Q3 2023 BioLife Solutions Inc Earnings Call
Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to the Biolife solutions third quarter, 212, and three shareholders and analyst Conference call.
Hum.
What do you suppose are in listen only mode.
After the Speakers' presentation, there will be a question and answer session I will now turn the call over to Charlie We Sherman Chief Financial Officer of Biolife solutions.
Okay.
Thank you operator.
Good afternoon, everyone and thank you for joining the Biolife solutions 2023 third quarter earnings conference call to start off the call I would like to give a warm welcome back to Rod degree, our recently appointed Chairman and Chief Executive Officer, Who's 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 Biolife solutions Dot 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.
These statements speak only as of date, given and we undertake no obligation to update them.
We will also speak to non-GAAP or adjusted results.
Conciliations 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 agrees chairman and CEO of BIOLASE.
Thanks, Troy and good.
Good afternoon, and welcome to Biolife third quarter 2023 conference call and my first call since rejoining the company in mid October.
Well I think most of you on the call Nuomi for those of you who don't I have over 30 years of senior financial operating and board experience in both public and private companies in the medical technology and life Science industries.
My history with Biolife dates back to the early two thousands when I.
Joining the board and raised several rounds of capital through 2013.
In early 2016, I returned as CFO and later became Chief operating officer until December of last year, when I retired and rejoined the board.
Significant strategic and operational experience and a strong understanding of the company's operations products and customers as well as solid relationships with the 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's great to be back.
As stated on our last call and consistent with our peers, both large and small the macro headwinds and global economic uncertainty experienced throughout the bio processing industry related to pharma destocking, a constrained biotech funding environment and China weakness persisted throughout the third quarter.
All these challenges had been undeniable, we're beginning to see signs of stabilization and they've also presented biolife with opportunities to adapt as we navigate through these dynamic times.
In this spirit by immediate efforts are to continue the renewed focus on our cell processing and bio storage platforms and to bring the divestiture process of our creative business to a conclusion as quickly as possible.
I will provide a brief update on our progress there later in my prepared remarks.
In the mid to long term our thesis remains intact and we believe that the company is very well positioned to take advantage of the underlying growth drivers of what is still a nascent CGT market in order to drive profitable growth. These growth drivers include additional regulatory approvals in multiple jurisdictions and a growing number of <unk>.
Clinical trials, the geographic expansion and migration of existing approved therapies, the second and first slide treatment and the longer term growth of allogeneic therapies. These tail winds are further underpinned by growing interest from large pharma and the CGT space.
Our cryopreservation media has become the industry standard evidenced by our media products being embedded in five of six approved car T therapies and a total of 11 relevant approved cell and gene therapies and in hundreds of clinical trials globally.
In addition, our other cell processing tools and bio storage services are used in 10 relevant approved cell and gene therapies as well as being incorporated in well over 100 clinical trial.
In addition to our knowledge there is not another commercially available crowd preservation media that as in any relevant approved therapy.
We intend to couple of our core scientific expertise industry reputation in the market position, we have achieved with a relatively small but focused team of scientifically oriented sellers to drive the adoption of the other cell processing products in our portfolio.
With that context, I'd like to say a few words on our revenue platforms, while allowing Troy to speak in more detail to our Q3 financial results during his portion of the call.
For our cell processing platform revenue for these products were in line with internal expectations and impacted by the same headwinds others in the CGT industry faced in the third quarter, resulting in a 29% sequential decrease for this platform compared to Q2.
Within the cell processing platform.
<unk> bio preservation media products sales were essentially flat compared to the prior quarter. However, media revenue decreased $5 4 million or 32% sequentially, but.
When we reviewed Q3 customer data, we found that approximately $3 million or 55% of the sequential decrease was related to reduced purchases by several large direct customers, which we believe is attributable to their efforts to lower inventory levels.
The balance of the decrease was split evenly between our smaller direct customers that make up approximately 20% of the overall media revenue and our larger distributors that account for approximately one third of total media revenue and we attribute this to the general macro conditions being felt industry wide.
