Good day, ladies and gentlemen and welcome to the BioLife Solutions, Inc. First Quarter 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. Mr. Roderick de Greef, CEO [ph]. Sir, you may begin..

Thank you, Ashley. Good afternoon, everyone and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the first quarter of 2019. Earlier this afternoon, we issued a press release which summarizes our financial results for the three months ended March 31st, 2019.

The release is available on the Investor Relations web page at our site 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 qualifies forward-looking statements made 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 as of the date they’re 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, President and CEO of BioLife..

Thank you, Rod and good afternoon, everyone. Thank you for joining the call. I’ll start off as usual with some comments about revenue and then cover some other topics. Q1 total revenue was $5.8 million, up 51% over Q1 last year. We gained 25 new customers in Q1 with 19 being new direct cell and gene therapy customers.

Cell and gene therapy segment revenue was up slightly compared to Q1 last year. Order volume from one large customer was significantly lower than last year. The cell and gene therapy space is still in the development phase, and customer order volumes can vary based on their demand planning.

This customer’s orders have rebounded strongly in Q2 and we expect strong demand throughout the rest of the year. Notable names among our new direct cell and gene therapy customers include Beam Therapeutics, InCarda Therapeutics and CELLforCURE, a French CDMO acquired by Novartis in January.

Also in Q1, we processed 14 additional FDA master file cross-reference letters, supporting use of our products and new cell and gene therapy clinical trials. We’d like to provide the names, but we’re under NDAs. So this isn’t possible. I can’t share that, eight of these 14 pending clinical trials are using some form of T-cell targeting various cancers.

I’m pleased to report that product adoption in the cell and gene therapy market is increasing and we’re now supporting at least 500 customers in the space. Considering we both ship to two of our four largest distributors, we believe this number is significantly higher.

As far as catalysts for the rest of this year, four BioLife customers with potential BLA filings or approvals in the U.S. or Europe include bluebird, [indiscernible] Celgene and Kiadis.

From our view, sales order volume, customer quality audits, FDA master file requests, discussions with OUS regulators, and customer forecast, all support 2019 is being another strong year of growth.

I should reiterate a very important dynamic occurring in the region med space and we believe will continue to drive adoption and demand for our bio-preservation media and automated thawing products.

The reimbursement environment for our prospects and customers is evolving into a pay on cure paradigm with payment predicated on a positive patient response to the therapy.

We believe this dynamic will support broader adoption of our proprietary bio-preservation media products and automated thawing devices since these can de-risk the potential of delivering a non-viable dose to the patient.

You’ve heard us say many times that dead cells don’t cure cancer, and the combined therapeutic, and economic risks our customers are facing should broaden use of our products as a best practice in the manufacture, storage, distribution and administration of time and temperature sensitive cell and gene therapies.

Turning now to our worldwide network of distributors, Q1 was a blowout quarter with 200% growth over Q1 last year. The growth was driven by across the board substantial increases from STEMCELL Technologies, MilliporeSigma, Thermo Fisher and VWR.

In Q1, we shipped nearly 300 orders from these four distributors and continue to see their reach in capturing early stage cell and gene therapy customers. I’d also like to share that sales to the growing list of cell and gene therapy contract manufacturers were strong in Q1.

Customers in this group include WuXi, Lonza, Hitachi, ApCeth, Miltenyi, KBI and Cognate. Now to update you on the Astero acquisition. Integration has gone very smoothly. We’ve already seen benefits from cross-marketing and weaving the automated thaw product story into our discussions with our media customers and prospects.

We’ve booked several orders so far this quarter and see strong product demand, so far to support our guidance of $1 million to $2 million in thawing device product revenue in 2019.

We have an integrated marketing plan under way that includes email outreach, conference exhibits and presentations, and an expansion of the field sales team to capture a significant share of this market. On that point, we hired one new field-based biz dev director and are currently recruiting for three additional positions.

We’re also in discussions with our distribution partners to add the ThawSTAR product platform to our distribution agreements.

