Good day, ladies and gentlemen, and welcome to the BioLife Solutions Second Quarter 2019 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 BioLife Solutions' Chief Financial Officer. You may begin..

Thank you, Katherine. Good afternoon, everyone and thank you for joining us for the BioLife Solutions conference call to review the operating and financial results for the second quarter of 2019. Earlier this afternoon, we issued a press release which summarizes our financial results for the three and six months ended June 30, 2019.

As a reminder, during the call we will make certain projections and other forward-looking statements regarding future events or the future financial performance of the company. 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 they are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law.

During this call for the first time, we will speak to non-GAAP or adjusted results and guidance. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. These 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 clear view of our current financial results when compared to prior periods. 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'm very pleased to discuss our Q2 results and provide some details and how the business is performing and what we expect from our recent acquisitions of Astero Bio and SAVSU. Q2 total revenue was $6.7 million up 29% over Q2 last year.

Second quarter revenue growth was primarily driven by a 33% increase and direct sales to our regenerative medicine customers and 31% growth from our distributors compared to the same period in 2018..

Also in Q2 we processed 14 additional FDA master file cross-reference letters supporting use of our products in new cell and gene therapy clinical trials. We also saw increased request for scientific product and regulatory support from customers outside the U.S. with a concentration in China.

Q2 was our first full quarter of automated thaw product sales and I'm very pleased to report that we're off to a strong start. We gained 39 new automated thaw product customers in Q2 and importantly nearly 70% of these were existing biopreservation media customers.

It's also noteworthy that several of these orders came through the e-commerce platform of Fisher Scientific, which is augmenting our direct-selling activity.

The remaining new automated thaw product orders were driven by our own sales and marketing activities to capture the cross-selling opportunity that we stated as a driver for the Astero acquisition.

So, notable new automated thaw product customers included Adicet Bio, Beam Therapeutics, bluebird bio, BlueRock Therapeutics, Editas Medicine, Pat Pharma, Patheon Biologics, SQZ Bio and TxCell.

Continuing with our automated thaw product opportunity, we're making very good progress and are on track for our Q4 launch of the new ThawSTAR CB cryobag version. ThawSTAR CB was designed consistently and actively thaw frozen biologics packaged in cryobags. Prelaunched demand is building.

We're optimistic that we will achieve the full year automated thaw product revenue guidance we provided of $1 million to $2 million for 2019. Turning now to our just announced closing of the acquisition of SAVSU.

We believe this further strengthens our position as a leading supplier of disruptive, enabling solutions used in the manufacture, stores and distribution of cell and gene therapeutics.

SAVSU's evo system runs our bioproduction tools portfolio and we believe this will provide opportunities for us to increase our footprint and engagement level in our customers' cell and gene therapy manufacturing workflow.

SAVSU is establishing a critical and highly varied position as a best-in-class tools provider in the cell and gene therapy distribution ecosystem.

We have a highly competitive go-to-market strategy that offers the most advanced container and SaaS technologies, coupled with valuable partnerships that levers the world-wide sales, marketing and tech-support infrastructure of the leading specialty couriers, serving the cell and gene therapy space.

Since January this year, the evo system has been used in initial shipments of cell and gene therapies by 50 companies, all of whom are in various stages of full product validation and adoption. We look forward to announcing evo product adoption decisions by several marquee cell and gene therapy developers in the coming months.

A key product differentiator of the SAVSU platform that cell and gene therapy companies highly value, is integrated approach to providing enhanced in-transit protection of these high-value and potentially life-saving, CAR T-cell and other therapies.

Traditional shippers increased the risk of in-transit biologic payload damage from both mechanical shock and temperature excursions. Both of these events can result in a potential catastrophe for the patient and significant economic loss for the therapy developer.

Several companies SAVSU is engaged with have experienced loss of useable shipments, and the many innovations of the evo system that can reduce in-transit payload risk are driving an accelerated rate of product validations. Our outlook is bullish. Rod will provide additional comments on our expectations for evo revenue in a few minutes.

There is a common theme running through the acquisition of Astero and SAVSU. It's all about derisking clinical trials and commericial cell and gene therapy manufacturing.

I will reiterate again, very important dynamic in the regenerative medicine space that we believe will continue to drive demand for our biopreservation media, automated thaw products and evo cold chain management system.