On the bio storage services side, the flat year over year results masked the strong ex COVID-19 growth of 50% that Gary Richardson, our new Chief revenue officer, and his team were able to deliver we will continue to focus on filling our existing bio storage capacity in Boston New Jersey.
<unk> in Amsterdam, which will generate positive financial results in 2024, as well as look strategically at new sites for further expansion we.
We are confident that these efforts will result in a return to consistent revenue growth and a robust profitability and cash flow profile.
Moving on to Freezers, you will recall that the company initiated a strategic review of the freeze your businesses last may and in August announced that it intended to proceed with divesting at CBS and Sterling product lines and refocus its efforts on the core recurring high margin sub processing.
Products as well as building out the bio storage services platform.
We're fully committed to this effort and are working hard to drive this to a timely close.
At the end of October we received multiple LOI and still have other parties working through a diligence process due to the competitive dynamics involved I can't discuss any specifics. However, I will say that we expect to close on the transactions in early 'twenty four.
We believe the financial profile of the company post divestiture of the freeze your product lines will immediately benefit from the operating leverage provided by the high margin recurring revenue generated by the core bio preservation media products.
As part of the recently announced management changes I would like to welcome Gary Richardson to the team as our newly appointed Chief revenue Officer.
Gary founded our bio storage business 13 years ago, which we then acquired in 2020.
Since then he has done a great job expanding that business as part of Biolife and has a proven track record of delivering on revenue commitments and establishing and maintaining large biopharma accounts I look forward to his contribution as you refocus the sales team.
On our cell processing platform now I'd like to turn the call over to Troy to review the third quarter financial results.
Thank you Rod.
We reported Q3 revenue of $33 3 million, representing a decrease of 18% year over year and 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.
And as Ron noted earlier with respect to the sequential decline.
Generally speaking those same factors are destocking and broader industry headwinds are also applicable to the year over year decline.
Turning to our bio storage services platform.
Revenue for the third quarter was $6 6 million.
A decrease of 10% over the same period in 2022.
Excluding COVID-19 related revenue from Q3 2022 revenue in Q3 2023 increased 50%.
Freezers and thought this is platform revenue for the third quarter was $13 4 million a decrease of 13% over the same periods in 2022.
Excluding COVID-19 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 bio preservation media.
At the end of September we reduced our corporate non freezer operations head count by 10% in order to right size the organization in anticipation of the divestiture of our freezer operations.
We recognize cash severance costs of $500002 4 million in accelerated stock comp in Q3 and.
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, 23 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 in Q3 2022.
Our GAAP net loss was $29 1 million in Q3 compared to $10 3 million in the prior year.
The increase in net loss was due to lower revenue in our cell processing platform of $15 5 million noncash asset impairment charge related to Sterling and CBS and severance costs of $2 9 million.
Adjusted EBITDA for the third quarter of 2023 was negative $3 1 million compared with positive $1 8 million in the prior year.
Our adjusted EBITDA decreased primarily due to lower bio preservation media revenue.
Our financial profile for Q3 was impacted by a decrease in our high margin bio preservation media revenue, which has an outside impact on our profitability due to the margin profile and highly leverages <unk> operating costs.
Our bio preservation media business is well positioned and due to the sticky nature of our products requires minimal SG&A expenses to support revenue growth.
Turning to our balance sheet, our cash and marketable securities balance at September 32023 was $42 2 million compared with $48 1 million at June 32023.
Taking into consideration our adjusted EBITDA of negative $3 1 million cash used in Q3, 23 was primarily related to capital expenditures of $2 million and unfavorable working capital of $2 million largely due to the timing of raw material deliveries related to our media products.
On October 19th 2023, we closed a $10 4 million pipe at market with an existing shareholder.
We will be filing two <unk> in the near term.
<unk> III is related to the registration of shares from the pipe financing and the other S. Three will be a shelf registration.
To replace our expired shelf registration statement, which we believe is good corporate governance and housekeeping.
Our long term debt balance was $20 million, which is interest only through Q2 2024 with quarterly repayments of $2 5 million beginning in Q3 of 2024.
