BioLife Solutions, Inc. — Q2 2017 Form 10-Q
Business and period: BioLife develops, manufactures, and sells cell- and tissue-preservation products, including CryoStor and HypoThermosol, and provides custom formulation and fill-and-finish services. This unaudited report covers the quarter and six months ended June 30, 2017; comparisons are with the corresponding 2016 periods.
Key financial results
| Metric | Q2 2017 | Q2 2016 | First half 2017 | First half 2016 |
|---|---|---|---|---|
| Revenue | $2.558 million | $1.990 million | $4.924 million | $3.842 million |
| Gross profit / margin | $1.601 million / 63% | $1.117 million / 56% | $3.039 million / 62% | $2.198 million / 57% |
| Operating expenses | $1.942 million | $2.711 million | $3.844 million | $5.284 million |
| Operating loss | $341,203 | $1.594 million | $805,242 | $3.086 million |
| Net loss attributable to BioLife | $768,212 | $1.356 million | $1.639 million | $2.583 million |
| Net loss per common share | $(0.06) | $(0.11) | $(0.13) | $(0.21) |
First-half operating cash use was $272,268, versus $2.775 million in 2016. Investing activities used $78,185, while financing activities provided $1.259 million. Cash increased to $2.315 million from $1.406 million at December 31, 2016. At June 30, current assets were $5.679 million and current liabilities were $1.045 million; total liabilities were $1.661 million. The balance sheet reported no promissory note payable after the WAVI debt exchange.
Changes and notable items
- Revenue rose 29% in Q2 and 28% in the first half. Management attributed growth mainly to higher volume and selling price per liter, including a 31% increase in Q2 direct sales to regenerative medicine customers. The company added 28 customers in Q2, including 11 regenerative medicine companies, and signed a CryoStor supply agreement with Adaptimmune.
- Gross margin improved year over year; management attributed the change to normal production-volume fluctuations. Operating expenses fell 28% in Q2 and 27% in the first half, primarily following the biologistex restructuring and deconsolidation, as well as lower costs in certain categories.
- Results include a $260,105 Q2 and $489,473 first-half noncash equity-method loss from SAVSU. BioLife held a 45% interest; the filing says its stake is scheduled to decline to 40% at year-end 2017 and 25% at year-end 2018. Management stated it had no obligation to provide future funding to SAVSU.
- On June 30, WAVI Holding AG exchanged its $4.25 million credit facility, including principal and accrued interest outstanding as of June 1, for 4,250 Series A preferred shares with an aggregate stated value of $4.25 million. The preferred shares carry a 10% annual cash dividend, have liquidation priority over common stock, and are redeemable only at times and in amounts determined by BioLife. No dividends were paid or accrued in the reported periods.
Outlook, liquidity, and risks
Management expected existing cash to cover liquidity needs for at least the next 12 months, based on current revenue and expense expectations. It cautioned that slower-than-expected revenue growth, inadequate expense management, or preferred-stock dividend payments could require additional equity or debt financing; the company also said it may seek financing opportunistically. No specific revenue or earnings guidance was provided.
Management warned that revenue, results, and cash balances may fluctuate with customers’ clinical-trial enrollment and orders. Sales are concentrated in a limited number of customers and market sectors, and three customers represented about 41% of gross receivables at June 30. Other considerations include reliance on continued product adoption, potential financing needs, and the preferred-stock dividend and liquidation preference. The company reported no material litigation, no off-balance-sheet arrangements, and no significant change in contractual obligations. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Whether sales growth and improved gross margins continue, and how much results depend on regenerative medicine customers and clinical-trial activity.
- Cash consumption, working-capital needs, and the assumptions supporting management’s at-least-12-month liquidity assessment.
- The terms, potential cash cost, and redemption timing of the WAVI preferred shares, including the 10% dividend and liquidation preference.
- SAVSU’s operating performance, BioLife’s recorded investment loss, and the scheduled reductions in BioLife’s ownership stake.
- Potential dilution: 7,460,283 warrants, 3,353,583 options, and 272,976 unvested restricted shares were excluded from diluted loss per share as anti-dilutive.