Good afternoon ladies and gentlemen and welcome to the Q3 2019 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 turn the conference over to your host, Mr. Roderick de Greef, Chief Financial Officer. You may begin..

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

We also issued a press release this afternoon, announcing our asset purchase of Custom Biogenic Systems or CBS. As a reminder, during this 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 qualify as 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, 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, BioLife..

Thank you Rod, and good afternoon everyone. Thank you for joining the call. I'm very pleased to discuss our Q3 results and activities. We have a lot to share, so I'll jump right in. I'll start by sharing our vision of success for BioLife and our next major milestone, we're focused on. First, some history.

Over the last nearly 15 years, we've built BioLife into a leading supplier of critical biopreservation media products, used in cell and gene therapy manufacturing.

We created the product category, clinical grade biopreservation media and worked very hard to convince developers in the cell and gene therapy space, that traditional preservation cocktails and methods are not robust enough to best ensure commercial success.

Our proprietary and optimized CryoStor and HypoThermosol media products have now been used in more than 400 customer clinical applications. Once we scaled our media business and reach profitability in 2018, we’ll began to seek complementary growth opportunities.

We of course considered a number of internal R&D projects but on balance a long time to market then trends position we hold with CryoStor and HypoThermosol caused us to identify external opportunities to scale the business even faster, and to take advantage of the current roll up environment for bioproduction tools.

Earlier this year, we acquired a sterile bio and gained the ThawSTAR automated thaw product. Later, we acquired the remainder of SAVSU technologies that we didn't own and added the evo Cold Chain management system to our portfolio.

Our outlook for these initial acquisitions is very positive and coupled with our just announced acquisition of customer biogenic systems or CBS, we've defined our next major milestone for success as reaching $100 million in revenue.

The vision of success we're focused on, it looks like this, BioLife will scale to become an even more deeply entrenched partner to cell and gene therapy companies.

By offering a diversified and differentiated portfolio of novel products and services that can improve quality by reducing risk in the manufacturer, preservation, storage, delivery and filing of these biologic therapies. I'll have more to say about CBS later in the call. So now I'll provide some comments about our existing business.

Turning to Q3 revenue, we experienced a soft quarter due to two customers ordering less media products than anticipated. Our media revenue and current total revenue is highly concentrated from less than 100 customers with about 50 generating the lion's share.

This concentration is a primary driver for our M&A strategy to derisk our reliance on a concentrated customer base and a limited product portfolio. In Q3, a large distributor had a significant sequential decrease in order volume, being the start of our fiscal year and a changeover to a new ERP system.

On a positive note, we expect total 2019 calendar revenue from this distributor to nearly double from 2018. Also one large therapy - one large cell therapy contract manufacturer, had a significant sequential decrease in order volume.

We attribute this to the cyclical nature of contract work and the CMOs dependence on end user customer order patterns, which can be affected by the pace of enrollment in our clinical trials. Together, these two customers accounted for nearly $1 million sequential revenue decrease from Q2.

So far in Q4, order volume from these customers has returned to typical levels but again, it's worth repeating that from time to time, we expect to experience sequential swings like this and we're obviously working hard on the M&A front to expand our portfolio to not only de-risk but also grow top line revenue.

Our other internal metrics for assessing how our regen med franchise is performing were on track in Q3, we gained 41 new direct cell and gene therapy customers and we processed 18 new FDA master file cross-reference request supporting customer use of CryoStor or HypoThermosol in pending human clinical trials of cell and gene therapies.

Integration of the Astero thaw products is on track and to date, we've shipped over 200 ThawSTAR products with most of these to the cell and gene therapy market segment. Progress continues on our new ThawSTAR CB automated for our product for biologic materials frozen in bags.

We plan to formally introduce ThawSTAR CB at the facilitate Cell and Gene Therapy Conference in Miami in January. Updating you now adoption of the evo Cold Chain management system, we continue to win new customers, including Adaptimmune, Autolus, Janssen, KBI Pharma, Mustang Bio, Nanjing Legend and Tessa Therapeutics.

Product validations by several leading cell and gene therapy companies continue and we look forward to sharing some new customer wins when appropriate. It's clear we've emerged as a new competitor in the cold chain management segment of cell and gene therapy manufacturing.

As such we're being put through a very robust qualification process by several multi-billion dollar worldwide biopharma companies. We believe much more so than incumbent suppliers as our technology is truly innovative and is expanding the conversation to include quality aspects that prospective customers have not thought of before.