The reimbursement environment for our perspective and current 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 growing tools portfolio, since each product can derisk the potential of delivering a nonviable dose to the patient. Simply put, delivering a non-viable dose can lead to therapeutic and economic failure.

Our growing portfolio of best-in-class bioproduction tools can derisk development, manufacturing and delivery of cell and gene therapies. Turning now to our worldwide network and distributors. Q2 indirect revenue from distributors was up 30% over Q2 last year.

The growth was driven by significantly increased order volume from most of our key revenue contributors. We continue to see an expanded reach by our distribution partners into the cell and gene therapy space. And in Q2, we provided technical regulatory, filing support to several end-users outside the USA.

Now I'll turn the call back over to Rod to present our financial highlights for Q2..

Thanks Mike. Before reviewing our second quarter financial results, I'd like to make a few comments about our acquisition of SAVSU which we announced earlier today. We issued 1.1 million unregistered common shares in exchange for the 56% of SAVSU we didn't own.

SAVSU generates revenue, primarily from a monthly rental model with each evo shipper deployed in the field expected to generate between $4,000 to $8,000 in annual revenue. At scale, which is expected to be within the next 24 months, we estimate SAVSU's adjusted gross margin will be in the low to mid-60s.

For the balance of 2019, we expect the revenue contribution from the evo product line will be relatively modest at $500,000.

However, based on the anticipated results of numerous validations which are expected to be completed in the fourth quarter of this year, we believe SAVSU's revenue in 2020 could be between $4 million to $6 million and we expect a positive adjusted EBITDA contribution in Q4 of 2020 or Q1 of 2021.

We will provide more specific guidance for 2020 on our Q3 earnings call. Moving to our Q2 results. Total revenue for the second quarter of 2019 reached a record $6.7 million, representing a 29% increase over last year second quarter revenue of $5.2 million.

This quarter's revenue included $374,000 of sales related to the Astero automated thaw products we acquired last April. Organic biopreservation media revenue for this quarter was up 22% compared to last year's second quarter.

However, excluding the onetime safety stock order which occurred in Q2 of last year, media revenue this quarter was actually up 28% over 2018. The adjusted gross margin for the second quarter of 2019 increased 72% compared with 70% in the second quarter of last year.

The increase in adjusted gross margin was primarily driven by volume-related reductions and cost of goods sold, slightly higher ASPs, both offset by lower margins related to the Astero automated thaw products. Adjusted gross margin for the six-month period in 2019 was 72% compared with 68% in 2018.

Adjusted operating expenses for Q2, totaled $3.7 million compared with $2.4 million in Q2 of 2018. The increase in adjusted operating expenses includes $500,000 related to the Astero automated thaw products with the balance attributable to increased headcount necessary to support our overall growth and higher performance-based compensation.

Adjusted operating expenses for the six-month period in 2019, totaled $7.1 million compared with $4.7 million in 2018. Adjusted operating profit for the second quarter of 2019 was $1.2 million, compared with $1.3 million in the second quarter of 2018.

Adjusted net income attributable to common shareholders for the second quarter of 2019 was $1.1 million or $0.04 per diluted share compared with $1 million or $0.05 per diluted share in 2018.

For the six-month period in 2019 adjusted net income attributable to common shareholders was $1.7 million, or $0.07 per diluted share compared with $943,000 or $0.05 per diluted share in 2018. Adjusted EBITDA for the second quarter totaled $1.9 million, compared with $1.7 million in the same period in 2018.

For the six-month period adjusted EBITDA was $3.3 million, compared to $2.3 million in 2018. We ended the second quarter with $19.6 million in cash, compared with $30.7 million at the end of 2018. This decrease is a result of $12.5 million in cash we used for the purchase of Astero in April.

With respect to our current outlook for 2019, we have updated the guidance we provided in March of this year, which includes the impact of acquiring Astero beginning on April 2, and now SAVSU from August 8. We expect total revenue for 2019 will be between $27.5 million, and $30.5 million reflecting year-over-year growth of 39% to 55%.

We anticipate that Astero automated thaw products will contribute between $1 million and $2 million in revenue this year with SAVSU adding another incremental $0.5 million. Our adjusted gross margin for 2019 should range between 69% to 70%.

