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Welcome to the BioLife Solutions First Quarter 2024 Financial Results and Business Update. [Operator Instructions] I would now like to turn the call over to your host, Troy Wichterman, Chief Financial Officer. Troy, you may begin.
Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions 2024 First Quarter Earnings Conference Call. On this call, we will cover business highlights and financial performance for the quarter and reiterate our previous comments on full year 2024 revenue guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the first quarter of 2024, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given, and we undertake no obligation to update them. We will also speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. Now I'd like to turn the call over to Rod De Greef, Chairman and CEO of BioLife.
Thanks, Troy. Good afternoon, and thank you for joining us for BioLife's First Quarter 2024 Earnings Call. In addition to Troy Wichterman, our CFO, I've invited Garrie Richardson, our Chief Revenue Officer, who will provide additional granularity on our Q1 revenue numbers and end market dynamics. He will also speak to our expertise and our strategy to continue to grow our market-leading franchise in bond preservation. To begin, I'm pleased to report another quarter of sequential revenue growth in our core cell processing business and increased confidence in our full year outlook of $95.5 million to $100 million in revenue. While early in the year, it's an encouraging start and helps substantiate our belief that we are now beginning to experience an easing macro environment, particularly in the bioproduction subsector we operate in. With the strategic shift away from our legacy freezer products largely behind us, going forward, our revenues will be primarily from our high-margin cell processing platform and our BioStorage and services platform and our full year guidance does not include any revenue from freezer product lines. Our strategic return to focus on recurring revenue was a thoughtful one as navigating a capital-constrained market like this one is hard to do with low-margin capital equipment and working capital-intensive products. Further, with this renewed focus, we have set out streamlining our operations, freeing up resources to apply in areas in which we win and where we are the clear market leader, which is at the forefront of the fast-evolving CGT industry with a critical enabling consumable. As a reminder, this April, we announced the divestiture of our GCI Freezer unit, also known to many as Stirling. This divestiture was a substantial endeavor that required considerable time and effort to complete but is strategic and immediately enhances the financial profile and operations of the company. First quarter pro forma results, excluding GCI, clearly illustrate that by demonstrating an almost instant and significantly positive impact on our financial metrics. Specifically, excluding GCI from BioLife in Q1, our adjusted gross margin would have been 53% instead of 40%, and our adjusted EBITDA in absolute terms would have been a positive $3.6 million instead of negative $1.2 million. And further, these pro forma results set a new baseline from which we anticipate further margin expansion throughout the year based on operating leverage realized as our high-margin cell processing platform continues to grow as a percentage of total sales. Turning to the last of the freezer assets, CBS, which represented approximately 11% of Q1 sales and has been a historical drag on our profitability, we remain fully committed to exiting this business as swiftly and efficiently as possible. We are in the middle of this process. And given the sensitivities around the transaction, we are unable to share further details at this time, but we will provide an update as soon as it becomes appropriate to do so. As we work through this process, we recently implemented a reduction in cash operating expenses at CBS totaling $1.2 million per year. Assuming CBS revenue remains relatively constant, which we do, these cuts immediately allow CBS to generate positive adjusted EBITDA. While I'll let Garrie speak to Q1 revenue in more detail, I'll briefly address what we're seeing on a more macro level. The initial easing of industry-wide headwinds that began to emerge in Q4 of last year, continued into Q1. For BioLife, this meant less inventory destocking pressure from our larger direct customers and continued improvement in sequential distributor revenue, which we view as a proxy for the earlier stage research focused market segment. As mentioned earlier, this allowed us to post a 10% sequential increase in our cell processing revenue, which followed on the 11% increase we saw from Q3 to Q4 of last year. Our BioStorage and services platform also realized sequential improvement, posting 7% revenue growth over Q4 of last year. Overall, we expect to see these trends continue to some degree throughout the remainder of this year. The fundamental drivers for our cell processing revenue growth, specifically our biopreservation media revenue include our market-leading share of commercially sponsored clinical trials and the overall regulatory environment for CGT. We believe that we have a market share in excess of 70% of the relevant commercially sponsored clinical trials in the U.S. with approximately 45 Phase II and Phase III trials utilizing CryoStor. In Q1, the CGT regulatory environment continued to carry forward the momentum that started last year with our biopreservation media embedded in 2 newly approved therapies, bringing the total approved commercial therapies we support to 15 at the end of the quarter. In addition, and equally important relative to driving biopreservation media revenue in the future, there were 2 new indications, 1 new geographic area and 4 earlier lines of treatment approved for BioLife supported therapies. We see an additional 11 similar approval opportunities over the next 12 months. The above market share clearly confirms that BioLife has evolved into the industry standard and biopreservation media and has established itself as a leading provider of premium bioproduction tools and services. The critical picks and shovels that need to be frequently replenished and which support the fast-growing CGT industry. As we continue to take the steps necessary to optimize our business to focus on our self-processing platform, I'm convinced more than ever that BioLife is in pole position to benefit as industry headwinds continue to ease and this space further matures, expanding upon our already dominant share of the market and offering diversified exposure to this nascent industry, which has an expected CAGR of 20% to 25% through 2033. We -- now I'll turn the call over to Garrie, who will provide some additional insight on Q1 revenue as well as our sales organization and go-to-market strategy.