Our indirect network of distributors continue to perform well in Q3, generating 36% of total revenue with 38% growth over Q3 last year. Key worldwide distributors for our media products include MilliporeSigma, STEMCELL Technologies, Thermo Fisher and VWR.

Turning now to our other significant news of the day, we announced the acquisition of nearly all of the assets of privately held custom biogenic systems or CBS. CBS-based in the Northern Detroit suburb as a leading designer, manufacturer and supplier of advanced liquid nitrogen freezers and related to racks and accessories.

We started a dialog with CBS, CEO and Founder in June of this year, and immediately recognized several potential benefits of an acquisition, including adding a meaningful amount of revenue from the sale of complementary products, the ability to leverage our relationships in the cell and gene therapy space to accelerate adoption of CBS products and an opportunity to improve quality and reduce cost and our evo Cold Chain products by vertically integrating a U.S.

based supplier. We call that our vision is to supply products to our cell and gene therapy customers along as much of the longitudinal workflow as possible. With the acquisition of CBS assets, we now plug into the following workflows.

Starting with the acquisition of source material this includes preservation, cold chain transport, cryogenic storage and following before manufacturing and now continuing with the manufacturing biologic product we play in the following work processes, preservation, cryogenic storage, cold chain shipment and onsite following before patient administration.

CBS is a great fit and we look forward to integrating their operations in the BioLife to realize the synergies we identified. CBS has several marquee customers in the cell and gene therapy space and we see tremendous leverage to scale the business. I'd like to make one last comment about our M&A strategy.

While we've been very active this year and would not rule out some additional activity next year, our focus for 2020 will be on integrating the businesses we acquired.

Now I will turn the call back over to Rod to present our financial highlights for Q3, some additional detail on CBS and our updated guidance for 2019 and preliminary revenue guidance for 2020.

Rod?.

Thanks Mike. Before reviewing our third quarter financial results, I'd like to make a few comments about our acquisition of CBS, which we announced earlier today. We purchased substantially all of the assets of CBS for 11 million in cash and issued 234,000 unregistered common shares, having a value of $4 million.

We have structured an earn out over five years, whereby the owner of CBS could realize another $15 million in cash or stock if certain new product related revenue levels are exceeded. We anticipate that CBS will have full year 2019 revenue of between $10 to $11 million at a modest but positive adjusted EBITDA.

We expect to realize $1 to $2 million of incremental revenue contribution to our P&L for the balance of 2019.

Based on the introduction of a new line of liquid nitrogen freezers in 2020, we expect solid revenue growth over 2019 and although our gross margin will realize additional compression in the near term, based on the margin profile of capital equipment we fully expect the acquisition will be accretive on an adjusted EPS basis, and provide a positive adjusted EBITDA contribution in 2020.

Moving to our quarterly results, total revenue for the third quarter of 2019 reached $6.6 million representing a 25% increase over last year's third quarter revenue of $5.3 million.

This quarter's revenue included 324,000 of sales related to the automated thought products we acquired last April and 211,000 of evo related revenue, which was acquired in early August.

Biopreservation media revenue for the third quarter of 2019 was $6 million, up 15% compared to last year and lower than expected based on two customers ordering approximately 1 million less than expectations.

As Mike mentioned, order volume from these two customers in Q4 is back in line with our internal expectations but unlikely to make up the order shortfall we realized in Q3. Total revenue for the 9-month period in 2019 was $19.1 million, up 34% over revenue of $14.3 million in 2018.

The adjusted gross margin for the third quarter of 2019 was 69.2% compared with 69.7% in the third quarter of last year. The slight decrease in gross margin reflects the lower margin profile of the automated thaw and EVO product lines. Adjusted gross margin for the 9 months was 71% compared to 68.5% in 2018.

Adjusted operating expenses for Q3 totaled $4.5 million compared with $2.5 million in Q3 of 2018. The increase in adjusted operating expenses is primarily the result of the acquisitions of Astero and SAVSU and secondarily to increased headcount necessary to support our overall growth and higher performance based compensation.

Adjusted operating expenses for the 9-months period in 2019 totaled $11.6 million compared with $7.2 million in 2018. Adjusted operating profit for the third quarter of 2019 was 106,000 compared with $1.2 million in the third quarter of 2018. Adjusted operating profit for the 9-month period was $2 million compared to $2.6 million in 2018.

