Roderick de Greef - CFO Mike Rice - President and CEO.

Paul Knight - Janney Montgomery Michael Okunewitch - Maxim.

Good day ladies and gentlemen and welcome to the Q4 and Full Year 2017 BioLife Solutions Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Chief Financial Officer, Mr. Roderick de Greef. Sir, you may begin..

Thank you, Daniel. Good afternoon everyone and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the fourth quarter and full year of 2017. Earlier this afternoon, we issued a press release which summarizes our results for the three and 12 months ended December 31st, 2017.

This release is available on the Investor Relations page of our website at biolifesolutions.com. As a reminder, this call is being recorded and broadcast live on our website. A replay of the webcast will be available through the same link for 90 days.

Before we get started, I would like to remind everyone that during this call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. These statements are subject to many risks and uncertainties that could 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 qualify as forward-looking statements on this call, 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 of as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law.

Now, I'd like to turn the call over to Mike Rice, CEO of BioLife..

Thanks Rod. Good afternoon everyone. We appreciate your interest in BioLife and are very pleased to report continued strong operating and financial results for Q4 and the full year 2017.

We successfully executed key performance areas throughout 2017 and closed the year with record revenue, increased product adoption, positive cash flow from operations for the full year, and a stronger balance sheet.

We are very well-positioned for continued growth in 2018 as more of our regenerative medicine customers progressed through clinical trials and secure regulatory approvals. I'm pleased to report that 2018 is starting off a strong product sales and we look forward to reporting our Q1 results.

Q4 2017 marked our 10th consecutive quarter of record revenue at $3.1 million with 5% sequential growth and 39% growth over the fourth quarter of 2016. For the full year 2017, revenue was a record $11 million with growth of 34% over the full year 2016.

And 2017 would gain more than 100 new direct customers with more than half of these in the high growth regenerative medicine segment. Today, we estimate that we are supplying more than 2,000 customers directly and indirectly through our international network of distributors. I'll start with a review of our strategic markets and channels.

Most important is the regenerative medicine market segment comprised of cell therapy companies, hospital-based stem cell transplant centers, and contract development and manufacturing organizations.

To-date, we believe our proprietary biopreservation media reagents have been used in more than 275 customer clinical applications, including two approved products and 15 to 20 Phase 3 clinical trials. This is an increase of 75 new clinical applications since January 2017.

I'll remind our listeners that this number is likely higher due to the success our distributors have demonstrated in getting our products embedded in clinical trials. With most distributors, we ship in bulk and they distribute to the end users, so we don't have complete visibility on their reach.

2017 revenue from the regen med segment was 48% of total revenue with very strong 54% growth over 2016. Recall also that we estimate that each customer clinical indication, if approved and at full manufacturing scale, represents annual revenue in a range of $500,000 to $2 million.

Key customers, cell suppliers, and CMOs in the regen med segment include Adaptimmune, ApCeth, Asterias, Bellicum, Bluebird, Caladrius, Capricor, Cellerant, Celyad, GamidaCell, HemaCare, Hitachi, Immatics, IOVANCE, Kite, Kolon, Lonza, Sangamo, Sotio, TxCell, and WuXi.

Regen med customers use our proprietary biopreservation media products to maintain the health and viability of starting or source material such as [Indiscernible] collections and also the manufactured CAR T and other cell products during storage and shipping to the clinic.

Specifically, in many cases, our CryoStor freeze media and HypoThermosol storage media are also used as the carrier or vehicle solution for the cells to be infused or injected into the patient. This means the safety and quality profile of our products is critical to our customers.

I should remind you that we maintain ISO 1345 certification and successfully passed numerous customer quality audits every year. In 2017, two customers received regulatory and marking approvals. The first was Kolon Life Science in Korea with INVOSSA, a cell mediator gene therapy that was approved in Korea last July for knee osteoarthritis.

Each dose of INVOSSA is frozen on a proprietary CryoStor cell freeze media. In 2017, sales to Korean customers and distributors increased 40% over 2016 and we have better forecast visibility supporting continued growth in 2018 where we could see up to 100% revenue growth over last year.

