BioLife Solutions, Inc. (NASDAQ:BLFS) Q3 2023 Earnings Call Transcript November 9, 2023
BioLife Solutions, Inc. beats earnings expectations. Reported EPS is $-0.3, expectations were $-0.38.
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Third Quarter 2023 Shareholder and Analyst Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I will now turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions.
Troy Wichterman: Thank you, operator. Good afternoon everyone and thank you for the BioLife Solutions 2023 third quarter earnings conference call. To start off the call, I'd like to give a warm welcome back to Rod de Greef, our recently appointed Chairman and Chief Executive Officer, who is on the call with me today. On this call, we will cover business highlights and financial performance for the quarter and reiterate our previous comments on full year revenue guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the third quarter of 2023, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings.
These statements be formally as of the date given, and we undertake no obligation to update them. We will also speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. Now, I'd like to turn over to Rod de Greef, Chairman and CEO of BioLife.
Rod de Greef: Thanks Troy. Good afternoon, and welcome to BioLife's third quarter 2023 conference call and my first call since rejoining the company in mid-October. While I think most of you on the call know me, for those of you who don't, I have over 30 years of senior financial, operating and Board experience in both public companies in the medical technology and life science industries. My history with BioLife dates back to the early 2000s when I joined the Board and raised several rounds of capital through 2013. In early 2016, I returned as CFO and later became trading officer until December of last year when I retired and rejoined the Board. I bring significant strategic and operational experience and a strong understanding of the company's operations, products and customers, as well as solid relationships with management team and key shareholders.
I've been asked several times why I made the decision to return to an operating role at BioLife. And the answer is simple when it comes down to the opportunity. The growth potential of the cell and gene therapy market, combined with how well BioLife is positioned to participate in that growth creates a unique opportunity to build on our market leadership position and generate shareholder value. The chance to lead the organization throughout this critical time was extremely compelling, and I can honestly say it should be back. As stated on our last call and consistent with our peers, both large and small, the macro headwinds and global economic uncertainties experienced throughout the bioprocessing industry related to pharma destocking, a constrained biotech funding environment and China weakness have persisted throughout the third quarter.
While these challenges have been unable, we're beginning to see signs of stabilization, and they've also presented BioLife opportunities to adapt as we navigate through these dynamic times. In this spirit, my immediate efforts are to continue the renewed focus on our cell processing and biostorage platforms and to bring the divestiture process of our freezer business to a conclusion as quickly as possible. I'll 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 drivers of what is still a nascent CGT market in order to drive profitable growth. These growth drivers include additional approvals in multiple jurisdictions and a growing number of clinical trials, the geographic expansion and migration of existing approved therapies to second and first-line treatment and the longer-term growth of allogeneic therapies.
These tailwinds are further underpinned by a growing interest from large pharma in the CGT space. Our cryopreservation media has become the industry standard, evidenced by our media products being embedded in 506 approved CAR-T therapy 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 biostorage services are used in 10 relevant cell and gene therapies as well as being incorporated in well over 100 clinical trials. In addition, to our knowledge, there is not another commercially available cryopreservation media that is in any relevant approved therapy, tend to couple our core scientific expertise, industry reputation and 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 product 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, non-biopreservation media product sales were essentially flat compared to the prior quarter. However, media revenue decreased $5.4 million or 32% sequentially. 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 biostorage services side, the flat year-over-year results masked the strong ex-COVID growth of 50% that Garrie Richardson, our new Chief Revenue Officer and his team were able to deliver. We will continue to focus on skilling our existing biostorage capacity in Boston, New Jersey, and Amsterdam, which will generate positive financial results in 2024 as well as look strategically at new sites for further expansion. 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 freezer businesses last May. And in August, announced that it intended to proceed with divesting its CBS and sterling product lines and refocus its effort on the core recurring high-margin cell processing products as well as building out the biostorage 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 LOIs and still have other parties working through gene 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 2024. We believe the financial profile of the company post divestiture of the freezer product will immediately benefit from the operating leverage provided by the high-margin recurring revenue generated by the core biopreservation media products.
As part of the recently announced management changes, I'd like to welcome Garrie Richardson to the team as our newly appointed Chief Revenue Officer. Garrie founded our biostorage business 13 years ago, which we then acquired in 2020. Since then, he's 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 he refocuses 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.
Troy Wichterman: Thank you, Rod. We reported Q3 revenue of $33.3 million, representing a decrease of 18% year-over-year, excluding COVID-related revenue from Q3 of 2022, the decline was 10%. The year-over-year decrease was primarily related to a 26% decrease in our cell processing platform. And as Rod noted earlier, with a sequential decline, generally speaking, those same factors of destocking and broader industry headwinds are also applicable to the year-over-year decline. Turning to our biostorage services platform. Revenue for the third quarter was $6.6 million, a decrease of 10% over the same period in 2022. Excluding COVID-related revenue from Q3 2022, revenue in Q3 2023 increased 50%. Freezers and Thaw Systems platform revenue for the third quarter was $13.4 million, a decrease of 13% over the same period in 2022.
Excluding COVID-related revenue from Q3 2022, revenue in Q3 2023 decreased 9%. Adjusted gross margin for the third quarter was 30% compared with 34% in the prior year. The decrease was primarily due to lower revenue from our high-margin biopreservation media. At the end of September, we reduced our corporate non-freeze operations headcount by 10% in order to right-size the organization in anticipation of the divestiture of our freezer operations. We recognized cash severance cost of $500,000 and $2.4 million in accelerated stock comp in Q3. In addition, we eliminated discretionary travel and marketing expenses. GAAP operating expenses for Q3 2023 were $62.1 million versus $52.5 million in Q3 2022. The increase was largely due to a noncash asset impairment on the freezer businesses of $15.5 million.
Adjusted operating expenses for Q3 2023 totaled $24.4 million compared with $20.8 million in the prior year. The increase was largely due to $2.9 million in severance costs. Our adjusted operating loss for the third quarter of 2023 was $14.4 million compared with $7.1 million 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 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 biopreservation media revenue.
Our financial profile for Q3 was impacted by a decrease in our high-margin biopreservation media revenue, which has outweighted impact on our profitability due to the margin profile and highly leverageable operating costs. Our biopreservation 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 30th, 2023, was $42.2 million compared with $48.1 million at June 30th, 2023. Taking into consideration our adjusted EBITDA of negative $3.1 million, cash use in Q3 2023 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 S3s in the near-term. One S3 is related to the registration of shares from the pipe financing and the other S3 will be a shelf registration to replace our expired self-registration statement, which we believe is good corporate governance and housekeeping. Our SVB 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 come in at the low end of our guidance issued August 8th, which was total revenue of approximately $144 million, comprised of cell processing platform approximately $65 million, which assumes flat to modest sequential growth; biostorage services platform, approximately $26 million; and freezes and possesses 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'll turn the call back to the operator to open the call for questions.
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