Turning to our M&A strategy, we continue to believe that there’s a consolidation opportunity for BioLife to expand our cell and gene therapy bioproduction tools portfolio to gain an increased share of the spend for tools used in the space. Astero is a great fit, SAVSU continues to make significant progress.

We’re in discussions on some other exciting opportunities to broaden our toolkit. On the quality front, we have a full customer audit schedule shaping up, and we’ll be hosting quality auditors from several existing and new marketing cell and gene therapy customers throughout 2019.

Current headcount stands at around 60 FTEs, with several recent additions to our production, QC and QA teams. Our customer care and logistics teams are keenly focused on delivering a high level of customer service. Last year, we shipped 80% of more than 3,000 orders, the same or next day.

We understand our role in our customers business and we’ll continue to develop and acquire new ways to add more value to our already very sticky relationships. Now, I’ll turn the call back over to Rod to present our financial highlights for Q1..

Thanks, Mike. Our biopreservation media revenue for the first quarter of 2019 reached a record $5.8 million representing a 51% increase over last year’s first quarter revenue of $3.8 million. The increase in revenue was primarily the result of higher indirect sales of our CryoStor biopreservation media through our worldwide distribution network.

Gross margin for the first quarter of 2019 increased to 71.5% compared with 64.2% in the first quarter of last year. The increase in gross margin was primarily driven by volume related reductions in cost of goods sold and slightly higher product ASPs. Operating expenses in Q1 totaled $3.6 million compared with $2.3 million in Q1 of 2018.

The increase in operating expenses is primarily the result of higher performance based compensation expense, accounting and consulting expenses and $442,000 of onetime charges, including $208,000 of costs related to our acquisition of Astero. First quarter’s operating profit was $491,000 compared to $140,000 in the first quarter of 2018.

For the first quarter of 2019, net income attributable to common shareholders was $427,000 or $0.02 per diluted share compared with a net loss of $103,000 or $0.01 per share in 2018. Adjusted EBITDA for the first quarter was $1.4 million compared with $590,000 in the same period last year.

We ended the first quarter with $31.8 million in cash compared to $30.7 million at the end of 2018. With respect to our outlook for 2019, we reaffirm the guidance we provided in March of this year, which includes the impact of acquiring Astero beginning on April 2nd.

We expect total revenue for 2019 will be between $27 million to $30 million, reflecting year-over-year growth of 37% to 52%. We anticipate that the Astero automated thaw product line will contribute between $1 million and $2 million in revenue this year.

Over the next several years, we believe these products could add five percentage points to 10 percentage points to our annual organic revenue growth rate and compromise – comprise up to 15% of total revenue in 2021.

Our blended gross margin for 2019 should range between 69% to 70%, although we expect a small reduction in our gross margin going forward, as a result of the automated thaw product line. We believe that the impact will be approximately 100 basis points.

The automated thaw products currently have gross margins in the low-60s, but with increasing volume we expect gross margins related to these products will climb into the mid-60s.

2019 expenses are expected to be in the range of $15.5 million to $16.5 million, approximately half of the increase over 2018 is related to the Astero transaction, with the balance primarily related to increased headcount in the sales and marketing and quality areas of the Company as well as higher performance based compensation.

Although the Astero purchase will reduce our operating margin somewhat this year, we expect to exit the year in Q4 with an operating margin of approximately 20%, which is slightly higher than our full year 2018 level of 18.6%.

In subsequent years, we anticipate a sustained trend of increasing operating margins with the automated thaw product line providing a positive contribution to our adjusted EBITDA within 12 months to 18 months. I would like to end my remarks with a summary of our share count. We currently have 18.8 million common shares issued in outstanding.

Our non-affiliate warrants which were effectively eliminated in 2018 total 195,000. And affiliate RSAs, [ph] options and warrants brings our fully diluted share count to 26.3 million. Now, I’d like to turn the call back over to Mike..

Thanks again, Rod. In summary, Q1 is in the books as a strong start for 2019. I’m glad to share that Q2 revenue so far this quarter is strong and we look forward to sharing our results on the August call. BioLife is well positioned for further organic and acquisitive growth.

