BioLife Solutions Inc (BLFS) 2017 Q3 法說會逐字稿

Welcome to the Third Quarter 2017 BioLife Solutions Earnings Conference Call.

(Operator Instructions)

As a reminder this conference call is being recorded.

I would now like to turn the conference over to Roderick de Greef, Chief Financial Officer.

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 2017. Earlier this afternoon, we issued a press release which summarizes our results for the three and nine months ended September 30. This release is available on the investor relations page of our website 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'll make projections and other forward-looking statements regarding future events or the future financial performance of the company.

These statements are subjected 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 qualify as 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 are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law. Now I would like to turn the call over to Mike Rice, President and CEO of BioLife.

Thanks Rod and good afternoon everyone. We appreciate your interest in BioLife and are very pleased to report continued strong operating and financial results for Q3. Total revenue reached a new high of nearly three million, our ninth consecutive quarter of record revenue. In Q3 we grew revenue of 16% sequentially and almost 40% over Q3 last year. Most importantly, revenue from the regen-med segment reached $1.6 million, a 100% increase from the same quarter last year. We also had record revenue from our international network of distributors. Our performance in Q3 continued to demonstrate our ability to grow the business and manage the company in a disciplined manner. We achieved record sales, expanded gross margin and positive cash flow from operations. Based on our performance and outlook, we are updating our guidance for 2017 and providing initial guidance for 2018, both of which Rod will provide in a few minutes.

In Q3 we gained 23 new direct customers including 14 in the regen-med segment. We continue to gain new customers in this high-growth biotech segment. While their initial orders have a small dollar value, our track record of providing excellent technical and scientific support throughout the customer evaluation and validation process shows that we can convert leading to product adoption and increased revenue as they progress through clinical trials.

I will remind you that our proprietary CryoStor freeze media and HypoThermosol storage and shipping media have been embedded in more than 250 regenerative medicine applications. And we estimate that any application, if approved and at commercial manufacturing scale, represents annual revenue in a range of $500,000 to $2 million. Funding, acquisitions, and approvals in the cell therapy space are all converging and BioLife is in a very strong position with a marquee customer base, proprietary enabling technologies, our customers are embedding into their manufacturing process and significant operating leverage.

In Q3 we saw our first customer receive regulatory approval. This was Kolan Life Science in Korea with Invossa, a cell media to gene therapy for knee osteoarthritis. Also, as we previously announced in a press release, in October our customer Kite Pharma, now part of Gilead Sciences, received approval for Yescarta, a CAR T cell therapy for certain types of large B Cell lymphoma. Both Invossa and Yescarta are frozen in our proprietary CryoStore freeze media to enable long-term storage and distribution to the clinic. These are two significant milestones as approvals for customer cell therapies form the basis for our growth expectations. It's too soon to guide the timing of revenue from these approvals, but we are encouraged by product order size and frequency from our key customers in the region of that market.

With respect to our ability to keep the funnel full, I'm pleased to report that over the past few quarters, we shipped products to several companies in the next wave of cell and gene therapy startups including Batu Biologics, Cellular Biomedicine Group, CRISPR, DONALI, Neurona, Nohla, Semma, Ceres, SQZ Biotech, Torque, and Unum. Today we estimate that we are supplying more than 2,000 customers directly and through our international network of distributors. Now I'll turn the call back over to Rod to review our financial results and provide guidance for 2017 and 2018.

Thanks Mike. As you noted bio perseveration media revenue for the third quarter of 2017 reached a record $3 million representing a 39% increase over the third quarter of last year. For the nine months ended September 30, revenue grew 32% to $7.9 million, up from $6 million in the nine month period last year. The increase in revenue for both periods was primarily the result of higher direct sales to our customers in the regen-med space and to our indirect distribution channel.

The gross margin for the third quarter of 2017 increased 6% age points to 63% compared to 57% for the third quarter of last year. For the first nine months of this year, gross margin was 62% compared to 57% in the first nine months of 2016. The increase in gross margin for both periods compared to 2016 was primarily driven by increased manufacturing efficiencies and higher blended product ASPs. Operating expenses in Q3 totaled $1.9 million, a decrease of 19% compared to $2.4 million in Q3 of 2016. For the nine months of 2017, operating expenses totaled $5.7 million, a 25% decrease from $7.6 million in the first nine months of 2016. The decrease in operating expenses for both periods is primarily the result of the restructuring of our joint venture which occurred at the end of 2016.

