BioLife Solutions, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 29, 2020. The company develops and sells biopreservation media, automated thawing devices, cloud-connected shipping containers, and cryogenic freezer technology. Results include businesses acquired during 2019, so the prior-year comparison does not include those acquired product lines.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $12.162 million | $5.770 million |
| Operating income | $0.370 million | $0.566 million |
| Net income (loss) | $22.308 million | $(19.161) million |
| Operating cash flow | $0.687 million | $1.146 million |
| Cash and cash equivalents, quarter-end | $6.400 million | $31.824 million |
- Revenue rose 111%. Product revenue was $11.727 million and rental revenue was $0.435 million. Product lines contributed $8.672 million from biopreservation media, $0.394 million from automated thawing, $0.438 million from evo shippers, and $2.658 million from freezers and accessories.
- Gross profit was approximately $7.594 million, a 62% gross margin, versus approximately $4.123 million and 71% a year earlier. The filing attributes the margin decline to acquired product lines’ higher costs and $0.196 million of purchase-accounting inventory step-up amortization.
- Operating expenses totaled $11.792 million, up 127%, reflecting acquisitions, expanded staffing and infrastructure, R&D, sales and marketing, and $0.688 million of acquired-intangible amortization.
- Net income included a $21.914 million noncash gain from the decrease in the fair value of warrant liabilities. Excluding that gain, reported operating performance remained modest: operating income was $0.370 million. Basic EPS was $0.87; diluted EPS was $(0.01), reflecting the filing’s two-class and dilution calculations, including participating securities and antidilutive instruments.
- Operating cash flow declined to $0.687 million, including a $2.929 million increase in trade receivables. Investing cash outflow was $1.227 million, largely for rental assets; financing cash inflow was $0.492 million. Cash decreased $0.048 million during the quarter.
- At March 31, current assets were $26.450 million and current liabilities were $25.460 million. The resulting current ratio was approximately 1.04. Current liabilities included a $17.667 million warrant liability. No material conventional borrowing balance is reported; operating lease liabilities totaled $1.158 million, with $0.013 million of financing lease liabilities.
Changes and business developments
- Revenue increased $6.392 million year over year, from the 2019 acquisitions and 50% growth in biopreservation media revenue. The company estimated that COVID-19-related safety-stock purchases contributed $1.5–$2.0 million of incremental media revenue.
- Product and customer mix diversified after the acquisitions: biopreservation media represented 66% of revenue versus 90% in Q1 2019. Two customers accounted for approximately 25% of product revenue, compared with 34% a year earlier.
- The warrant liability fell from $39.602 million at December 31, 2019 to $17.667 million at March 31, 2020, chiefly producing the noncash fair-value gain. The company also corrected a $0.131 million immaterial purchase-accounting error by reducing goodwill and accounts payable.
Outlook, risks, and unusual items
- Management expected cash, including proceeds from a subsequent financing, to cover liquidity needs for at least 12 months. On May 22, 2020, the company raised $20 million from Casdin Capital at $10.50 per share, issuing 1,904,762 shares. Management cautioned that weaker-than-expected revenue, COVID-19 effects, expense levels, or unavailable financing could require additional capital.
- COVID-19 had not materially affected Q1 results, according to management, but temporary office closures and possible customer, supplier, production, or delivery disruptions created uncertainty. The company said it had media inventory to meet previously forecast demand for six to nine months, without assurance that supply would match actual demand.
- Astero’s 2019 revenue earnout of approximately $0.484 million was expected to be paid in Q2 2020. Additional contingent consideration may be payable under acquisition agreements, including up to $8.5 million for Astero and up to $15 million for CBS, subject to specified revenue targets.
- The company received a $2.175 million Paycheck Protection Program loan on April 20, 2020 and repaid it on April 29, 2020. On May 14, 2020, warrant holders cashlessly exercised 3,871,405 warrants; 2,747,970 shares were issued.
- The 10-Q was filed late under SEC relief, citing pandemic-related disruption in the Seattle area. Management reported disclosure controls were ineffective because of a material weakness in accounting for complex equity transactions and market-based stock awards; prior financial statements had been restated. No material change in internal control was reported during the quarter.
- No formal revenue or earnings guidance is provided. Management expected R&D, sales and marketing, and G&A expenses to rise as it develops acquired product lines and supports the expanded business. Quarterly revenue may fluctuate with customer ordering patterns, regulatory progress, and customer concentration.
Investor verification priorities
- Assess how much media revenue growth reflects durable demand versus the estimated COVID-19 safety-stock purchases, and track subsequent customer orders and inventory.
- Review the warrant-liability valuation, the unusual diluted EPS result, and the dilution and capitalization effects of subsequent warrant exercises and the Casdin issuance.
- Monitor remediation of the material weakness and the company’s accounting and disclosure controls over warrants and equity awards.
- Reconcile liquidity after the $20 million financing with operating cash needs, acquisition earnouts, and planned expense growth.
- Track gross margins and cash generation as acquired, higher-cost product lines become a larger share of revenue.