BioLife Solutions, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. BioLife develops, manufactures and markets cell and tissue preservation media, including CryoStor and HypoThermosol, and provides custom formulation and fill-and-finish services. Its 2017 financial statements include BioLife alone; 2016 comparative results included its then-majority-owned biologistex subsidiary, which was deconsolidated following a December 2016 restructuring.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $2.96 million | $2.14 million | $7.89 million | $5.98 million |
| Gross profit / margin | $1.87 million / 63% | $1.21 million / 57% | $4.91 million / 62% | $3.41 million / 57% |
| Operating expenses | $1.90 million | $2.35 million | $5.74 million | $7.64 million |
| Operating loss | $32,345 | $1.14 million | $837,587 | $4.22 million |
| Net loss | $318,718 | $1.27 million | $1.96 million | $4.48 million |
| Net loss attributable to common stockholders | $424,968 | $969,001 | $2.06 million | $3.55 million |
Revenue rose 39% in Q3 and 32% for the first nine months. Management attributed Q3 growth mainly to a 100% increase in regenerative medicine customers, particularly late-stage cell therapy customers; drug-discovery revenue declined 36% amid normal cyclical purchasing. Higher average selling prices and sales volume contributed to improved gross margins. Operating expenses fell 19% in Q3 and 25% year to date, primarily reflecting the biologistex restructuring and deconsolidation. Comparisons with 2016 are therefore affected by the change in consolidation, as well as increased sales.
- Cash flow: Nine-month operating cash use was $197,889, versus $3.66 million in 2016. Investing activities used $91,443; financing activities provided $1.71 million. Cash increased by $1.42 million to $2.83 million.
- Liquidity and liabilities: At September 30, 2017, current assets were $6.37 million and current liabilities $1.09 million. Total liabilities were $1.67 million, compared with $4.76 million at December 31, 2016. No promissory note or related-party accrued interest remained on the balance sheet after the debt exchange described below.
- Equity and per-share results: Nine-month basic and diluted loss per common share was $0.16, versus $0.28 in 2016. The company had 13.33 million common shares outstanding at quarter end. Options, warrants and unvested restricted stock were excluded from diluted loss per share because they were anti-dilutive.
Material changes, outlook and risks
- Related-party debt exchange: On June 30, WAVI Holding AG exchanged $4.25 million of credit-facility principal and accrued interest for 4,250 Series A preferred shares with a $4.25 million aggregate stated value. The preferred stock is not convertible, is redeemable only at times and in amounts determined by BioLife, carries a 10% annual cash dividend, and has liquidation preference over common stock. A $106,250 dividend accrued in Q3 and was paid October 2, 2017.
- Cash outlook: Management stated that cash was expected to meet liquidity needs for at least 12 months based on current revenue and expense expectations. If revenue underperforms or expenses are not controlled—including preferred dividends—the company may need additional debt or equity financing. It also noted that its Form S-3 registration statement could be used to raise funds.
- Post-quarter financing: Warrants exercised through October 31, 2017 generated $1.40 million in proceeds, in addition to $470,250 from Q3 warrant exercises. The filing reported 7.36 million warrants outstanding at September 30, 2017, a potential source of future share dilution.
- SAVSU investment: BioLife held a 45% interest and recorded a $707,208 equity-method loss for the first nine months. Management said BioLife had no obligation to provide future funding. Its ownership was scheduled to fall to 40% on December 31, 2017 and 25% on December 31, 2018.
- Business risks and commentary: Orders can fluctuate with customers’ clinical-trial enrollment and purchasing cycles; sales are concentrated among a relatively small number of customers and market sectors. Two customers represented about 22% of Q3 product revenue, and one customer represented 10% of nine-month product revenue. Management expected continued adoption and use of its preservation products, but provided no quantified revenue or earnings guidance.
- Other items: The company reported no currently material ordinary-course litigation, no off-balance-sheet arrangements, and no significant changes to contractual obligations. It expected the new lease standard to materially increase balance-sheet assets and liabilities; adoption impact was still being evaluated. Management stated disclosure controls were effective at quarter end.
Important facts for investors to verify
- Whether revenue growth and margin improvement persist, particularly if regenerative-medicine demand changes or drug-discovery purchasing remains cyclical.
- Whether cash generation supports operations and the 10% preferred dividend, and whether additional financing becomes necessary.
- The terms, redemption timing and priority of the WAVI preferred stock, along with the impact of subsequent warrant exercises and potential dilution.
- The financial and strategic implications of SAVSU’s losses and BioLife’s scheduled reduction in ownership.
- How results compare on a consistent basis given the 2016 biologistex consolidation and its subsequent deconsolidation.