Thanks, Rod, and it's a pleasure to participate in my first earnings call. By way of background, I have over 25 years of business development, sales and marketing experience with 18 years of that spend in the biopharma sector. I've been with BioLife for 3.5 years since it acquired SciSafe in late 2020. SciSafe is a biostorage company I founded in 2010, growing it to $7.1 million of revenue in 2020. Post acquisition, I joined BioLife to continue operating our Bio business and working with a broader sales and marketing team until last October when I stepped into the Chief Revenue Officer role. As detailed in our press release, although both of our product platforms were down against difficult prior year comps, our cell processing and BioStorage services platform each delivered continued sequential growth in Q1, and I'd like to provide a little more color on each platform. For our cell processing platform, our biopreservation media accounts for the vast majority of revenue, and there are several metrics we track quarterly. Our top 20 customers provided approximately 80% of total media revenue in Q1, and sales to direct customers having approved therapies totaled approximately 40% of direct media revenue. All of these metrics are in line with recent historical levels. I would also like to note that revenue provided by our other cell processing tools increased compared to prior year and sequentially, which for me is an indication that we are beginning to see some early results from our recent focus on cross-selling into our key media accounts, which positively impacted our closed fluid management system sales. Both storage and EVO grew sequentially, and we continue to add new customers and gain additional revenue from existing relationships on the BioStorage side of things. The EVO business is somewhat lumpier and that onboarding new clients drive revenue growth, and we do expect to see some of that occur in the second half of this year. I'd like to turn to our commercial team and summarize our go-forward strategy. Our team consists of 8 experienced sales individuals who have a high degree of technical expertise in the CGT space. Of note is the strength and depth of our team's existing relationships with many of the world's leading biopharma companies. Our commercial strategy is based on leveraging the technical expertise of the commercial team and the strength of their existing media relationships to introduce our other cell processing solutions, also known simply as cross-selling. On the media side, the focus is on exploiting our leadership position in biopreservation so that any new or early-stage CGT participants are aware of our media and will evaluate it and also to ensure that the relationship with our more mature customers remains robust, so that we remain a key biopreservation supplier for their next-generation therapies. We have several initiatives underway, which we will deploy in the near term, which will broaden and solidify the definition of our market prominence beyond the media market share to driving best practices in cell and gene therapy bioproduction. In closing, I am really excited to assume this role, I inherited a solid foundation with an excellent technical and passionate team, and I look forward to applying my energy and expertise to this role. Now I'll turn the call over to Troy.
Thank you, Garrie. We reported Q1 revenue of $31.7 million, representing a decrease of 16% year-over-year. The year-over-year decrease was primarily related to a 35% decrease in revenue from our freezers and Bio platform and a 15% decrease in our cell processing platform, partially offset by a 25% increase in our BioStorage services platform. Total revenue was down sequentially from Q4 2023 by $1 million or 3%. The sequential decrease was due to a $2.9 million decrease in our freezer sales, partially offset by a $1.4 million or 10% increase in cell processing and $500,000 or 7% increase in BioStorage services. On April 17, we successfully divested our Global Cooling business or GCI. The transaction required $7 million of cash to remain on the balance sheet of GCI and the repayment of $2.6 million in GCI long-term debt. We also implemented our risks at GCI prior to closing. As a result of this transaction, we will significantly reduce cash burn related to GCI, improve our financial profile and remove a $7.5 million warranty liability. As disclosed in our 8-K filed on April 23, GCI had negative gross margins in 2023 in addition to approximately $18 million in SG&A and R&D GAAP operating expenses. As a result of the divestiture of GCI, we are presenting certain financial metrics without the results of GCI to provide context to our expected future results for this year. All results presented in this manner are non-GAAP. Adjusted gross margin for the first quarter was 40% compared with 37% in the prior year. The increase was primarily due to more favorable product mix and better utilization at our biorepository facilities. Adjusted gross margin, excluding GCI, was 53%. GAAP operating expenses for Q1 2024 were $41.9 million versus $51.3 million in Q1 2023. The decrease compared to the prior year was largely due to a reduction in headcount that took place at the end of Q3 2023. Adjusted operating expenses for Q1 2024 totaled $21.6 million compared with $24.6 million in the prior year. Our adjusted operating loss for the first quarter of 2024 was $9.1 million compared with $10.6 million in Q1 2023. Our GAAP net loss was $10.2 million in Q1 compared to $13.7 million in the prior year. The decrease in net loss was primarily due to lower personnel expenses. Adjusted EBITDA for the first quarter of 2024 was negative $1.2 million compared with negative $1.1 million in the prior year. Adjusted EBITDA remained flat from the prior year due to lower personnel costs, partially offset by lower revenue from our cell processing platform. Our adjusted EBITDA decreased $1.9 million sequentially from Q4 2023, primarily due to an indirect tax true-up in the 2024 bonus accrual. Adjusted EBITDA, excluding GCI, was positive $3.6 million or 13% of revenues, excluding GCI for the quarter. Turning to our balance sheet. Our cash and marketable securities balance at March 31, 2024, was $46.1 million compared with $52.3 million at December 31, 2023. Taking into consideration our adjusted EBITDA of negative $1.2 million cash used in Q1 2024 was primarily related to working capital of $2.6 million, financing payments of $1 million and capital expenditures of $900,000. Our SVB long-term debt balance was $20 million, which is interest-only through Q2 2024 with quarterly repayments of $2.5 million beginning in Q3 2024. Turning to 2024 revenue guidance. We are affirming our previous guidance, which is based on expectations for our cell processing and BioStorage services platform and does not include any revenue from freezer product lines. The BioStorage service platform now includes the ThawSTAR automated thawing devices product line. Total revenue is expected to be $95.5 million to $100 million, reflecting an overall growth of 2% to 7%. Our cell processing platform is expected to contribute $66 million to $68.5 million or flat to 4% growth over 2023. Our BioStorage services platform is expected to contribute $29.5 million to $31.5 million or 5% to 12% growth over 2023 and on a like-for-like basis, growth of 10% to 16%. In addition, we expect revenue, gross margin and adjusted EBITDA growth throughout 2024. Finally, in terms of our share count, as of May 3, we had 46 million shares issued and outstanding and 48.7 million shares on a fully diluted basis. Now I'll turn the call back to the operator to open up for questions.
At this time, we will conduct the question-and-answer session. [Operator Instructions] And the first question comes from Paul from KeyBanc.
Rod, could you see the result of higher technology financing in 4Q. And specifically, there seems to be a big uptick sequentially in fillage in as well. But did you see that yet?
Paul, I think if we were going to see that, we would see it in the sequential increase from our largest distributor, which we look at as a proxy for sort of that academic early-stage biotech market segment, if you will. So we did see an uptick there sequentially. So to the extent that they raised capital that flowed through, it allowed them to start or continue their operations clinically.
And what's your view on, I think you would in the past had mentioned exiting Q4 at a 20% EBITDA margin. Are you still thinking that's possible? And what do you think the business really drives that long term on EBITDA margin?