Although, we expect a modest reduction in our adjusted gross margin going forward as a result of acquiring Astero and SAVSU, we believe that the impact will be limited to between 100 and 300 basis points in 2019.

We expect 2019 adjusted operating expenses to be in the range of $17 million to $18 million, which reflects our original guidance plus the addition of approximately $1.5 million of operating expenses related to SAVSU for the remainder of the year.

Finally, we expect to be positive on the operating and net income lines on both the GAAP and non-GAAP basis. I'd like to end my remarks with a summary of our share count. We currently have 20.1 million common shares issued and outstanding, and a fully diluted share count of $27.4 million. Now I'd like to turn the call back over to Mike..

Thanks again, Rod. In summary, Q2 was another quarter of execution and delivering to our business and growth objectives. I'm glad to share that Q3 revenue was on track at this point in the quarter and we look forward to sharing results during our November call. BioLife is well positioned for further organic and acquisitive growth.

We also look forward to sharing updates related to our M&A strategy and key customer catalysts throughout the rest of the year. I'd like to thank our long-standing and new shareholders for your support of BioLife Solutions. Now, I'll turn the call back over to the operator to take your questions.

Katherine?.

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

Hi, guys. This is actually Casey on for Paul..

Hi, Casey..

Two quick questions. Hi, guys. Who were the distribution partners in SAVSU.

We know it's Marken but who else is there?.

Yeah, Casey, so SAVSU is partnered with the leading white glove or specialty curers including Marken, which is part of UPS; World Courier which is part of AmerisourceBergen and Quick International..

Got you. Okay.

And then my second question is what is the trend on gross and operating margins over the next year into 2020?.

I think that you're going to see as I mentioned in my remarks our blended for the year will be 69% to 70%. But as both the Astero revenue and the SAVSU revenue begin to ramp throughout 2020 and beyond, we would expect to see an increase in overall gross margin.

So some expansion also driven by the fact that on our core media business based on exist -- additional production and additional revenue growth, we would expect to see additional margin expansion there as well. So as long as revenue is going to trend up we're going to see an expansion on the margin..

Got it. Thanks guys and congrats on the quarter..

Thank you, Casey..

And our next question comes from Raghuram Selvaraju with H.C. Wainwright..

Mike and Rod congratulations on completing a SAVSU acquisition. This is actually Faizan [ph] on for Ram. Just – good.

I wanted you to clarify whether or not guidance for 2019 stipulates positive net income on a GAAP basis or only on an adjusted basis?.

No. I did say that it's both operating and net income positive on a GAAP and non-GAAP basis..

Okay. Great. Thank you.

And for the SAVSU acquisition, I assume revenues will be characterized as part of the distribution segment, can you provide some color as to what you might expect in terms of the breakdown revenue from SAVSU within the distribution segment?.

Yes. So even though SAVSU's revenue is really primarily run through those distributors that Mike just mentioned. We do intend to break out our revenue by product. So we would have biopreservation media, we would have automated thaw and we would have evo systems. That would be the three buckets less about the channel..

Okay. Great. Thank you.

And then in terms of the Astero distribution effort have you -- does this -- is this closely overlapping with Biolife's existing distribution segment? And how many salespeople have you added in relation to the Astero distribution effort?.

Yes. I mean higher degree of overlap Faizan for sure. As we mentioned 70% of the folks of thaw devices in the quarter were existing media customers that's really helpful. And we're just getting our cross-selling and sales and marketing engine ramped up.

So we would expect that overlap an opportunity to continue and we want to capture a lot of that for sure. We have added two sellers and we have a few open reps now. So we definitely know where we're going to put people in and our intention is to have all the field assets promoting all of the products.

And that way we can leverage the best of all the technologies and bring in experts as needed depending on deal stage..

Excellent. Thank you. I will jump back in the queue for now and then ask later on if I have a chance. Thank you so much..

You’re welcome..

[Operator Instructions] And our next question comes from George Zavoico with B. Riley FBR. Your line is open..

Hi everyone. Great quarter. A lot of interesting stuff going on of course..

Hi, George. Thank you..

Hi.

So a quick question about headcount before Astero and SAVSU acquisitions, how many employees did you have? And how many do you have now? So what's the change?.