Turning to 2023 revenue guidance.
As we have previously stated on October 19th we expect to comment at the low end of our guidance issued August eight which was total revenue of approximately $144 million.
Comprised of cell processing platform, approximately $65 million, which assumes flat to modest sequential growth <unk>.
Bio storage services platform, approximately $26 million and freezes in power systems platform approximately $53 million.
Finally in terms of our share count as of today, we have 44 million shares issued and outstanding and $46 9 million shares on a fully diluted basis.
Now I will turn the call back to the operator to open the call for questions.
The floor is now open for your questions to ask a question. This time. Please press Star then the number one on your telephone.
From Keybanc.
Purposefully just a moment to compile the Q&A roster.
Our first question comes from the line of Jacob Johnson with Steve.
Your line is open.
Hey, good afternoon Rod good to have you back.
Robert 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.
Certainly pointing to these headwinds persisting in the fourth quarter.
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 comments 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 our 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 large larger distributors and larger direct customers, but thats normal. So I would say at this point in the quarter, we feel good about where we are.
Relative to the guidance, we provided on Q4 'twenty four we'd like to hold any commentary on 24 to get through that.
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 and 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 24, when we're ready to put out that guidance hopefully early in the year.
Got it I'm trying to think that one by Rob.
Jason.
Yeah.
You haven't lost your asphalt.
Just Gary now Chief revenue Officer, and you cut some head count can you just talk about.
Any changes to the go to market strategy.
Post pre herself.
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.
Small group of cell processing sales team members, who are going to basically work with Dr. <unk>, Matthew here and Sean Warner who are basically our scientific experts in house and craft the selling message in the selling strategy and go out and drive adoption.
For those other.
Self 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 tail winds on the media is to increase the adoption of those other cell processing tools and these sellers and there is going to be four or five of them most of which we already have on the team.
Theyre 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.
Gary putting his efforts into that team.
Married with with the expertise that Dr <unk>, Matthew and Sean bring to the table and see what the results are going to be we're pretty optimistic about that.
Got it got it thanks, Rod I'll leave it there.
Thanks, Jake and well see you next week.
Okay.
Our next question comes from the line of Matt Hewitt.
Hi, Ian.
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 as you look into areas, where there has been some weakness or some headwinds how much of that is tied to the re prioritization of pipelines.
Versus preservation of capital.
We're hearing that at both ends of the spectrum of small and large pharma or just being a little bit more cautious in kind of slowing.
Some of their pipeline of 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 the shifting of the pipelines and priorities and that could potentially come back maybe faster.
Yes, I think the.
The large part of the decrease with respect to those 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 <unk>.
Transient phenomenon whether it.
Gets cleared up in Q4 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 use and demand for their products or any cut back in their R&D program or anything like that and again, we're subject to some pretty high.
<unk> within that group of large direct customers, so any one of them.
Wanting to hold back and push out in 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 large our largest distributor.
Who has a heck of a lot of them.
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 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 maybe correct me if I'm wrong, but it appears that you're now targeting early 'twenty four I think last quarter. The conversation was you expected to have that done by the end of the year how is that process proceeding.
How are you looking at that thank you.
Yes, you bet, it's proceeding and I think the the.
<unk>.
Delay into Q1 really has more to do with some late entrants, which are a 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.
And let people know that it's unlikely to happen in Q4 at 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 win win.
What.
And then do you need to move this on to discontinued ops.
Yes, Paul since I've been back.
I've spent too much time with <unk>.
Monitors 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 and in short that's really the task.
And what's your view on that.
Burn rate of.
The company this year and what we think the burn rate would be.
X.
Certainly.
Well I don't want to get into too much detail. We are 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.
Beth.
Our next question comes from the line of Steven.
With TD Colin your line is open.
Great. Thanks for the questions.
A lot of ground already covered so just two follow ups.
So maybe just to continue on the line of questioning on <unk>.
Some of these.
A larger direct customers.
And our 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.
We've been hearing that as well from some of the other Bob production company that they're seeing.