Yes. Well, we're certainly committed to that goal, Paul, of hitting adjusted EBITDA was a 2 in front of it by the end of next year. Clearly, that's going to be driven and dependent upon the overall media, in particular, the media revenue growth between now and the end of the year because that's really the financial engine. Longer term, it's all about the growth on the media and the flow-through of that revenue stream is outstanding. So could we get to adjusted EBITDA with the 3 in front of it toward the end of '25, early '26, I think that's achievable.
Lastly, it's good to hear Garrie on the call. Garrie, what do you see on the competitive front? Is it still home brew or others trying to enter it? What's the nature of competition that you see?
Yes, Paul, nice to meet you. So I think our strategy is really primarily around protecting, growing and leveraging our biopreservation media. And I think that is the focus and making sure that we do protect that position long term. So I think we're committed to making sure that we remain the primary leader in this space. So I think as far as I'm concerned, that's my primary objective to keep us exactly where we are today.
And our next question comes from Jacob from Stephens Inc.
This is actually Hannah on for Jacob. Is there any update on the sale of CBS? Do you still expect to complete this transaction in the near term? And do you still expect cash proceeds?
Yes, Hanna, thanks for the question. We're right in the middle of this process of divesting CBS. And because we're right in the middle of it, I'm going to be fairly circumspect in what I say, which is not a lot. We do expect cash proceeds from it, albeit modest. With respect to timing, I think it's fair to say that I've been overly optimistic when it comes to trying to define what the time lines are with these divestitures. But what I will say is what's important that we did recently is to reduce operating expenses at CBS by $1.2 million per year, which immediately makes CBS slightly positive from an adjusted EBITDA perspective. So to the extent that it takes us a little bit longer than we originally anticipated, it will not be that cash burden that we've seen in the past.
Great. And then some of the traditional bioprocessing players have pointed to a pickup in orders. Is there any way to speak to what you're seeing in the order book as we think about the potential for a back half recovery?
I think, look, the sequential increase is what we've been focused on and what we've talked about for the last couple of quarters here. The feedback that we have from our customers that are providing us with the rolling 4-quarter projection is that the second half of the year continues to be more positive, which is what they've been telling us for the last 2 quarters. So nothing has really changed in that regard.
And our next question comes from Matt from Jefferies.
Maybe one for you, Troy. As we think about the EBITDA margins in the back half of '21, I think you guys had prior said the 16% to 18% range in the back half made sense. Is that still the case? And I guess, can you just kind of help us bridge from the 13% pro forma on 1Q to the 16% to 18% in the back half. Is that entirely just mix dynamics tied to media?
Yes. There's 2 aspects to that 16% to 18% we previously disclosed. One is that also excluded CBS. So CBS as a financial drug, not to nearly the same extent as GCI, but it still drags down our margin percentages. That's one reason. And the other reason is what you pointed out, lower media sales in Q1 versus that first half of 2023. And then as far as your question, too, is that a good number looking at the second half? Yes, it would be definitely -- or sorry, CBS as well, which, as Rod mentioned, we're in the middle of that divestiture process. And our goal is to hit a 20% margin at the end of Q4.
Okay. Great. And then, Rod, maybe one for you, just higher level, with Sterling in the rearview now, took a lot of time and energy that went into that deal. Would love to just hear a bit more about what you're focused on or excited from here, maybe some of the areas you'll look to spend some time on going forward.
Yes, you bet. I think clearly, we still need to finish the divestiture of CBS -- we are in the process of a pretty comprehensive strategic review of our product portfolio internally. So we're having some fun going through that process. I look forward to working with Garrie and the marketing team on the initiatives that he mentioned, which market share is one measurement of our leadership position in biopreservation, but we have some things in mind that we're going to let loose here in the next quarter or 2, which will sort of put that -- the definition of leadership, it will expand the scope of that. So I look forward to being involved in that, too.
And our next question comes from Matt from Craig-Hallum Capital Group.