So I think George the rough numbers are pre-SAVSU mid-60s adding about 25 or so. So you can see we're getting up there and it's an efficient team. We've got the right people in the right spots and we do have a nice handful of open reps to round out some of the teams and need a few more resources..

And Astero was just a handful as well?.

That's correct four to be exact..

Four, okay. So it's really great to see always new customers always this cross-reference request for FDA master file and all that. This is mainly still for products -- cell gene therapy products that are in development various stages of development. Everything from I think preclinical to registration trial.

I think the inflection point perhaps -- an inflection point of some of which you may have more than just one will be even more of these products actually hit the market. Can you break down how many might be like in Phase 3 or preregistration in that might predict when you might see sort of a steeper incorporation of your cryopreservation products..

George, it's a great question. It's certainly on top of mind and we try to analyze that through several different metrics. But nobody has the crystal ball right that can a light a lot of specificity. I think suffice to say that the comments that we would make go like this.

Nearly all the revenue today comes from not-approved products, but from this clinical trial basket of customers. However, we have perhaps three to five additional approvals and/or BLA submissions that will happen in the next couple of quarters.

And we believe that the key sort of series of inflection points or big step changes in the revenue are still out in the next three to five years. As you can imagine having 10 to 20 or even 50 customers with approved therapies versus the situation that we have today. So we've got a wonderful growth opportunity ahead of us.

And we're certainly not resting on our laurels. We continue to fill the pipeline with early-stage companies. So with the total universal folks who are either currently using or intending to use our stuff in clinical trials is growing at a really rapid rate..

And right now you have one approved product YESCARTA right? Am I correct in remembering that?.

That's correct..

Okay.

And the last question regarding the ThawSTAR for cryobag?.

Yes..

This -- imagine as a little bit more complicated device than for -- than there are early one.

Is there a -- in terms of potential market, is the market for the bags greater than the market for the other product for the tubes?.

Well certainly it could be. And I guess George I'd say that to answer the question of the complexity of the device well that's bigger obviously, because the form factor of cryobag dictates that the product needs to be bigger, but the user interface is extremely simple.

It's basically start to sting up, pick a thaw profile, put the bag in the drawer shuts. It doesn't sting it pops over, when it's done. And the way you go.

And then there are some ancillary markets that we might consider, down the road, but we're certainly focused right now at capturing the significant share of the, spend the pending spend or the future spend for thaw devices for cell and gene therapies, that are packaged in bags..

Is each one of these bag thawing devices, applicable to bags of different sizes? Or do you need a different one for each different bag size?.

Yeah, great question. So the ThawSTAR CB certainly accommodates in several different bag sizes. And devices are smart enough to know. How much to heat and where to heat based on, the profile of the bag that's inserted..

Okay.

And what your -- if you can reveal it, what's your masking price for the two devices?.

Yeah. So I'll let Rod just roughly characterize the current list price for vial and then the proposed range of a list price for the bag version. Okay..

So the ASPs on the vial devices run from $2,000 to $5,000 depending on the model. And whether there's customization involved in the algorithm. On the bag device, we're looking at an ASP of somewhere in the neighborhood of $15,000, a little higher perhaps.

Part of that George is going to be dictated by the ultimate split, between distribution sales versus direct sales..

Okay, very nice. Thank you very much..

Thanks, George..

Thanks, George..

Thank you. And we have a follow-up from Raghuram Selvaraju's line with H.C. Wainwright. Your line is open..

Hello, [indiscernible].

Please check your mute button..

Oh! Hi. Sorry about that. Thank you for taking my question again.

The R&D reported in the most recent quarter is reflected of future levels or if they -- or if you expect any entrenchment toward the level report in the first quarter of this year?.

Yeah. Good question. We definitely had a blip in R&D expenditures in Q2. Two reasons, one, is the addition of the Astero R&D personnel. And then we've also spent some not insignificant funds in the actual development, with third-party engineering groups for the bag device.

So I would expect to see a similar number in Q4 -- sorry Q3, with some moderation backed down in Q4. But going forward certainly, it's going to be higher than it has been in Q1..

Great, thank you..

You bet..

Thank you. And I'm showing no further questions. I'd like to turn the call back to, Mr. Mike Rice for closing comments..

Thank you, Katherine. And thanks everyone. Good afternoon..

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day..