The bottom with regards to the Destocking headwind, so would just love to get a little more color on what youre seeing out there.
Sure I'll give you an anecdotal situation that we just literally ran into last week, so a large customer.
I will try to minimize the specifics but requested.
<unk>.
Postponing the delivery of their order.
By a quarter and we.
We will do that for them and.
And yet then two weeks later they call us back and say Oh 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 thats not the only one that suggests to us that perhaps they've gone too far.
Certainly shows in my mind.
The lack of complete management and transparency within their own organization about what they need many of these large customers have multiple operations at 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 opened the freezer.
And they see that there's not enough cryo store and they say Oh, no. We better go by some so that 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 <unk> divestiture process, we'll 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 signed thank you.
Yes.
Fair question, I think that we're not going to announce the signing of a definitive agreement we will obviously announce the close of the transaction.
But we're for competitive reasons I'd, rather not say exactly where we are with the different parties Im sure Youll appreciate.
Appreciate that.
Yes fair enough.
Okay. Appreciate it thank you.
Thank you. Thank you.
Our next question comes from the line of Thomas <unk> 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 do you foresee or can you help us understand if this there'll be a single transaction for both businesses are more likely to be two transactions.
Yes, Thanks Thomas.
What I can say there is that both options are on the table.
That's that's the best I can I can do given the competitive dynamics that were involved in.
So there are parties that want both in there are parties that one each.
Got it.
And you mentioned starting to review potential locations for new size say facility.
Any anything you can share there with respect to location most likely Europe, most likely U S. Maybe even Asia.
I think it would be in the U S.
We have a very nice site in Amsterdam that still have some room.
So it's very well positioned there next to simple airport. So we're good I think in Europe. So it will likely be a very strategic location in the U S, which again.
<unk> 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 is very subject to the several conversations that are going on in different places in the <unk>.
States relative to identifying and locking down debt.
That anchor tenant.
Got it and then just one quick final one if I might.
I know theres a lot of interest in understanding obviously, what the forecast looks like for next year, but but maybe even more importantly kind of a mid range forecast I know you previously had the 2025 numbers out there do you have any sense of when you might 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 that we find pretty interesting. So we're currently in the media that is embedded in 11 approved cell and gene therapies.
And when we look through 2024.
It is anticipated from the data we have at least that there's another 19 potential approvals in the processed 12 of which were embedded in so it's possible that by the end of 'twenty for the number of approved therapies that are media is in has doubled.
So that too.
To us that's a very inspiring number and and looks looks good for what 25 and beyond would bring for us.
Excellent I appreciate you taking the questions. Thanks.
You bet.
Next question comes from the line of Michael Kuhn.
With Maxim group.
Your line is open.
Hey, guys. Thank you for taking the questions.
So I guess I would like to see if you can give any.
Any color on how the current challenging biotech environment could be impacting the longer term opportunity within cell and gene therapy I guess.
How much of your longer term.
Opportunity do you see being driven by larger Biopharma, who may be more able to readily invest into cell and gene therapy versus smaller biotechs, where they may have more trouble with access to capital.
Yes, I think that it's a good question.
I'd say, maybe 20% of our revenue on the media side comes from what we would call those small R&D companies.
Labs et cetera, I think the the majority of our revenue 50% of our direct revenue comes from approved therapies and as I Shouldnt say approved therapies I should say companies that have approved therapies and as that number gets bigger I believe that as a percentage of total media.
Our revenue that is going to get bigger in addition to the fact that when we get a small company onboard or particularly early stage. It takes several years for the revenue level as they go through preclinical into phase one into phase II 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.
We don't believe that's going to impact us much if at all.
Alright. Thank you for that and then just one more from 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 ploy 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.
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 drive profitability over time.
Alright, Thank you very much for taking my questions.
You bet.
There are no further questions at this time, let me say the grid it 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 only weather the storm, but emerge stronger more agile and well positioned for success.
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 submission forward as a leading provider of cell processing tools and bio storage services to the CGT and broader biopharma markets.
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.
[music].
Sure.
[music].