The other customer was Kite Pharma, now part of Gilead with Yescarta approved by the U.S. FDA last October for certain types of large B-cell lymphoma. Each dose of Yescarta is frozen on our proprietary CryoStor cell freeze media to enable storage and distribution to the clinic.

CryoStor is also used in numerous other clinical trials being conducted by Kite and their clinical center partners. Kite was a top five revenue customer in 2017 and we expect continued growth in them in 2018 as their clinical trials progress and Yescarta manufacturing ramps up.

In 2018, at least two more customers are expected to file for regulatory approvals. First, Kiadis Pharma uses our proprietary HypoThermosol cell storage media in their ATIR101cell therapy intended to make bone marrow transplantation safer and more effective.

They have publicly stated they're on track to potentially obtain conditional EMA approval for ATIR101cell in Q4 this year, which would allow for European launch in the second half of next year. The other confidential customer is a leading Car T cell company and they have publicly stated that they could file for U.S.

approval in the second half of this year with a possible approval by the end of the year. We've also been successful capturing new customers in the space. Over $7 billion was invested in the segment in 2017, enabling startups and early stage companies to bring more cell therapy candidates to the clinic.

Notable new early stage customers include Batu Biologics, CRISPR, Denali, Glycostem, [Indiscernible], Orchard, [Indiscernible].

We're early in our engagements with these new customers and look forward to updating you as their cell therapy development progresses and we can confirm adoption of our products in their manufacturing, storage, and distribution processes.

In addition to our regen med corporate customers, it's also important to note that we supply the leading cancer centers including City of Hope, Dana-Farber, Fred Hutch, Johns Hopkins, Mayo Clinic, M.D. Anderson, NIH, Stanford, UCSF, and UTI Health Science Center.

This illustrates how we're engaged upstream in the development of cell therapies at influential centers-of-excellence which we believe will continue to feed the commercial pipeline.

To wrap-up my comments in this segment, let me summarize by stating that we're in a very strong position as a sole supplier of proprietary critical reagents used in cell therapy manufacturing with a marquee customer base, limited commercial competition, and a phenomenal growth opportunity to realize as our customers gain approvals and the regen med space continues to grow.

Next, I'll review adoption of our products in our drug discovery market segment. This segment includes pharma companies and the leading suppliers of live cells using high throughput screening of new drug compounds. Common cell types into fresh and frozen hepatocytes and induced pluripotent cardiomyocytes.

Key customers include AbbVie through the acquisition of Stemcentrx, BioreclamationIVT, Cellular Dynamics acquired by Fujifilm, Diagnostic Hybrids acquired by Quidel, LifeNet Health, the life technologies division of Thermo Fisher, Pinnacle Transplant Technologies, and Triangle Research Labs acquired by Lonza.

Our customers in this segment use our products to preserve these various cell types, so they will be viable for use in high throughput drug screening. In the case of fresh hepatocytes, inventory from suppliers is contingent on the availability of non-transplantable libbers from which the cells are isolated.

This means preservation yield is critical and our products enable improved survival and functional performance of hepatocytes in this application. In 2017, segment revenue was 12% of total revenue with 8% growth over 2016.

In our biobanking market segment, customers include public and private cord blood banks, adult stem cell banks, tissue banks, biorepositories, and hair transplant surgeons. Key customers in this segment include Cell Care, Cord Blood Registry or Cbr acquired by AMAG, StemCyte, Ticeba and ViaCord acquired by PerkinElmer.

2017 revenue was 11% of the total with 10% growth over 2016. Turning lastly to our very strong indirect sales channel of domestic and international distributors, 2017 was a banner year. Our distributors contributed 29% of total revenue and revenue grew 30% over 2016 in this channel.

It's clear that we have significant sales and marketing leverage from our channel partners. Key worldwide distributors include STEMCELL Technologies, a private company based in Vancouver, DC. This is our largest customer and a highly valued long-term partner. STEMCELL has done a great job driving adoption of our products in the research community.

