million within the next three to four years.
I'll start off with a recap of our M&A strategy and then comment on why Sterling is such a great fit for Biolife.
Recall that in August 2018, we embarked on a strategy to identify and acquire or invest in novel and potentially disruptive technologies that would broaden our tools portfolio and enable us to help our cell and gene therapy customers to decrease the potential of delivering a nonviable dose.
With reimbursement being predicated on an initial and sustained response from the patient and our understanding of the many ways manufacturer of cell and gene therapies can be damaged during storage shipping and fine we looked at the fragmented tool supplier base and got to work the merger with Sterling is our fifth deal in the last two years following our acquisitions of sterile bio on a fast our product.
Family SaaS technologies, and the Evo cold chain management platform.
Custom biogenic systems liquid nitrogen freezers and most recently last October so I say from their biologic storage services offering.
We focused on the mechanical frequent landscape since we currently don't offer that temperature range in our freezer portfolio, which is limited to minus 190 succeed.
Mechanical freezers operating a range from minus 20 seat at minus 80 C.
A key requirement of our strategy to enter the mechanical freezer market was to identify technologies that are not prone to the typical compressor failures and maintenance requirements of the current market offerings. The Sterling freezer platform as novel utilizing a very efficient Stirling engine and no compressors, providing much higher reliability and uptime on standard compressor.
These technologies.
There are just two moving parts and the energy consumption is a fraction of compressor based freezers, creating significant operational benefits.
These are the typical reasons that customers buy from Sterling with the most compelling reason is it all sterling freezer systems, the portable <unk> twenty-five the under counter S. You want on five and the upright 780 actually all have programmable ultra low temperature ranges between minus 20 C and minus 86 C.
Which provides customers' universal applications for their biologic materials on vaccines that no other system in the world can provide.
So with this acquisition, we now have complete cold chain freeze your line from minus 20 C to minus 196 C that fulfills 100 per cent of the needs of cell and gene therapy developers and the broader biopharma market.
The strategic fit is excellent.
In addition to welcoming the 18 person strong Sterling global direct sales team to Biolife, who will now also present, our CBS liquid nitrogen freezers to customers, we have on operational and cost synergy to leverage in that size safe is a major customer of Sterling. So we'll be supplying one operations team from another.
Lastly, we'll pick up 80 patents on the acquisition related to Sterling's current and future products that will enable strong sustain product differentiation.
Now I'd like to turn the call over to Dusty to give you a background on Sterling and then rod can take us through our 2020 financials and the impact from the Sterling acquisition Dusty.
Thanks, Mike.
Great day for Sterling team members customers and shareholders from my time at Brooks automation and more recently, a sterling ultra cold I, followed the progress that Mike and the Biolife team have executed to broaden their tools portfolio and provide more value to customers and shareholders.
Each of the assets Biolife acquired where targets on my own M&A list.
When Mike reached out to me last fall to start a conversation about putting sterling in biolife together on.
Immediately saw the strategic fit and I'm really looking forward to joining biolife as its president and COO and doing my part to further the growth of the company and build it into an even bigger and more trusted supplier of critical by our production products and services.
Let me give you a little background on Sterling. The company was spun out of Sunpower incorporated in 1996 to capitalize on an IP estate related to the use of Sterling engines and various industrial applications.
Since that time the company develop a mechanical.
Mechanical freezers and to date has shipped more than 10000 systems worldwide.
I joined Sterling in March 2020, after a very successful time at Brooks automation.
He was president of its life Science Division and Oversold rapid growth and the completion of several acquisitions.
We grew life sciences revenue from $65 million to over 300 million over five years.
Sterling the operate a 50000 square foot manufacturing facility, South east of Columbus, and Athens, Ohio.
And have an inside sales and marketing team that works in downtown Columbus.
We currently employ 160 team members and had been flat out running with the pedal down hard since last August when our upright under counter and portable Sterling Freezers will recognize as key enabling technologies for the distribution and point of care storage of COVID-19 vaccines.
In 2020, our revenue breakouts, where along these lines.
By market segment pharma, and biotech was 71% academic 26% and government was 3%.
By freezer model large freezers, where about 80% portable, 15% and under counter freezers five per cent and by geography, North America was about 90% EMEA, 8% and Asia Pacific 2% we.
We sell through distributors, mainly VW are in by our direct sales team who also provides support for our sales partner at VW are.