The operating loss for the quarter was $32,000 which was a 97% decrease from the $1.1 million in the third quarter of last year. For the nine month period, the operating loss was $838,000 or 80% below last year's nine month operating loss of $4.2 million. Net loss attributable to common shareholders for the third quarter, was $425 or $0.03 per share which represents a 43% improvement compared to $969,000 or $0.08 per share for the third quarter last year.

The net loss attributable to common shareholders for the nine month period was $2.1 million or $0.16 per share compared to $3.6 million or $0.28 per share for the nine months in 2016. I'd like to point out that the net loss attributable to common shareholders and our EPS calculation for the three and nine months of 2017, includes $106,000 charge equal to approximately 1% per share for preferred stock dividends payable to the holder of our Series A redeemable preferred stock. We will continue to incur this 10% dividend charge to net income on a quarterly basis going forward although it will begin to decrease at the end of next year as we redeemed the preferred stock ratably over a four-year horizon as cash resources permit.

Adjusted EBITDA for the third quarter was positive $298,000 compared to negative $567,000 for the third quarter last year. For the nine months adjusted EBITDA was positive $312,000 compared to negative $2.5 million in the first nine months of 2016. Finally, we're very pleased to announce that we achieved positive cash flow from operations of $74,000 in the third quarter which compares to cash used by operations of $884,000 in the third quarter of last year. For the nine months, cash used by operations was [$190,000] this year compared to $3.7 million in 2016. As a result of achieving positive cash flow from operations in the third quarter and realizing $470,000 in proceeds from the exercise of outstand warrants, we ended the quarter with a cash balance of $2.8 compared to $1.4 million in the same period last year and $2.3 million in the second quarter.

Since September 30, we have received an additional $1.4 million in proceeds from the exercise of additional warrants bringing the total proceeds to just under $1.9 million. With respect to the outlook for the full year of 2017, we now expect bio preservation media revenue to range between $10.8 and $11 million representing 31 to 34% revenue growth over 2016. This compares to our original guidance of revenue growth of 20 to 25% and revenue in excess of $10 million.

Based on the results of the first nine months, we are narrowing our gross margin range and now expect gross margin of between 60 and 62% for the full year compared to our previous expectation of 58 to 62%. We now expect operating expenses for the full year to come in right at $8 million an improvement from our previously-provided range of $8 to $8.5 million. And we maintain our expectation of positive adjusted EBITDA for the full year of 2017.

Now at this point we have largely completed our 2018 planning process and would like to provide some preliminary guidance for next year. We expect bio preservation media revenue in 2018 of between $13.6 and $14.7 million, which represents a 25 to 35% increase over 2017. We anticipate continued gross margin expansion throughout 2018 and expect gross margin for the full year to range between 62 and 64%.

Importantly we expect to achieve a full year GAAP operating profit along with a proportional increase in our adjusted EBITDA results. We will provide additional guidance on an expected range of 2018 operating expenses on our next earnings call. Now I'd like to turn the call back over to Mike.

Thanks again, Rod. In closing, I'm really pleased with all we accomplished so far this year. We have a great team that has proven it can execute at sustained high level and grow our business. BioLife plays a huge role in the regen-med space, with our preparatory products and broad customer base. We are focused on finishing strong this year and are welled positioned for continued growth, setting the stage for an even better 2018. Thanks again for your interest in BioLife Solutions. Now we'll turn the call over to the operator to take your questions.

(Operator Instructions)

Paul Knight with Jennie Montgomery.

On Invossa and the Yescarta, how quickly do you expect those orders to ramp up? And then, also, how many customers do you think are in Phase III? Do you have an estimate of that?

With regard to both Invossa and Yescarta, again as we said, it's still too early to try to model revenue. I can say that we learned yesterday through the Korean Herald that the first patient was injected with Invossa, so that's great. We're encouraged by what Kolan is doing there, to increase adoption and to adjust physicians prescribing behavior, and so forth. With Kite again, too early to say. That's where we are with that.

In terms of how many customers that have product in Phase III clinical trials, we still estimate it's probably between 10 and 20. Although it is difficult, Paul, to get a really accurate count, as we've mentioned on previous calls, because we also sell to distributors and they are shipping to many customers and we don't have any visibility.

And then the second question would be regarding competition. Is competition basically home brew?

That's right, Paul. Yes we are really fortunate that we don't any commercial pre-formulated products that compete. So it is this home brew notion, it's this traditional use of these cocktails that people have up grown with. They've gone through the lab, and they obtain their training and their education, and transfer those with them as they go on to work for commercial companies. So that's the paradigm that we've been very successful so far shifting, and think we can continue to do so.