In 2017, they distributed CryoStor and HypoThermosol to about 700 different customers and over the last five years to more than 1,200 different customers. Other distributors include VWR, are Thermo Fisher, and MilliporeSigma, now part of Merck. Recently, we announced the execution of a cobranded OEM agreement with MilliporeSigma.

Their marketing and sales teams performed very well having shipped our products to more than 600 different customers in 2017. Based on distributor forecast, we expect continued strong growth from our indirect sales channel.

Now, I'll turn the call back over to Rod to present our financial highlights for Q4 and the full year 2017 and our guidance for 2018..

Thanks Mike. As you mentioned, biopreservation media revenue for the fourth quarter of 2017 reached a record $3.1 million, representing a 39% increase over the fourth quarter of 2016. For the full year of 2017, revenue grew 34% to $11 million, up from $8.2 million in 2016.

The increase in revenue for both periods was a result of a combination of more leaders of our biopreservation media sold, primarily to our regen med customers, as well as higher realized ASPs from both our direct and indirect sales channels. The gross margin for the fourth quarter was 58.7% compared with 60.7% for the fourth quarter of 2016.

The gross margin was lower due to higher than average production volume in the fourth quarter of 2016, which resulted in lower cost of goods per liter that quarter.

The fourth quarter's margin was lower than previous quarters in 2017, primarily due to a higher than average mix of indirect channel revenue in the quarter which carries with it a lower gross margin.

For the full year of 2017, gross margin was 61.2% compared to 58.1% in 2016, reflecting the year-over-year increase in both liters sold and overall higher ASPs. Operating expenses for the fourth quarter of 2017 totaled $2.1 million compared to $2 million in the same period in 2016.

For the fourth quarter of 2017, reductions in R&D and sales and marketing expenses resulting from the restructuring of our SAVSU joint venture were offset by a $269,000 increase in G&A compared with the fourth quarter of 2016.

The increase in G&A was primarily attributable to one-time non-recurring charges related to performance-based incentive compensation and a change to our vacation policy. For the full year of 2017, operating expenses totaled $7.8 million, a 19% decrease from $9.6 million in 2016.

This decrease was primarily the result of restructuring our SAVSU joint venture in the fourth quarter of 2016. The operating loss for the fourth quarter of 2017 was $218,000, which was a 65% improvement from $627,000 in the fourth quarter of 2016.

For the full year of 2017, the operating loss was $1.1 million compared with 2016 operating loss of $4.9 million. The net loss attributable to common shareholders for the fourth quarter of 2017 was $646,000 or $0.05 per share, which represents an 80% improvement compared with a net loss of $3.3 million or $0.26 per share for the same period in 2016.

The net loss attributable to common shareholders for the full year of 2017 was $2.7 million or $0.21 per share compared with $6.9 million or $0.54 per share in 2016.

I'd like to point out that the net loss attributable to common shareholders and our EPS calculation for the fourth quarter and full year of 2017 includes a charge of $106,000 and $213,000 respectively for preferred stock dividends payable to the holder of our Series A redeemable preferred stock.

We will continue to incur this 10% dividend charge to net income on a quarterly basis going forward, although it will start to decrease at the end of this year as we begin to redeem the preferred stock ratably over a projected four-year horizon as cash resources permit.

Adjusted EBITDA for the fourth quarter of 2017 was positive $132,000 compared with negative $103,000 for the fourth quarter of 2016. For the full year of 2017, adjusted EBITDA was positive $444,000 compared with a negative $2.6 million in 2016.

We're proud to say that we generated positive cash flow from operations of $803,000 in the fourth quarter of 2017 compared with cash used by operations of $668,000 in the same period in 2016. For the full year of 2017, we generated positive cash from operations of $605,000 compared with cash used by operations of $4.3 million in 2016.

Primarily as a result of achieving positive cash flow from operations for the full year, converting our credit facility into Series A preferred shares and realizing $4 million in proceeds from the exercise of outstanding options and warrants, we ended 2017 with no debt and a cash balance of $6.7 million.

