BioLife Solutions, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Financial amounts below are in millions of dollars unless stated otherwise. BioLife develops and sells biopreservation media and automated thawing products for cell and gene therapies, biobanking, and drug discovery.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $6.701 | $5.178 | $12.471 | $8.993 |
| Gross profit | $4.743 | $3.641 | $8.865 | $6.092 |
| Gross margin | 71% | 70% | 71% | 68% |
| Operating income | $0.919 | $1.285 | $1.410 | $1.424 |
| Net income | $0.838 | $1.139 | $1.265 | $1.143 |
| Net income attributable to common stockholders | $0.838 | $1.046 | $1.265 | $0.943 |
| Diluted EPS | $0.03 | $0.05 | $0.05 | $0.05 |
- Q2 revenue increased 29% year over year; first-half revenue rose 39%. Management attributed growth mainly to higher regenerative-medicine and distributor sales. ThawSTAR contributed $0.374 million after the Astero acquisition.
- Gross margin improved year over year, with lower overhead and raw-material costs per liter partly offset by lower-margin Astero inventory sold after purchase accounting adjustments.
- Operating expenses rose 62% in Q2 and 60% in the first half, reflecting Astero-related activity, higher compensation and other costs, and acquisition expenses. Q2 operating income declined; first-half operating income was approximately flat.
- Q2 net income was lower than the prior-year quarter, while first-half net income increased. The first-half comparison also reflects higher interest income and the absence of preferred-stock dividends.
Cash, liquidity, and obligations
- Cash and cash equivalents were $19.617 million at June 30, 2019, down from $30.657 million at December 31, 2018. Current assets were $29.139 million and current liabilities $3.093 million.
- For the first half, operating cash flow was $1.079 million, investing cash flow was negative $12.705 million, and financing cash flow was positive $0.586 million. The investing outflow primarily reflected the Astero acquisition; cash declined by $11.040 million overall.
- Total liabilities were $5.476 million. The filing reports operating and finance lease liabilities with a present value of $1.471 million and $0.023 million, respectively, plus $1.931 million of Astero contingent consideration. It also reports interest expense related to equipment financing.
- Management expected existing cash to cover liquidity needs for more than one year, assuming current revenue and expense expectations. It cautioned that weaker-than-expected growth or insufficient expense control could require additional debt or equity financing.
Material changes, outlook, and risks
- BioLife acquired Astero Bio on April 1, 2019 for $12.521 million cash, subject to a working-capital adjustment, and recorded $1.931 million of contingent consideration. Astero sellers may receive up to an additional $8.5 million over three years if revenue targets are met. Purchase accounting recorded $4.550 million of identifiable intangible assets and $9.524 million of goodwill; the valuation remained subject to measurement-period adjustments.
- Astero contributed $0.374 million in revenue and a reported $0.542 million net loss for the period included in the consolidated results. Acquisition and integration costs, together with Astero’s loss, weighed on operating results.
- On August 7, 2019, after quarter-end, BioLife completed its acquisition of the remaining 56% of SAVSU for 1.1 million BioLife shares. Initial acquisition accounting and pro forma results were not available in this filing and were expected in the next quarterly report.
- Management expected continued adoption and use of its biopreservation media products but provided no specific numerical financial guidance. Results may fluctuate with customers’ clinical-trial enrollment, order timing, and reliance on a relatively small number of customers and market sectors.
- Customer concentration remains relevant: the notes report one customer generated approximately 17% of Q2 product revenue and 20% of first-half revenue. CryoStor represented approximately 82% of Q2 revenue and 86% of first-half revenue. Foreign sales were denominated in U.S. dollars.
- The company retained a full valuation allowance against deferred tax assets, citing insufficient evidence of sustained profitability. Management reported no current material litigation, no off-balance-sheet arrangements, no indicated goodwill impairment, and effective disclosure controls as of June 30, 2019.
Important facts for investors to verify
- Track whether revenue growth and gross margins persist as Astero products are integrated and purchase-accounting inventory effects pass through cost of sales.
- Assess the performance and cash implications of the Astero contingent payments, and review the completed SAVSU acquisition’s purchase accounting, share dilution, and operating contribution when disclosed.
- Monitor cash use, operating cash flow, and management’s stated liquidity outlook, including whether growth or expense trends change financing needs.
- Reconcile customer-concentration disclosures: the notes report a customer at 20% of first-half 2019 revenue, while the MD&A later states no customer represented 10% or more in the 2019 periods. The filing text is internally inconsistent on this point.
- Consider dilution from equity awards and warrants, as well as the 1.1 million shares issued for the SAVSU acquisition.