And then last, regarding guidance, you're looking at a 62 % to 64 % gross margin next year. It feels like your investing in the business and where will that investment occur?

Paul, it's Rod here. There is some investment built into that margin assumption. We're also trying to be a little bit conservative with respect to what we still see as some very ability and production levels, which does impact COG's in any particular quarter. It's much less than it has been historically but at this early stage looking at 2018, we're wanting to make sure we're conservative there.

With respect to where we would be investing money, I think that the really three areas. One is to enhance our quality management system, given the increasing number of our clients that are moving from clinical to commercial. The second place would be to make sure that if there was an issue with our factory here, that we have safety stock of products for key customers outside of our warehouse here.

And then finally, the third area that we will invest in is redundant equipment so that we make sure that in no way shape or form would production in any given quarter be impacted negatively by some equipment failure. So those are the areas that we're looking at to mitigate the overall business risk.

Jason McCarthy with Maxim.

Congratulations on the good quarter. Definitely beat your numbers and my question is more broad, as it relates to the CAR T space in general. There's a lot of mixed signals on what the revenue ramp for Yescarta and Kymriah, I'm not sure if you cover Kymriah. It's going to look like in 2018, questions around can they manufacture CAR T?

Can you give us a sense of what you guys are thinking internally of what the CAR T ramp may look like? Not in terms of your own revenue. But maybe we can get a sense of where that space can go and if we can project could look like for BioLife?

Yes, Jason. Mike here. It is the key question, right? And I think it's really hard to try draw some generalities because each of our customers and then the handful of companies that aren't using our products. They all have their own manufacturing schemes and their own plans to try to scale, whether they're doing that internally or using a CMO.

All we can really rely on are our relationships with our current customers, the forecast that we get and so far, we're bullish about order frequency and order size, and feeling really good about what they've been able to do so far. So, I don't think we want to be in a position to try to prognosticate about how the space in general is going to do.

And can you give us a little bit of an update on where the JV is with SAVSU and how that's going to fit into the CAR T launch going forward?

Sure. The JV is still, as it has been, we talked about the restructuring end of last year and we've obviously seen the positive impact of that with our financials. With respect to what our colleagues at SAVSU are up to, no doubt you remember the launch of the new Evo dry vapor shipper which is revolutionary, it's a game changer, and it has significant advantages over traditional liquid nitrogen dewars.

You may have seen the press release about UCSF with their interest to use Evo, and we have many other customers that are using media that have interest in the Evo product platform. Be it the liquid nitrogen version or either the CRT, the 2-8C, or the dry ice version. So we're really looking forward to being to tell good news stories about continued product adoption with Evo.

And one more question, again sort of broad, a lot of the focus is on not just CAR T, just through the whole cell therapy region and space in general US and Europe. I know you have a partnership with CBMG. That kind of opens up the China market, which could be significantly larger, and we're seeing a lot of self therapy companies, not just in regenerative medicine but all the CAR T players are in China. How do you see the China vertical fitting into the future of BioLife?

It's a really insightful question a I think it's pivotal. Just last weekend and I was at CBMG in Shanghai for the grand opening of their corporate office and manufacturing facility and it's very impressive. And some of the things I heard there from some of the other speakers, go like this, there are perhaps 50 million new cancer patients in China diagnosed every year. And we are really impressed with what the management of CBMG has been able to accomplish in a pretty short period of time, and also their facility, the cost structure, so on and so forth.

So you know we're still sorting out exactly how we're going to broaden our footprint in China. We have direct relationships. We have distributors that sell there. We have a great relationship with CBMG. So more to come on that, but it is strategically important to the company.

Right. And, Rod, maybe just the one quick question for you as well. We saw that you did have the Warren Exchange and the rate a little bit, brought in a little bit of extra cash. Can you give us some guidance on how that extends the runway and where does the company turn to cash flow positive?

Well, I think as I mentioned, Jason, this quarter we generated $74,000 from cash flow from operations. So from my perspective, the company is cash flow positive and, barring some bucking of the trends that were seeing and that we're expecting into 2018, I expect that positive cash flow from operations to continue.

So we would expect to end the year with, as a round number, perhaps $4 million of cash in the bank, compare that to the fact that we are cash flow positive. Our CapEx requirements are fairly minimal in 2018. So I think we're in a pretty good position, with respect to cash and runway, and really don't have any plans to do any sort of financing in the near future or in the foreseeable future, for that matter.

And I'm not showing any further questions at this time.

I would now like to turn the call back to Mike Rice, for further remarks.

Thank you, everyone, good afternoon and good evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect.