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Biolife Solutions Inc (NASDAQ:BLFS)
Q1 2019 Earnings Call
May. 9, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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.

Roderick de Greef -- Chief Financial Officer

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.

Michael Rice -- Chief Executive Officer

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 US or Europe include bluebird, (inaudible) 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 thought 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 (ph).

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 bio production 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.

Roderick de Greef -- Chief Financial Officer

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 at 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 5 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 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.

Michael Rice -- Chief Executive Officer

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?

Questions and Answers:

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Suraj Kalia with Northland Securities. Your line is now open.

Suraj Kalia -- Northland Securities -- Analyst

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

Michael Rice -- Chief Executive Officer

Hi, Suraj.

Suraj Kalia -- Northland Securities -- Analyst

And congrats on a nice quarter.

Michael Rice -- Chief Executive Officer

Thank you.

Suraj Kalia -- Northland Securities -- Analyst

So Mike, you've provided a bunch of information and can you give us the status of new customer adds and forgive me, I've got three calls going on at the same time. Have you given directionally how you'll think about the status of new customer adds as we progress through the year. I believe last year you'll added I think 84, give or take, you'll have added 25. It just kind of give us the cadence of how you see and you know, and how do you see this impacting, if you could reconcile with your annual guidance.

Michael Rice -- Chief Executive Officer

Sure. Good question, Suraj. So, you know, I don't want to say it's a free for all (ph) but the number of new participants is really 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 you know, we're not going to forecast a total number, but directionally it's all going in the right way.

Suraj Kalia -- Northland Securities -- Analyst

Got it. And Mike, regen med, at least -- obviously Q1 '18 was very strong. Is it just a tough comp or whether any other dynamics also because, you know you guys were pretty decently in the double digits year-over-year growth, all throughout last year. Just any color, that would be great.

Michael Rice -- Chief Executive Officer

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

Roderick de Greef -- Chief Financial Officer

Yes. So, Suraj, last year in '18 in Q1, there was a $380,000 safety stock order within a number of $2.15 million 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.

Suraj Kalia -- Northland Securities -- Analyst

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

Roderick de Greef -- Chief Financial Officer

Yeah. I think -- there's not seasonality in the sense of you know the timing of the year. But there is variability with respect to customers, clinical trial process, the stage that they're at, enrolling patients et cetera. So there is some call of lumpiness to the business, but we do expect it to continue to be in the double-digit growth on the 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 of a revenue concentration that did have a definite impact on the overall results.

Michael Rice -- Chief Executive Officer

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

Suraj Kalia -- Northland Securities -- Analyst

Got it. And one last question, Mike and I'll hop back in the queue. So Mike, I would say with 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 offline. I think that there was a blurb recently about increasing reimbursement, CMS talked about, for CAR T also. I was wondering if you could just characterize what your street intelligence is telling you? How does that affect? And also, if I could throw it and then this might be an unfair question forgive me. Have you all had any discussions (inaudible), you know, just given the issues that they have had with their cryo preservation medium. Thank you for taking my questions and congrats again.

Michael Rice -- Chief Executive Officer

Thanks, Suraj. Yeah, 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 a 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.

Operator

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

Paul Knight -- Janney Montgomery -- Analyst

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

Roderick de Greef -- Chief Financial Officer

Yeah. 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.

Paul Knight -- Janney Montgomery -- Analyst

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

Michael Rice -- Chief Executive Officer

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.

Paul Knight -- Janney Montgomery -- Analyst

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

Michael Rice -- Chief Executive Officer

None. No (ph).

Paul Knight -- Janney Montgomery -- Analyst

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

Michael Rice -- Chief Executive Officer

Yeah. 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. You know, 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.

Paul Knight -- Janney Montgomery -- Analyst

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? Is that range change in your view as you watch the commercial roll-out of various products in the market? So that's my last question.

Michael Rice -- Chief Executive Officer

Yeah, Great. So thanks, Paul. All really good questions. Well you know, 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 -- I'll be -- 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, you know, early in the call I mentioned a few customers that are on the cusp of approval and or filings. So you know 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 you know as the data supports, modifying that range we're certainly going to do that. Good question.

Paul Knight -- Janney Montgomery -- Analyst

Thank you.

Michael Rice -- Chief Executive Officer

Thank you.

Roderick de Greef -- Chief Financial Officer

Thanks, Paul.

Operator

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.

William March -- Spring City Partners -- Analyst

Hey, guys, how are you?

Michael Rice -- Chief Executive Officer

Hey, Bill, great, how are you doing?

William March -- Spring City Partners -- Analyst

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 for the 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?

Michael Rice -- Chief Executive Officer

Yeah, 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. You know, 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, 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, you know, executing against our goals, we'll certainly do that.

William March -- Spring City Partners -- Analyst

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.

Michael Rice -- Chief Executive Officer

Yeah. 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.

William March -- Spring City Partners -- Analyst

Sounds, good. Thanks, guys.

Michael Rice -- Chief Executive Officer

Thank you, Bill.

Operator

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.

Michael Rice -- Chief Executive Officer

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

Operator

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.

Duration: 24 minutes

Call participants:

Roderick de Greef -- Chief Financial Officer

Michael Rice -- Chief Executive Officer

Suraj Kalia -- Northland Securities -- Analyst

Paul Knight -- Janney Montgomery -- Analyst

William March -- Spring City Partners -- Analyst

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