This compares with a cash balance of $1.4 million at the end of 2016 and $3 million in debt. We are confident that the positive cash flow we expect to generate in 2018 combined with our existing cash resources will be more than sufficient to fund the company's organic operating plan through 2018 and beyond.

With regard to our guidance for 2018, it remains unchanged from what was issued in November of 2017, and again, in early January of this year. We expect revenue for 2018 to fall in a range of $13.6 million to $14.7 million, which represents a 25% to 35% increase over 2017.

We are seeing a strong start to 2018 and will continue to update our guidance throughout the year. One other comment on revenue. Given what we see at this early point in the year, I would like to highlight that we may experience some greater variability in quarterly revenue throughout the year compared to 2017.

This variability would be driven by the timing of some anticipated safety stock purchases by certain customers.

Said differently, while we expect increases in quarterly revenue on a year-over-year basis, it is possible that customer ordering patterns in 2018 may result in both positive and negative quarterly revenue changes on a sequential basis during the year.

As we previously stated, we anticipate continued gross margin expansion throughout 2018 when compared to 2017 and expect gross margin for the full year to range between 62% and 64%.

On a quarterly basis, the gross margin may fluctuate above and below this expected range, as happened last quarter, as a result of variability in channel and product mix as well as the timing of our previously stated strategic objective of building an offsite safety stock of inventory.

Full year 2018 operating expenses are expected in the range of $9 million to $9.5 million, somewhat higher than 2017, largely due to the implementation of our stated 2018 strategic objective of enhancing our quality management system.

We continue to expect that we will achieve GAAP operating profitability for the full year of 2018, which will likely be driven by the operating results in the back half of the year. Now, I'd like to turn the call back over to Mike..

Thanks again Rod. In closing, 2017 was a pivotal year for BioLife in execution and growth. Our position as the leading supplier of proprietary critical biopreservation reagents used in cell therapy manufacturing is secure and we also continue to analyze additional growth opportunities.

We'd like to thank our long-term and new shareholders for your interest and support of BioLife Solutions. Now, I'll turn the call over to the operator to take your questions.

Daniel?.

Thank you. [Operator Instructions] And our first question comes from Paul Knight with Janney Montgomery. Your line is now open..

Hi, my congratulations on the quarter.

Could you talk to the recently announced Sigma-Aldrich joint venture is -- what's that about? And should we expect more type of announcements like that?.

Yes. Thanks Paul. Great question.

So, we announced an OEM private label more of a cobranded agreement with Sigma where they have been a very meaningful distributor, Paul, for the last several years, but we've formalized their relationship where they're buying the standard skew of CryoStor of the products, but we are affixing here in BioLife a cobranded label to give them a little bit more brand identity.

And we expect continued growth for them. Forecast, we expect to be strong for this year and while there are other large distributors who may have a potential interest to do that. Nothing to announce at this time, but certainly something we'd be open to..

Thanks. Can you talk to the tone of business this Q4 wrapped up; obviously, your Q4 growth rate was higher than your full year.

Are you seeing more things go into the FDA at this point, more customer activity as the year wrapped up?.

Another great question and there was some of that, Paul, demand from the distributor channel in Q4 was very strong. They are finding many more homes for the products, both in the research community and also in the preclinical phase of what could be the potential commercial applications.

In some of those cases, we have good visibility and we partnered with them to provide tech support to the end users. In other cases, we don't. And that's fine, but we're feeling really bullish about the indirect sales channel..

Thanks very much..

Welcome..

Thanks Paul..

Thank you. [Operator Instructions] And I'm not showing any further questions at this -- we do have a question from the line of Jason Kolbert with Maxim Group. Your line is now open..

Hi, this is Michael Okunewitch on behalf of Jason Kolbert. Again congratulations on the great quarter. Thank you for taking my question..

Thanks Michael..