Adjusted net income attributable to common shareholders for the third quarter of 2019 was 215,000 or $0.01 per diluted share compared with $1.2 million or $0.05 per diluted share in 2018.

For the 9-month period in 2019, adjusted net income attributable to common shareholders was $2.4 million or $0.10 per diluted share compared with $2.5 million or $0.12 per diluted share in 2018.

GAAP net income and EPS for the three and 9-month periods included a one-time gain on the acquisition of SAVSU of $10.1 million and $0.40 and $0.41 per share, respectively.

Adjusted EBITDA for the third quarter totaled 925,000 compared to $1.7 million in the same period in 2018 and for the 9-month period adjusted EBITDA was $4.3 million compared to $4 million in 2018.

With respect to our current outlook for 2019, we have updated the guidance we provided in August of this year, which includes the impact of acquiring a sterile beginning on April 2, SAVSU from August 8th and now CBS from November 12.

We expect total revenue for 2019 will be between $27.5 million to $31.5 million reflecting year-over-year growth of 39% to 60%. This includes $1.2 million from the thaw product line, 500,000 from the EVO technology and $1 million to $2 million from CBS.

Our adjusted gross margin for 2019 should be between 68% to 69% based on the acquisitions of SAVSU and CBS, we do expect the near-term compression of our gross margin of between 6 percentage to 8 percentage points, ultimately climbing back into the mid 60s with increasing product revenue.

We expect 2019, adjusted operating expenses to be in the range of 16.5 million to 17.5 million. We expect that the additions of SAVSU and CBS who have between 1.2 million to 1.5 million in additional quarterly operating expenses above the 4.5 million we realized in Q3.

Finally, we expect to be positive on the operating net income and EBITDA lines on an adjusted basis for the full year of 2019. I would like to end my remarks with a summary of our share count. We currently have 20.7 million common shares issued in outstanding and a fully diluted share count of 27.2 million.

Now I'd like to turn the call back over to Mike..

Thanks again, Rod. In summary, I'm very bullish on the potential to grow BioLife to our next interim milestone of reaching 100 million in revenue. Our preliminary revenue guidance for next year has us more than halfway to this goal. The opportunity in the cell and gene therapy space is tremendous.

We have a very solid reputati0on in this space as a trusted supplier. We worked very hard building customer relationships that have rewarded us with growth and the satisfaction of playing a part in helping our customers bring life changing and lifesaving biologic based therapies to the clinic.

I'd like to thank all of our shareholders for your support of BioLife. I’ll turn the call back over to the operator to take your questions.

JP?.

[Operator Instructions] First question comes from the line of Jason McCarthy of Maxim Group. Your line is now open..

Hi everyone, it's Dave on the line for Jason. So I don't think I quite thought this year.

Could you please repeat, how many new customers did you guys get in the third quarter, was it 41, I just want to make sure I heard that correctly?.

Yes hi, Dave this is Mike 62 total 41 in the cell and gene therapy space..

62 total?.

62, six, two total with 41 in the cell and gene therapy segment..

Okay, great, thanks. And then if you could please just shed some more color on in your opinion what the synergies are between a custom biogenic – both custom biogenic systems freezing and cryogenic equipment and SAVSUs eco smart containers I'd appreciate that? Thank you..

Sure Dave, good question. So here is it how it goes CBS's product line is for stationary freezing containers that would be at cell and gene therapy manufacturing sites by repositories clinics and what not.

The SAVSU evo line of dry vapor shippers and the other products are for transport at cryogenic temperatures and other temperatures of biologic therapies that are both time-sensitive and temperature sensitive. So, one is stationary one is for movement across time and space..

We believe that rather than sourcing the evo hardware from abroad, that we have the opportunity to have the products made in Detroit at CBS, because fundamentally the technology around building what is essentially a can in a can [ph] is absolutely doable at CBS..

Our next question comes from the line of Paul Knight of Janney. Your line is now open..

Mike on the $1 million was it two customers.

And what was going on in each of those two customers if it was too?.

Yes Paul, correct. The softness in Q3 media was a result of two customers that together accounted for nearly $1 million sequential decrease in order volume one customer was a distributor who was transitioning into a new ERP system. Concurrently with that Q3 is their Q1 of their fiscal year. So that's a kind of a normal reload process.