We look forward to sharing updates related to our M&A strategy and key customer catalyst throughout the year. I’d like to thank our long-standing and numerous new shareholders for your support of BioLife. I will turn the call back over to the operator to take your questions.

Ashley?.

[Operator Instructions] And our first question comes from the line of Suraj Kalia with Northland Securities. Your line is now open..

Good afternoon gentlemen. Thank you for taking my questions. .

Hi Suraj..

And congrats on a nice quarter..

Thank you..

So Mike, you provided a bunch of information. And can you give us the status of your new customer ads. And forgive me, I got three calls going on at the same time. Have you given directionally how you think about the status of new customer ads as we progress through the year? I believe last year you added, I think, 84 give or take, you added 25.

Just kind of give us the cadence of how you see – how do you see this impacting, if you could reconcile with your annual guidance?.

Sure. And good question Suraj. So I don't want to say it's a free for all but the number of new participants is clearly increasing at a wonderful pace and we're in a great position. So with our existing customers, our referral business, our marketing activities, we would expect to outpace last year's number of new customers.

Q1 was a great start to that, we're just getting going. So we're not going to forecast the total number but directionally it's all going the right way..

Got it. And Mike, regen med, at least your – obviously, Q1 2018 was very strong, is it just a tough comp or were there any other dynamics also? Because I mean you guys were pretty decently in the double digits year-over-year growth all throughout last year.

Just any color there would be great?.

Yes, fair question Suraj. I think I'll ask Rod to provide a little more detail there. .

Yes so Suraj last year in 2018 in Q1, there was a $380,000 safety stock order within the number of 2,150,000 of regen medicine. So if you were to pull that out, it would be $1.8 million. And therefore, – if you did that it would look more like a 24%, 25% growth in regen med year-over-year..

But there is no seasonality or anything that it is just – or is the seasonality that is – as we progress through the year should we see us tick up in the growth rate also?.

Yes, I think there's not seasonality in the sense of the timing of the year but there is variability with respect to customers clinical trial process, the stage that they are at, enrolling patients, et cetera. So there is some, call it, lumpiness to the business.

But we do expect it to continue to be in the double-digit growth on regen med side throughout the year. I think what we saw in Q1 of this quarter or this year really just reflected one customer. And because we have a bit about revenue concentration, that did have a definite impact on the overall results..

That's right. And Suraj I would add that customers’ orders are strong and everything we're seeing through our forecasting mechanism supports the guidance that we just reiterated so, so far so good. Everything is fine. .

Got it. And one last question Mike and I will hop back in the queue. So Mike I would say over the last six months the FDA has put out, I believe, a policy directive just talking about the explosion in cell and gene therapies, you and I have talked about this off-line.

I think so there was a blurb recently about increasing reimbursement CMS talked about for CART also. I was wondering if you can just characterize what your street intelligence is telling you? How does that affect? And also if I can throw it in there, this might be an unfair question forgive me.

Have you all had any discussions on Kymriah, just given the issues that they have had with their cryo preservation medium. Thank you for taking my questions and congrats again..

Thanks, Suraj. Yes, I'll answer the latter part first. Well, we can't comment on specific customers unless we've already publicly disclosed and we haven't said things about Novartis in the public domain, so no additional color there.

I think, Suraj, the lens that we're looking through when we see the January 2019 FDA statement and the direct communication we're having with a number of customers is supporting the notion that late stage clinical trial developers who have particular pain, if you will, or they are undergoing inefficiencies in the manufacturing process through a number of reasons which could be translated to lower cell yield or higher variability, there's much more broader listening and a stronger listening for that and consideration to make these changes.

So, we're in discussion with customers of that ilk or prospects of that ilk, in both camps and I'd just like to say stay tuned and when we're able to talk about that, I can assure you we will..

Thank you. And our next question comes from the line of Paul Knight with Janney Montgomery. Your line is now open..

Rod, can you start with the $442,000 in charges, $208,000 was Astero, what was the remainder?.

Yes, we've got about another $85,000 in consulting, Paul, and about $150,000 related to a severance arrangement we entered into with a long-term employee here..

Okay.

And Mike, your distributor revenue hitting $3.1 million up 200%, what was behind that big uptick?.