Preliminary revenues for 2020 was $39 million and 2020 revenue was estimated at $60 million.
We are a key supplier to operations Warped speed and a partner with U P. S Walgreens and other participants in the fight against Covid.
We also serve the cell and gene therapy space, and count allergy dharna orchid and Sangamo as key customers.
I'll close with some comments on why our Stirling engine freezers are highly valued in the cell and gene therapy and broader biopharma market.
Just as with Biolife entire portfolio, it's all about helping customers reduce risk.
Sterling has engaged with multiple cell gene and regenerative medicine customers provide a flexible solution and maintained the cold chain of custody critical to maintaining the efficacy and viability of these therapies.
Use cases include localized high density upright freezers that manufacturing locations.
Clinical applications that leverage the under counter system, given the limited space to store therapies and a fully mobile solution that allows carriers to transport this high biological material towards point of views, while maintaining full traceability at ultra low temperatures.
Sterling has partnered with several gene and cell therapy customers and co branded the portable bench top U L. T 25, as their point of view storage. This makes it easy for their customers to maintain the biologic materials that they supply to clinics at proper temperatures ranging from minus 20 to minus eight succeed while bringing prominent brand regiment.
Recognition for repetitive purchases.
Further sterling has demonstrated that its engines can also support cryo temperatures less than minus 135 C. Without further invention, which creates tremendous pathways for further growth as a natural combination with the existing assets with within Biolife to address the full range of ultra low temperatures.
Required for viable cell and gene therapy storage and distribution.
This truly highlights the tremendous growth synergies that exist by combining sterling assets with Biolife strong cell and gene therapy portfolio.
Now I'll turn the call back over to Rod.
Thanks, Dusty I'll start off with the review of our 2020 financial performance.
Revenue for the fourth quarter totaled $14 7 million.
Representing a 78% increase over 2019 fourth quarter revenue of $8 3 million.
Media revenue for the fourth quarter of 2020 was $8 2 million or 58% increase over the fourth quarter of 2019.
This quarter's revenue also included 662000 of sales related to the automated thaw product line 469.
Of the Evo cold chain related revenue.
$6 million in freezers and accessories at CBS.
We also reported $1 8 million in bio storage revenue related to our acquisition of size safe, which closed on October one last year.
Revenue for the full year ended December 31, 2020 totaled $48 1 million, an increase of 76% over 2019.
Media revenue for the full year of 2020 increased 32% to $31 million compared to 2019, we believe that the full year comparison is the best reflection of how media revenue is currently growing as it smooths out the quarterly Lumpiness, we witnessed throughout 2019, and 2020 and which we expect to.
Continue to see in 2021.
Our adjusted gross margin for the fourth quarter was 54% compared with 65% last year for.
For the full year of 2020, adjusted gross margin was 58% compared to 69% in the same period in 2019.
The decrease in adjusted gross margin for both periods reflects the gross margin profile of the product lines, we acquired in 2019 and 2020.
In addition, based on expected growth in these product lines in 2021, we increased our fixed manufacturing overhead at our Evo and freezer operations.
Adjusted operating expenses for Q4 of 2020 totaled $8 2 million compared with $4 9 million in Q4 of 2019.
For the full year of 2020, adjusted operating expenses totaled $27 6 million compared with $16 8 million in 2019.
The increase in both periods was primarily driven by additional operating expenses related to the acquisitions made in 2019 and 2020 as well as increased head count and stock based compensation expense necessary to support our overall growth objectives.
The adjusted operating loss for the fourth quarter of 2020 was 255000 compared with operating profit of 437000 in 2019, our adjusted operating income for the full year of 2020 totaled 293000 compared to $2 1 million in 2019.
Our adjusted net loss for the fourth quarter of 2020 was 256000 or negative <unk> <unk> per diluted share compared with adjusted net income of 527000 or <unk> <unk> per diluted share in 2019.
For the full year of 2020, adjusted net income was 351000 or one cent per diluted share compared with adjusted net income from two 6 million or <unk> 13 per diluted share in 2019.
Adjusted EBITDA for the fourth quarter of 2020 increased 47% from two 5 million compared with $1 7 million in the fourth 2019.
For the full year of 2020, adjusted EBITDA increased 41% to $8 3 million compared with $5 9 million in 2019.
And our cash balance at December 31 was $90 million.
Yeah.
Now I'd like to make a few comments on our just announced acquisition of Sterling.
This is an all stock deal whereby biolife will issue $6 6 million shares of common stock in exchange for 100% of the outstanding shares of Sterling.
Based on Fridays closing share price of approximately $39. The transaction has an imputed value of approximately 258 million, including the assumption of $8 7 million of debt.
When you combined fourth quarter 2020 revenue for Biolife and Sterling the annualized revenue run rate is approximately $115 million.
Sterling as margin profile is not dissimilar to our CBS freezer business with gross margins currently in the low thirties and a modest adjusted EBITDA expectation this year.
However, during diligence Dusty and his team did a good job of articulating a clear and what we believe to be an achievable plan for significant margin improvement over the next 12 months to 36 months. We expect the gross margin expansion to result from the introduction of new and higher ASP products and increased plant automation.
Which we expect will move gross margins into the mid to high Forty's.
So while we will see some near term margin erosion, particularly at the gross margin level. We believe that the combined entity can achieve our adjusted EBITDA margin target of 30% in the next 24 to 36 months.
And with materially higher absolute numbers.
In addition, we expect the transaction to be accretive to adjusted net income per share next year and beyond.
In summary, we are issuing 19, 9% of our outstanding shares, which is 16, 5% on a pro forma basis to acquire a business, which is a great strategic fit and which we would expect will contribute in excess of 30% of projected pro forma revenue and EBITDA.
This year and in the following years.
I'll conclude my remarks, with our revenue guidance for 2021.
So for 'twenty, one we expect to report revenue in three product categories first is media than freezer and thoughts systems, which includes our CBS and Sterling freezer systems and cost our product lines, and then third services, which includes our evo cold chain and bio storage services.
Our 2021 revenue guidance is based on current expectations for our existing business and includes the anticipated contribution from our acquisition of Sterling, which is expected to close on or before may 1st.
Total revenue for 2021 is expected to be in the range of $101 million to $110 million, reflecting year over year revenue growth, 110% to 129%.
Our total revenue expectation for 2021 is comprised of the following items.
The expected 2021 revenue contribution of $35 million to $37 million from the Sterling product line, given that we expect to close on or before may 1st.
Media revenue is expected to be between 38% and $40 million, reflecting growth of 23% to 29% over 2020 and accounting for approximately 37% of total revenue.
Freezer and source systems revenue, including the contribution from Sterling is expected to be between 50% and 54 million accounting for approximately 50% of total revenue.
And finally services' revenue is expected to be between 13 and $16 million accounting for approximately 13% of total revenue.
Now go into our share count in terms of our new share count taking into consideration. The six 6 million shares which will be issued in connection with the Sterling transaction. We will have 40 million shares issued and outstanding and $42 5 million shares on a fully diluted basis.
Now I'll turn the call back over to Mike.
Thanks Rod.
To summarize with three key points of our investment thesis one we have very sticky relationships with hundreds of cell and gene therapy companies and our media is baked into one hundreds of clinical trials with each customer therapeutic candidate estimated to generate 500000 to 2 million on an annual revenue if approved to these customers true.
Biolife and want to buy more from us. So we have a tremendous cross selling leverage opportunity with the rest of our offering.
And three the Sterling acquisition brings us proprietary products revenue scale.
And a season team and leader in Dusty Tenney.
Now I'll turn the call back over to the operator Latif.
Thank you as a reminder to ask a question you will need to press star one on your Touchtone telephone again Thats star one on your touched on telephone to ask a question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Paul Knight of Keybanc Your.
Your line is open.
Hey, guys, Hey, Duffy.
Again.
Likewise, Paul Hey, Paul.
Hey, Mike first question on the core business pre Sterling and that is.
With your talk about a 50% share.
The rest of the market do is it homebrew.
Could you talk to that that share estimate.
Right on Paul Yeah, We believe it remains homebrew, we've yet to see really any entrance of either pre formulated preservation media products from any suppliers distributors or anybody else. That's out there. So it really is a it's a biolife vs homebrew battle and we're doing great taking share we believe every quarter.
And then regarding sterling with existing on what do you have in terms of distribution, meaning.
Meaning you're moving.
Direct sales do you have direct sales once the head count there what's the plan there and who are your key distributors.
Sure Paul Yeah, we haven't in the current pre Sterling organization about 10 folks who are involved in sales and that's a mix of inside folks and field folks so call. It about 10 with a couple of openings.