So those two dynamics were the reason there for the softness in their order volume. The other customer Paul is a cell and gene therapy CMO or our contract manufacturing organization.

And you know the CMO as they really at the mercy of their end customers and the clinical trial enrollment for those customers which dictate how much product they're going to buy from any of the bioproduction tool suppliers that are supplying them critical reagents manufacture tools and whatnot..

If I can just go over the estimate of organic growth going forward, preservation media was 15% in this quarter with the - noise in the shortfall and you're looking at 25% kind of - at the low end of guidance for Q4.

What - is 25 the growth rate of media or what do you think it is, is it 15 is it 25 I guess you're saying it is 25 based on 4Q?.

Yes. I think, Paul, that 25 is a conservative number would allow us to absorb some of these, the variability that we just saw in Q3 without completely blowing the year. I mean this $1 million represents just a little under 5% of growth for the whole year, right. And so, it's impactful when it happens based on the customer concentration we have.

So I think 25% is a fair conservative number..

And then looking at the other businesses what's the growth rate of CBS and what - Astero had no revenue prior year correct and SAVSU had no revenue prior year is that correct?.

That's roughly correct. I mean the revenue for both was basically de minimis. What we have said Paul and I would like to defer the more detailed conversation to our next conference call.

But what we have come out and said, with respect to the evo revenue line is that we would expect to $4 million to $6 million line next year and we would expect the CBS revenue line to grow faster than the media as a percentage.

So with those kind of variables, you could probably come close to what that might look like, but I'd really like to defer until we get through Q4, see how the whole year shipped out and get some integration work done over at CBS, before we go out and give more specifics on that..

And then on CBS you're guiding that the impact of that will hurt gross margin is what the CBS in a build year could you talk about what they're doing in terms of what's impacting your level of gross and operating?.

Yes, I think there is two things going on with - there is fundamentally a legacy product line that has a relatively low gross margin, which is primarily sold through a distribution network.

We would anticipate that the new product line, which is really the one that we're interested in, from a growth perspective, which we have been able to confirm has a significantly higher gross margin plus we'll probably end up selling it direct in most cases.

Those things combined to pretty dramatically alter the margin profile for CBS next year but more importantly going forward, which is why I said that next year from an overall blended perspective CBS will probably compress our margin 6 to 8 points.

But then as the new product revenue kicks in, as a greater percentage of total revenue in the outer years then we would expect our margin to grow overall blended back into the mid '60s..

And then lastly - the American - the cell and gene society would suggest that commercial volume starting to increase in cell and gene therapy, whereas clinical trials are slower I guess you would concur with that?.

I'm not sure we agree with that. Paul, as it applies to us. We continue to gain dozens and dozens of new very early stage cell and gene therapy customers every quarter.

And so, we're really bullish on our ability to attract new customers and while we don't buy much in the early phases, we are planting literally dozens of seeds of that obviously some number of those are going to be great long-term growth prospects as they get through their approvals and scale their manufacturing so on and so forth.

As you know there have been some recent disappoints with some of the approvals, but our overall outlook at least based on our activity is we're bullish..

Next question comes from the line of Raghuram Selvaraju of H.C. Wainwright. Your line is now open..

This is Faizzan on for Ram.

A couple of quick questions I think this may have been already been answered, but the acquisition is - I mean we understand its synergistic, but how is this cloud-based monitoring system accretive to what you already have?.

It's very similar in the functionality, so that the system is called VersAlert, Faizzan, and that's a system that allows customers to have 24/7 real time monitoring of the condition of their freezers and the internal temperature. So they can be assured that the very precious biologic payload has being maintained at the right temperature.

And over time, we'll be looking to obviously see if there are some integration opportunities of the VersAlert into the evo-IS too soon to comment more directly on that at this point..

Okay, thank you for that one and then pertaining to the evo cold chain customers.

Do you see any overlap with the media and ThawSTAR customers and if so, what are your plans corporate like and group efforts for existing BioLife Solutions customers?.

Yes, Faizzan, the last part broke up, but I think I get it. So there is tremendous overlap. So there might be different specific decision makers at these common cell and gene therapy companies these protective customers and current customers.

But there is no doubt in our minds that across this longitudinal workflow every one of the products - in our portfolio was critical whether it's media, whether it's ThawSTAR products the evo cold chain system now the stationary high capacity rate freezers and the liquid nitrogen freezer some CBS.