I just wanted to know if -- obviously, the regenerative medicine has been very exciting this quarter; do you expect that to be the key driver for growth in the following year? Or are you looking more towards the distribution side in indirect sales?.

Yes, thanks Michael. Good question. I'll reiterate that the regen med segment is our most important, most strategic and we see that as the catalytic growth driver for the rest of the year and the out years for sure. We've got a marquee customer base. We have our products embedded in many, many applications which have large patient populations.

And should those customers gain approval, all of those will continue to drive demand for our products..

All right. Thank you very much..

Thank you..

Thank you. [Operator Instructions] And we do have a question from the line of Rory Jensen [ph], Private Investor. Your line is now open..

Hey guys. Good job on the final quarter and for 2017..

Thanks Rory..

Thank you, Rory..

Excellent.

Can you hear me okay? So, I got a question, Rod, are we talking about these numbers, does the new tax plan -- does that -- are you making any [Indiscernible], is your corporate tax structure going to change at all going forward?.

Well, I think as we reach profitability from a tax perspective, clearly, we're going to benefit from the reduced rate going from 35% to 21%.

But I would say that for the next number of years and it's difficult to say exactly how many years, but certainly, for the next three to five, we would anticipate being able to use the NOLS that we already have built up. So, we really don't anticipate any tax issues for the next number of years..

Okay. Excellent.

And now that we've got all of our fingers out there in the CMOs and the customer and the demand and -- with the recent acquisitions and your customers being gobbled up, are you finding these doors opening up to new avenues to customers you didn't have before?.

I think Rory that with the direct activities we have and the leverage that we can realize to the CMOs and distributors, we have pretty good reach. I would say, it's not perfect, but it's pretty good to reach, particularly in our more strategic market segment of cell therapy and regen med and tissue engineering.

There are thousands and thousands of participants, so it's not like we need to hire an army of sellers. So, we think that the go-to-market strategy right now with the smaller direct team and indirect channels and the CMO pull-through for which they are ordering products to support multiple projects.

It's working, but we're very focused on catching the new companies, the spinoffs, and startups very early in the dev process, that's why I mentioned so many names on the call during my remarks to reinforce that we're trying to fill the funnel with very early stage customers.

Not all will make it, but nevertheless, getting them exposed to what our technologies can do to optimize yields and reduce cost and really to help drive potential commercial success. It's really important to us, so we're all over that. But I think right now the plans that we have and how we're executing, it's working all right..

I would add Rory that the recent buy-outs that you referred to, I think that really demonstrates strong validation of some really large companies viewing the regen med space, Car T, in particular, as a really solid opportunity going forward, which obviously bodes well for BioLife also..

Okay, okay. Very good. I agree with that. So, good job and I look forward to 2018. Thanks guys..

Thank you, Rory..

All right, thank you..

Sure..

Thank you. [Operator Instructions] And we do have a follow-up question from Paul Knight with Janney Montgomery. Your line is now open..

Hey Rod, where are you guys at in terms of -- you mind burning some cash, showing some ETF lost or what's your thought on profitability for 2018 when you're, kind of, at the process of growing 40%-plus?.

Well, we're in a really fortunate position to actually have generated cash in the full year of 2017 and particularly, in the back half of the year, which was about $900,000-plus. So, we actually see as we move into 2018 that that number will continue to get bigger. So, we don't actually anticipate, from a cash perspective, burning any additional cash.

There may be a quarter or two that we do just based on variability, but in general, we expect solid cash flow from operations during 2018. We also expect full operating profit for the full year on a GAAP basis.

And so while things may be below the line, for instance, the dividend piece that that is a cash item, but the amount we take for SAVSU's loss is a non-cash item, but it does hit EPS.

So, we're pretty comfortable, Paul, right now looking ahead and not feeling like we have to make a lot of investments to make that sort of growth rate that you mentioned occur..

Okay. Thanks very much..

Thank you..

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mike Rice, CEO for any further remarks..

Thank you, Daniel. And thanks everyone. We look forward to speaking with you when we report our first quarter results. Good evening..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone, have a wonderful day..