The current distributors looked like this on the media side again, it's it's the big four as always it's Fisher VW or millipore, Slash Sigma and stem cell technologies and there are perhaps 30 or so other regional in country distributors that do a decent job on media.
With CBS Freezers, we did inherit a fairly well known and and diverse distribution team around the world with good presence. So we'll have a great time, just rationalizing this and from our perspective, it's just more feet on the street. So it's all about a force multiplier to leverage the story.
And.
What's the overlap and proceed synergy with CBS, what temperature with Cvs operating in for customers.
What do you see as the positives are those two together.
Yeah, Great question, Paul So with CBS, the products or pardon me limited to liquid nitrogen operating temperature range, which is minus call. It 196 right. It's the coldest extreme for the complete cessation of metabolism of biologic material. Now. This combined sales team has in their bag in their arsenal the ability to offer any.
Freezer that meets whatever the customers' temperature range might be from minus 20, all the way to minus 196.
And then lastly regarding.
The COVID-19 benefit.
At Sterling Dusty.
What's your thought there does it dissipate as we move into the year do we have it visible into 'twenty two.
Youre on.
Thought on that.
The duration of Covid.
Yeah, Paul I think first of all a great day reconnect and thanks. Thanks for the question.
Mike provided some context, there that we're not really at Liberty at this point in time, just given some of the nature.
The placements that we've had with COVID-19 to really get into the mechanics associated with that question. So we'll go out to defer on that one okay.
Okay. Thank you.
Thank you. Our next question comes from the line of Chris <unk> of Cowen Your line is open.
Hi, Thanks for taking my questions, Mike, Yes, Hi, Chris.
Mike.
So investors have been attracted to biolife solutions because of the favorable mix of highly sticky consumable revenue and just the strong margin profile no Sterling ultra cold appears to be a largely instrument heavy business that has also diluted to overall margins. So with this in mind could you just.
Why you believe Biolife solutions is it right on their Sterling Ultra cold.
Definitely I'll start on I'll ask rod to reiterate some of the points in my remarks, So Chris for US. This is about the novelty and the disruptive potential of the sterling portfolio and on our ability to leverage the sticky media customers to expose them to this really cool new equipment offering to solve even more of their problems and we believe you know obviously with.
Dusty and rod on the ops on the margin side that will will definitely get that back to something a lot more attractive you know, it's really hard to find bolt on acquisitions, Chris as you know that would enjoy the margins from the media program that we've had from the last several years, but nevertheless, we believe that we're on the right track here and customers want to buy from a suraj you might want to expand a little bit on that.
Sure I can.
Chris as I mentioned on the call.
In my prepared remarks.
The gross margin profile of global is not much different than Cvs. So currently in the low thirties, but again as I stated, there's a pretty clear plan that we embedded as well as we could to take those margins into the 47% right and.
Once we've done that then I think youre going to be looking at blended margins overall for the company.
A few years out of mid fifties at a gross level and based on the modeling that we've done and we've done quite a bit both internal and using an independent source.
We believe that the EBITDA margin target adjusted EBITDA margin target that we've set for 30% is absolutely achievable with the combined entity and in fact as I mentioned, it's going to be at a much higher absolute number.
<unk> EBITDA.
Got it.
Just another question on Sterling Ultra cold could.
Could you say, what Sterling Ultra cold revenue was in 2019, so pre Covid times and then in terms of the revenue guidance 35 to 737 million could you clarify if that's a gross or net revenue CAGR that needs to be adjusted for.
Intercompany eliminations of Sycee purchases Sterling freezers.
Yeah, that's a good question Chris.
39 million is a preliminary unaudited number for.
Global last year in 2020.
Based on this year is 60, there might be $1 million or two here of rack revenue that is sold by CBS too.
Yeah.
To global.
The.
On the balance of it is going to come in the form of Capex reduced capex.
On the <unk> side when they have the.
Move those freezers into the size safe operations.
Okay.
Last question from me, Mike you referenced in your prepared remarks that there are potential therapies.
Therapies that could potentially receive FDA approval this year.
So as we think about your 2021 media revenue guidance does that explicitly from include contributions from these new product approvals.
Commercial scale manufacturing volumes associated with those launches now or would that be largely upside where by 2022 dynamic.
Farther out Chris Yeah. Good question, we would expect from those customers you know just the sort of.
Pre approval clinical trial phase revenue, where we've seen and we've been seeing and continuing on to that and then the big step changes will come obviously 12 to 24 months post approval once they've done what we've been articulating now for many of these calls which is too.
Establish a reimbursement strategy, that's going to be palatable to the payers to get their manufacturing operations fully scaled up and probably equally as importantly is to get the clinical centers trained up to administer their particular dose because they all have their own nuances. So think about it on a 12 months to 24 month ramp post approval for us to see the large step.
Changes in revenue from those hopefully soon to be approved therapies and Chris It's rod here I want to try to provide a little additional clarity because I'm not sure I fully answered. Your question. So you asked 2019 revenue sorry, 2020 revenue $39 million expected global revenue for the full year of 2021.
$60 million, we have it in terms of contributing to the Biolife.
Fiscal 2021 revenue, 35% to $37 million based on the fact that we're not closing the transaction until April.
April 30th May 1st.
Okay could you just share what 2019 revenue was for Sterling.
Oh 2019 revenue on Dusty if you've got it goes from <unk> the handy.
Yes, it's a 35 million Chris.
Yes.
Thanks for taking my questions.
Thank you. Our next question comes from Jacob Johnson of Stephens. Please go ahead.
Hey, good afternoon, everybody and congratulations on all the niche Jacob.
Yes.
Yeah, Hi.
Hey, Mike maybe starting on on the east side and congratulation on the customer news. There is there any way to give give any color on on the revenue potential for even on the shipping commercial ERP I know, it's a little bit different business model, but is there any way to frame up the impact from that relationship.
Not yet Jacob once we get a few more of these.
Commercial therapies, allocating or splitting their shipments than we would hope to be in a position to do that but this is one the first one so it's too soon to try to prognosticate on that.
Got it that makes sense and maybe just try and ask it a little bit different.
On the guidance you've given in 2021 for the services revenue stream.
<unk> 16 million I guess kind of a wide range given that the size of those revenues, maybe if rod wants to just talk about what are the kind of key swing factors.
For the low end and the high end of that guidance.
<unk> versus <unk>.
Sure. It's two things one on the EBITDA side, it's how quickly the large commercial customer that Mike.
<unk> identified earlier, how quickly they ramp up through the year, because remember that the business model is a monthly rental programs. So the number of doors that go out in a particular month.
If it's delayed but 90 days it does make an impact and the other is that.
What we've seen in science day for the last six months as debt the orders that Gary over there is wrestling with our very significant orders and so.
Whether you get one or whether you get half of one or how much of it gets into this year versus next year based on the timing of close there is a lot of variability in that which is the other reason we have such a relatively large range.
Yes.
Got it thanks for that Robert and maybe last one.
For me and maybe sticking with you Rod just on gross margins you talked about 50% longer term, but obviously a few moving pieces in the near term can you give us any kind of color on on your thoughts about gross margins as we think about modeling 2021.
Yes, I think youre going to see something in the neighborhood of low fifty's.
Okay.
Got it thanks for taking the questions.
You bet. Thanks Jacob.
Thank you. Our next question comes from Suraj Kalia of Oppenheimer and company.
Your question please.
Good afternoon, everyone. Mike can you hear me on Hi, Suraj.
Hi, Suraj take congrats on the deal Dusty, Mike and Rod So lot of information provided Mike maybe if I could just parse it a little more rod you've kind of on an Duffy you were kind enough to give the numbers from 2019, 2020 one for you on tea.
How much if I see from 'twenty 'twenty through 'twenty, one there's a significant jump how.
How much of that is COVID-19 related and I guess to the extent that you can what was the expected growth trajectory. If you will T vs. If I may consider organic biolife everything that is non U L. T. As you looked at the company I guess, what I'm just trying to understand is is you will T faster growing.
What your Biolife was originally.
I think in the near term Suraj the answer to that is yes, I think that the organic growth debt. We would look at is again in that sort of 25% to 30% range.
Excluding sterling and so theres going to be a bump in the Sterling revenue. This year in part related to Covid, but also in part related to just an increase in demand.
And we do expect that increase in demand irrespective of any future COVID-19 activity to continue and so therefore there'll be a significant contributor and we expect them to grow.
At debt.
The lower end of that range.
Got it and Rod for you will keep this would be a point of sale model not a recurring revenue base correct for <unk>.
That's correct.
And you guys are not comfortable at this stage sharing the incremental contribution from Covid related revenues right.
Correct Okay.
Fair enough. He brought I notice has been beaten to death, maybe I'll just belabor it a little more.
Since 2019, Youll have meet determined strategy too.
To acquire a bunch of companies and.
Gross margins of the different businesses when you look at the composite cross margins.
We have taken a hit.
When you integrate U L. T. This thing needs to reverse pretty significantly from 30% to 55% maybe.
Maybe you can give us some additional color on I'm, just going to piggyback on the prior.
Persons question give us some color what gives you the confidence level in the midterm you can turn the tide around.
To get to an adjusted 30% EBITDA margin.
So again, it's it's driven by two things one is that the current.
Sterling gross margins are in the low thirties, right and those are expected to expand to the mid to high Forty's, which would then at that point given overall blended.
Again, we're looking into the crystal ball a bit so it depends on how much of the revenue is comprised of media side et cetera, but the point being that.
If they get into the mid to high Forty's and the blended gross margin for the company would be somewhere in the mid fifties, okay could be a little bit better, but that's what that's what we're thinking now and so when you then adjust out all the things that we adjust out we feel very strongly that we can attain the third.
3% and if you recall suraj the narrative for the last 18 months for Biolife has been but yes, we recognize that.
The tradeoff was to remain at one product pone that had a great margin profile, but had serious risk with respect to customer order patterns, and perhaps ultimate customer growth rate and so we wanted to mitigate that by embarking on the acquisition strategy, we did fully understanding that.
In the near term and that's defined as 12 months to 24 months from the time, we started that strategy, we would have declining margins until the point, where the revenue scale and now Mike stated goal of $250 million at that point in time, we're very comfortable talking about a 30% adjusted EBITDA margin.
And that has mid <unk> gross margin associated with it.
Got it.
Hey, Mike One last question for you.
<unk> commercial win.
Would love to get additional color on that is it should we would be too far off and thinking about the two commercial key commercial players.
Debt, you'll have bagged at least one of them maybe on a different product line.
Yeah. Good question Suraj I think.
Rather than answer that directly I think I'll, just defer to our previous response, which is.
This company understands.
How material is important this is significant this would be for us to be able to disclose the relationship on we're not quite there yet working through their multi layer approval process, but I'm confident perhaps at some point, we will get that approval.
Before then and out of respect relationship, we're just not going to disclose the name.
Got it gentlemen, thank you for taking my questions. Thanks Suraj.
Thank you. Our next question comes from Jason Mccarthy of Maxim Group. Your question. Please.
Hey, This is Michael channel, which on the line for Jason Thanks for taking the question.
Questions on <unk>.
On the announcement.
It seems like a pretty big add to your overall business, but I'd like to add or ask a bit generally you invested pretty heavily into the ultra cold freezing in the cold chain logistics logistics.
I'd like to touch on what you anticipate to be the key drivers for growth in this business area, obviously, COVID-19 kind of thrust ultra cold chain into the public consciousness, but it's really just the first mrna vaccines a lot more on the pipeline.
So what are the areas, where you expect to really drive growth in this respect.
Yes, Michael Good question I think in a nutshell sticking to our knitting within cell and gene therapy, it's going to be about the pace of approvals right. So you know we all know the arm data we know how many clinical trials are out there we've now been really clear about.
Our estimates of how many clinical trials are media is used in.
<unk> articulated on the call in my remarks, a little earlier today that we believe that the decision by this large pharma company to split off their commercial shipment incentive award parts of the business to more than one logistics partner and to use more than one container. So they've got some risk mitigation, we believe will be the norm over the next few years. So.
Won't be a winner take all scenario.
And we're really I think strongly configured to compete on into <unk>.
Take a decent amount of share of those shipments so in a nutshell, it's really going to be about the pace of approvals and on our ability to see the evo adoption.
<unk> based on this key win and also through the great work that our Courier partners are doing.
Alright. Thank you and then I have one more on the actual Sterling breathe.
Freezers themselves so.
How does the energy requirement compare for Sterling versus a more traditional compressor base freezer and how does that kind of translate into operational cost savings.
Yes, great Great question Dusty why don't you take that one.
Yeah, I think to frame it out Michael.
On the basis of our savings, which is an energy star rating on an important element in terms of the strategy that the business was born roughly about 10 years ago and what that does it.
Rides material benefit as it compares to our compressor systems anywhere between 10, and 50% less energy being used so when you start to think about the application of our freezers versus a traditional compressor base freezer.
The infrastructure that many of our partners have realized is the fact that they can eliminate a lot of HVAC.
E more cooling to offset some of the heat, but also they're getting a material benefit associated with the less less energy use and when you start to multiply that.
Especially with multiple different systems. There is a significant benefit that many of our customers are experiencing by by virtue of using the Sterling freezer.
Freezer system.
Alright, thank you.
I just wanted to ask one more if you don't mind.
How does the target use case very per the Sterling ultra cold that that 82 to 86.
The range compared to.
The CBS nitrogen based.
Yes go ahead Dusty.
Well I think theres, a two two applications that.
Basically cover the entire cold chain here, Michael So when you start to think about minus <unk> 20 to minus 86, our system. Unlike any compressor based system.
Can be tuned to any temperature between those respective temperature ranges. So we basically cover every single temperature point between minus 20 minus 86.
And traditionally when you take a look at the work flows, especially in the end markets that Mike and Rod talked about.
There are a lot of biologic materials that basically are mandated to support that in addition to the vaccines that are more prominent with regards to the temperatures that we've that we just highlighted when you start to think about the even colder temperatures. So the deep temperatures are key temperature point of course is minus $1 35 C 135.
See thats the glass transition temperature might noted this in terms of the fact that biological activity has stopped and typically this is the temperature range and which cell and gene therapies are our most noted too to ensure that that biological activity, especially when it gets to researchers in the cell and gene therapies that are being developed ultimately meet the efficacy.
Requirements that are being driven from the manufacturers. So those two temperature range is based on our off all focused on biological material, but each of those respective temperatures provides a biological benefit that customers use in the markets today, whether that be clinical trial cell and gene therapy, bio banking et cetera and.
On the fortunate aspect that we have here is combining those two now we as Mike said cover the entire cold chain temperature range. That's ever so critical for every single biologic material on the world today.
Alright, Thank you very much.
Thanks, Michael.
Thank you. Our next question comes from Thomas Layton of.
Lake Street capital Your line is open.
Hey, good afternoon, guys. Thanks for taking the questions.
Awesome.
Just a quick one on site safe during the last quarterly call. There was a suggestion on with some upside to that $2 $7 million Covid deal.
You've obviously raised your guidance from nine to 12 is that all COVID-19 deal or is there other business expansion. That's that's nestled in that increase in guidance.
Yeah. Good question and you know.
Probably just best to stick to our line that were just not going to talk about COVID-19 revenues.
Based on the guidance, we received from a bunch of federal agencies, so we'd like to answer and give that kind of detail, but it's a little early for us to do that.
Sure.
If you can't quantify it but if at least we could do a kind of a qualitative answer. If you look if you think about the venn diagram of customer overlap I know, there's some names that were thrown out during the prepared remarks, but could you help us understand what the overlap is in customers between Sterling and the legacy Biolife businesses.
Sure so somewhat qualitatively I can say that there are some customers that do use our media and also contract with sachet for storage and I don't want to get into how many or who they might be.
Okay fair enough.
Sure.
And then Rod I was wondering if you could help us a little bit with how to think through the middle of the P&L. This year, obviously, there's going to be there's going to be a big change to the middle for the second quarter, but could you help us think about.
Because youre not going to be EBITDA, accrete or sorry accretive until next year could you just help us think through what that looks like from from a from a spending perspective.
Well I think that here's what I can say, because we purposefully chose not to give guidance below the revenue in a little bit of.
Gross margin got a lot of moving parts.
And so what I, what I will say is that if you looked at the.
The.
Operating expenses for Q4.
That while we may have.
Somewhat of some growth in 2021 based on both activity and just gearing up to become a larger entity.
It's probably not going to be the same growth that you saw from 2020 to 2019.
Okay. That's.
<unk> X that's ex Sterling right. That's just that Biolife at the end of the year kind of thing.
Understood understood Alright, guys. Thanks, so much for taking the questions.
Thanks, a lot.
Thank you. Our next question comes from Mark Weisenberger, a B Riley Securities. Please go ahead.
Thank you good afternoon, thanks for taking the questions and congrats on the <unk> on the deal.
Thank you.
I'm wondering if you could talk about the demand from non vaccine related players in terms of <unk>.
<unk> storage and has there been maybe a rush to secure space with the increase in demand from vaccines.