So all of those tools play a critical role and we're obviously looking to leverage in every way possible all of our current relationships and to maximize exposure across that common customer base..

And could you - provide more color on the co-investment accelerator program with Casdin Capital?.

Nothing really new to add other than we announced two initial investments in Sexton and iVexSol and we're very excited about those there are obviously some other things that if they do pan out over time, we'll be happy to share but we're excited about that and what we're sharing the duties here and Casdin is a great partner to help us evaluate and do the initial vetting of potential additional investments in early stage company..

Okay, excellent.

And I also wish to ask about any perceived changes in the regulatory outlook at the FDA for cell and gene therapy product under the incoming Commissioner Stephen Hahn?.

Yes as it specifically applies to BioLife in the products in our portfolio We have no indication of any changes and when I say that I mean something that would be perceived as more onerous or a more robust - our regulatory framework for our products, nothing at this point..

[Operator Instructions] Next question comes from the line of William March of Spring City Partners. Your line is now open..

Could you - I'm just a little confused here, with the CBS acquisition can you just explain, is it more around supporting the SAVSU product line or is a product or service within CBS that you're excited about?.

Sure, Bill yes happy to provide some more color. So think of it this way, particularly in the allogeneic cell therapy world or allogeneic gene therapies, once these products are going to be produced before their distributed down to the clinic.

I mean they're frozen right? So they're actually frozen for long-term storage and every one of these developing companies need several of these freezers based on the volume of product they're going to be manufacturing.

And also as a backup redundancy to make sure that if one freezer goes down for whatever reason there is a backup where we can transfer these very expensive precious doses to.

So it's all about the storage of the final manufacturing product and even upstream the stores of the incoming bulk source material are starting material and maybe some intermediates, but there is a huge market for this.

We recently purchased a market research report that estimates that next year in the calendar year 2020 the worldwide addressable market for liquid nitrogen freezers, racks related accessories and dividers will exceed $2 billion.

Now, obviously some of that's going in the cell and gene therapy, and all indications we've got from surveilling the landscape is that the demand for high-capacity rate freezers, mechanical freezers, liquid nitrogen freezers will be tremendous over the next several years..

And then maybe, it sounds like with this acquisition complete that you guys are going to be taking a little bit of a pause on M&A.

So maybe just talk about, now that you have completed the three or four acquisitions year-to-date, kind of what do you guys need to do internally to start integrating these assets?.

Yes, great question, Bill. So no doubt, will be digestion mode here, fairly soon. Not to rule out any additional M&A as something remarkable comes our way. But no doubt our focus for next year will be on integration and so we've identified the obvious initial integration tasks that we want to do.

We've got 30, 60, 90 and 6 month and 12 month specific test that we'll be marching to and obviously, the first and foremost our mantra is don't mess anything up, don't get in the way of success and progress in revenue generation, but no doubt we've got some efficiencies and some operational synergies that we'll be looking to capitalize on..

And I guess maybe the last one I have is, how now that you have this broader portfolio of products. Is that going to impact your sales message or initiatives? How does this change the way you now start selling the whole bio like as opposed to the prior media business could rely a lot more on distribution through distributors..

Yes right on, Bill. So I think we're going to do - we're going to do the right sort of thoughtful analysis to figure out the right mix of direct and indirect sales assets and where they deployed and how they deployed. But there is no doubt the conversation has become much more holistic.

There are several problems these customers are trying to solve and they're all related to risk and sorry to sound like a broken record, but the risk is that if crappy tools are used in the manufacture storage distribution song administration of a cell gene therapy two things are going to happen. One, the patient might not respond.

And then the result of that in the current reimbursement environment is the developer might not get paid. So we're really positioning BioLife from a messaging perspective is having the most innovative technology in this portfolio of tools can derisk our customers commercial potential. So they can have the max chance for success here.

That's really what it's all about.

So you can imagine starting with CEOs, Chief Quality Officers, Chief Medical Officer's on down to the folks who actually manage the CMC section and they're doing the actual production in manufacturing, we're having this up down chain of conversations really trying to broaden the conversation to being all about risk mitigation and risk management and just so happens that we've got some great technologies here that can do that for them..

[Operator Instructions] I'm showing no further questions at this time. I would like to turn the conference back to Mr. Mike Rice, President and CEO for closing remarks..

Thank you, JP and thanks everyone, good afternoon..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all disconnect..