Paul, it's a great observation and you know, I think, where in years past we didn't have a lot of visibility into the segments that these distributors are selling into, we're getting a lot more now.

And while we can't say exactly how much of that revenue is probably ending up into end users that we would call it or classify as regen med cell and gene therapy, it's our belief that many of them are.

So the overarching comment I would make about that increase in what's driving it is – it's the cell and gene therapy space, the funding, the level of activity, even going upstream where a lot of these distributors tend to plant the early seed.

So, our sense – it's all related to the frothiness if you will and just the frenetic activity and pace of activity within cell and gene therapy..

Did you add any new distributors in the quarter, Mike?.

None, no..

Okay.

And then, geographically how big is Asia? What are you doing in that market, or are you hitting it via your distributors?.

Yes, right on. So predominantly, we're serving the Asian market through distributors, and of the four that we've all talked about for the last many quarters STEMCELL Technologies, MilliporeSigma, Thermo Fisher and VWR. They all have reasonable presence.

Many have significant feet in the street, and sellers, and distribution and other infrastructure over there. So that's working fine. But we also do support a number of customers directly who are able to buy our products and import directly without any hassles. We work through a lot of that stuff.

So, my sense is the approach to Asia-Pacific is working fine right now. Would we like it to all be direct revenue with higher gross margin? Sure, but we don't really have the resources right now to enable that. So I think the plan right now is working fine..

And lastly Mike, could you talk about peak revenue or I should say a revenue you expect from approved therapies. Is it – what is that range? Has that range changed in your view as you watch the commercial roll-out of various products in the market? So that's my last question..

Yes, great. So thanks, Paul. All really good questions. Well our sense is that it's still too early to try to make some revisions, because as you know we're in just a small number of approved therapies.

So the range that we've been talking about for the last several years of $500,000 to $2 million as albeit it's a wide range but as sort of a ballpark of where things might land, I think, that still holds, we'll see. It'll be curious to watch that range shift over time.

Early in the call I mentioned a few customers that are on the cusp of approval and/or filings. So as Rod likes to say, that's not a light switch or a step change in revenue immediately, but we're definitely going to keep our eye on that. And as the data supports, modifying that range we're certainly going to do that. Good question..

Thank you..

Thank you..

Thanks, Paul..

Thank you. And it looks like our next question will come from the line of William March with Spring City Partners. Your line is now open..

Hey, guys, how are you?.

Hey, Bill, great, how are you doing?.

Doing well.

I was just calling kind of following up on what you were talking about previously with the concept of using the distributors and maybe just like the bigger picture question as you start holding in Astero, potentially SAVSU later this year and kind of build out a bigger portfolio of products? How do you think about getting the scale to be able to go direct to support all of these new products that you're acquiring?.

Yes, Bill, fair question and a good one, something that we think a lot about here and we've done a lot of white boarding about the pace at which we might be talking about that. I think for right now things are working. We're going to obviously continue to watch Astero, make our consideration of SAVSU at the right time.

We have some other deals under way as I alluded to. So, that'll be just an opportune time for us to put on all of that on the Board and look at those respective sales teams that come with some of these deals, see where people live, what sort of geography they can cover, what kind of reach they have.

And so, it's certainly something that we're doing a lot of inside baseball on right now. But I think that short answer is just stay tuned, when we can articulate that and demonstrate that the plan is, executing against our goals, we'll certainly do that..

Got you. And maybe just one follow-up on that front. As you think about some of the foreign markets.

Right now do you have any direct presence in Europe and Asia or are you relying solely on distributors there?.

Yes, none at this time. But certainly something we're looking at and it's right up there in the list of considerations when we think about, where is the growth in the market coming from and what's the best way to capture that and doing all the various sensitivity analysis that you would imagine..

Sounds, good. Thanks, guys..

Thank you, Bill..

Thank you. Ladies and gentlemen, this concludes today's Q&A Session. I would now like to turn the call back over to Mike Rice for any closing remarks..

Thank you, Ashley. And thanks, everyone. We look forward to speaking with you when we report our second quarter results. Good afternoon..

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..