Maybe first up to extrapolate a little bit on the funding environment. Obviously, there was an improvement to Q1. And I'm just curious, historically, how long of a lag is it between when your customers and partners are seeing or increased funding or feeling better about their balance sheets to when trials are kicking off, when do you start to see those orders? Is it 1 quarter? Is it 2 quarters? Just help us think through the lag there.
It's a very tough question to answer with any level of specificity. But I would say that -- and again, this is this market segment that would be coming through distribution. So I would say that it's probably 2 to 3 quarters. I think that's when we see it really start to flow through. And that that's consistent with what our largest distributor is telling us with respect to a stronger second half of the year versus first half of the year.
Got it. And then regarding the 2 new approvals here in the first quarter, customers getting those therapies approved, how should we be thinking about the ramp from those products? I know at least 1 of the 2 has been pretty guarded on how they're talking about it. But do you -- how do you plan for that ramp? Is it something that you're -- you have a little bit better visibility. And therefore, as you look out, whether it's later this year or next year, you start to anticipate that? Or how should we, as analysts be thinking about that ramp?
Yes. I mean, by definition, the ramp is built into not only our actual results, right, but what we are saying about what the future looks like. So the one you're speaking of specifically, we talked about that one last quarter, and they definitely ramped up purchases at the end of '23 in anticipation of what I believe they need to be their approval coming down the pipe. And the visibility that we have is a rolling 4-quarter forecast nonbinding, and that gives us a sense of how they think they're going to do. And so I can say with that particular customer, as I did last quarter, that the forecast is better than it was for '23. So that suggests that kind of uptake or adoption of their therapy. That's the best visibility we have.
And our next question comes from Thomas from Lake Street Capital.
Rod, I think on the last call, you mentioned that SciSafe facilities were running about 70%, 80% capacity, something like that. How do you guys think about not just when to pull the trigger on the next facility, but what that trigger would be?
Yes, it's a good question. So I think that with respect to the Boston facility, it's really a consolidation and increasing our capacity there by basically putting a mezzanine level into that building and not quite doubling capacity there, but certainly having a strong impact. The other is reviewing the New Jersey sites that we have, 4 of them, which really do need to be consolidated into one larger facility. And I think we're in the process of working through what that could look like, I'm just going to pick some numbers, but let's say that currently, we're utilizing 80,000 square feet. We would be looking to perhaps lease on building that would have 100,000 or 120,000 square feet available. So therefore, thereby taking up the existing capacity that we have, but allowing us to have a good 40% or 50% more available.
Got it. And I apologize if I missed this, but -- and I know TharSTAR a very small product, but it has a disproportionate drag on the growth rate in your BioStorage services unit or revenue line, sorry. Any thoughts on what to do with that to maybe make it less of a drag?
Well, I think the drag ultimately comes from the fact that there are 2 varieties of that product. One is for vials and one is for cryo bags. In October of last year, we made a decision to stop shipping the bag version of the device based on some quality issues that we had that we're working through. We didn't want to dig the hole deeper. We believe it has to do with the shipping of the units and the inability of the unit to handle that transportation cycle. Nevertheless, I think longer term, what we're exploring is the idea that that technology would be unique to both the Celsia vials that we have and also the new soon-to-be-introduced LVC cassette that is an extension of the Cell C product line and have it be dedicated to find those. So it becomes more of a razor-razorblade model as opposed to a stand-alone device that will saw any cryo bag, which presents its own difficulties and challenges from a technology standpoint.
[Operator Instructions] At this time, there appears to be no further questions. I'd like to turn the call back over to Rod for closing remarks.
Thank you, Ross. I'd like to close by saying that with the divestiture of Stirling and the growing strength of the fundamentals underlying the CGT industry, BioLife is in an excellent position to deliver strong financial results this year and into the future. We plan on leveraging our market-leading position in biopreservation to drive the adoption of the other high-margin recurring revenue cell processing tools and services in our portfolio and expect those to provide an increasing amount of revenue and profitability in the future. Thank you for your time today, and we look forward to updating you on future calls and meeting with some of you at the upcoming investor conferences we'll be participating in during the coming months. Thank you.
This concludes today's conference call. Thank you for attending.