Yeah, I don't think we want to go there Mark I think we're going to it's going to stick right to it and say, we're just not going to give any granularity on <unk> other than Colorado's articulated how we're going to report that in one of the three buckets going forward this year.
Got it understood.
Hey remarks, you did talk about the expansion in the U S and Europe related to bio storage could you talk about maybe some color on the location level on the desktop we can expect debt.
Definitely not based on the guidance from the federal agencies. There's one thing we're definitely not going to talk about it and that is where we're going to be and what might be stored on those facilities, we'd like to but that's the guidance. So we're going to respect that.
Okay.
You need an interesting investment in December in Pantera Cryo solutions.
Can you talk about what attracted you to that opportunity how their president of Eastern media compares to the current formulation and what kind of worldwide marketing and distribution rights, what's the strategic opportunity there going forward.
Yes, good one thanks for asking so Panther has a particular synthetic molecule that can inhibit the formation of ice on inside of cells. During the freezing process, which is really damaging and you know that whole ice formation, and then waterfalls out water flowing back in can cause a member range to go Crazy and rupture and then you have no sales lift.
Because of their debt. So this particular molecule that the Panther folks.
We have identified and gained access to could be seen as a potential additive to our cryo store family of freeze media, although we have to be clear that harvester works really really well so there could be some upside with certain cell types, but nevertheless.
It could be something we would spike Carl store with to make it work, even better but I think mark think about this as an offensive slash defensive play while we have the opportunity to.
Help them finish the work and then to commercially exploit it. We also have the opportunity to make sure that it's not on anybody elses hands, where they could simply spike a homebrew with this particular molecule and come up with something that might.
Ultimately it based on the performance disruptive this large corner stores hold in the cell and gene therapy space. So we think we have total optionality based on how it goes and we're looking forward to seeing how the the rest of the experiments go.
Awesome, Great color and then just one more from me can you talk about the expectations for the preservation media growth in the first quarter given that there was some pull forward last year at the onset of the pandemic and maybe just more broadly the cadence throughout the year for their respective business lines. Thank you. Yes, we don't as you know, we don't give any quarterly color, but rod you can chime in if.
Yeah, I mean, the only thing I was going to say.
Mark really as debt.
Q1 is going to be a tough comp on the media side, because we probably pulled in a million and a half to $2 million in Q1 of <unk> of Q1 of 'twenty.
From the Covid, which was then kind of trailed off throughout the rest of the year. So we did conclude that it was demand pull forward as opposed to some.
Permanent safety stock on the part of our customers. So I think Q1 will be what it is but certainly on the media side, it's a tough comp.
Got it thank you very much.
Thanks Mark.
Thank you. Our next question comes from Paul Knight of Keybanc. Your line is open.
Thanks for the redo.
Yep.
Dusty who are your competitors in your business.
Paul We've got probably two primary competitors that all day note I think thermo is probably one and Panasonic is the second.
Okay.
Where do you rank and share with you now.
I think share by geography is a little bit mixed I would say that we're hovering around a number two position in the market.
Okay Alright.
And then rod I missed the breakout on.
On a.
Number on a steroid from Q.
Sorry.
Yeah, you broke up can you repeat what was the <unk> number and the CBS revenue for Q4, okay.
Okay.
Estero was let me find my commentary.
Stary was.
662000.
And the freezer business was $3 6 million.
Thank you very much.
You bet.
Thank you. Our next question comes from Carl Byrnes of Northland Capital markets. Your line is open.
Hey, Thanks for the question congratulations.
Hey, Thanks, Bill started to wonder.
The thing.
With respect to Sterling.
And on all of these COVID-19 opportunity and considering that Sterling has been growing.
Do you see any material opportunity from stockpiling income related to contracts from D O D or other government agencies like BARDA.
Yeah, well call. It if youre asking specifically related to Covid, we wouldn't answer that if you mean, just generally then definitely sure.
Fair enough. Thanks.
Uh-huh.
Thank you at this time I would like to turn the call back over to CEO, Mike Rice for closing remarks, Sir.
Thanks, Latif and thanks again, everyone for your interest in Biolife we're on.
Really inspiring to share. This good news in book is now even better configured for even more continued growth.
We have a very strong team here that executes every day to satisfy our customers and the performance of this team is simply amazing.
I wish all of you and your families good health and safety and we look forward to speaking with you when we report our first quarter results Tonight.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Sure.
Okay.
Yes.
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Mhm.
Okay.
Moving.
Okay.
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