BioLife Solutions, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. BioLife develops and supplies bioproduction tools and services for the cell and gene therapy industry, including preservation media, freezers, thawing equipment, storage services and cold-chain shipping.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $31.2 | $9.9 | $48.1 | $22.1 |
| Gross profit / gross margin | $12.7 / 40.5% | $5.4 / 54.6% | $21.9 / 45.7% | $13.0 / 58.9% |
| Operating income (loss) | $(4.6) | $0.04 | $(5.5) | $0.4 |
| Net income (loss) | $7.9 | $(16.4) | $6.8 | $5.9 |
| Diluted EPS | $0.19 | $(0.70) | $0.17 | $0.01 |
| Operating cash flow | Not provided for quarter | $(5.9) | $4.9 | |
| Investing cash flow | Not provided for quarter | $(8.6) | $(1.7) | |
| Financing cash flow | Not provided for quarter | $0.4 | $20.2 |
- Q2 revenue increased 215% year over year. Product revenue was $27.5 million; service revenue was $2.0 million and rental revenue was $1.8 million.
- Q2 cost of revenue was 59% of revenue, versus 45% a year earlier. Management attributed the lower margins to a higher contribution from lower-margin acquired product lines.
- Q2 net income included a $12.6 million income tax benefit; the six-month effective tax rate was 217%. The benefit included $8.5 million from releasing a valuation allowance following the Global Cooling acquisition and $3.2 million of stock-compensation windfall tax benefits.
- At June 30, cash and cash equivalents were $76.2 million, down from $90.4 million at year-end 2020. Current assets were $127.4 million and current liabilities $31.3 million. Total liabilities were $68.7 million; reported debt, net of issuance costs, was $7.9 million, plus a $3.4 million line-of-credit balance.
- Six-month cash and restricted cash decreased $14.2 million to $76.3 million. Operating cash use reflected working-capital timing; investing outflows primarily funded equipment and rental assets, including SciSafe facility expansion.
Changes and significant transactions
- Global Cooling, Inc. (GCI) was acquired on May 3, 2021. The company issued 6.64 million shares, valued at approximately $232.7 million, as the principal merger consideration. GCI added an estimated $120.5 million of identifiable intangible assets and $137.2 million of goodwill. Acquisition accounting remained preliminary, particularly for tax attributes; final adjustments could materially affect deferred taxes, goodwill and financial results.
- GCI contributed $13.3 million to Q2 freezer-and-thaw revenue growth. Freezer-and-thaw revenue was $17.6 million in Q2, versus $2.8 million a year earlier. Cell-processing revenue rose 45% to $9.7 million.
- Service revenue began contributing after the 2020 SciSafe acquisition. Rental growth reflected greater evo shipper volumes and SciSafe storage assets.
- Common shares outstanding rose to 40.56 million at June 30 from 33.04 million at December 31, 2020, primarily reflecting GCI acquisition shares. The filing reported 40.70 million shares outstanding as of August 9, 2021.
- After quarter-end, BioLife signed an agreement to acquire Sexton Biotechnologies for $30 million in BioLife common shares, with 10% held in escrow. Closing remained subject to conditions; the filing gives no assurance it will close or that Sexton will be profitable.
Outlook, risks and unusual items
- Management said existing cash should cover liquidity needs for the foreseeable future, but may seek debt or equity capital for acquisitions or strategic investments; financing may not be available on acceptable terms.
- No specific revenue or earnings guidance was provided. Management expected research and development, sales and marketing, and general and administrative expenses to increase as the company expands acquired product lines and infrastructure.
- Global Cooling’s line of credit and two term loans had covenant noncompliance as of June 30; banks waived the covenants for the quarter without changing the debt agreements. The line of credit expires in June 2023 and bears interest at three-month LIBOR plus 5.50%.
- Customer concentration remained notable: one customer represented approximately 17% of Q2 product revenue; two customers together represented approximately 23% of gross receivables at June 30. COVID-19-related supply-chain, logistics, sales and operating disruptions remained risks.
- A material weakness in internal control over financial reporting remained unremediated at June 30, relating to accounting for complex financial instruments. Management reported disclosure controls were not effective; remediation work was ongoing.
- The company cited a $295,000 PPP loan acquired with SciSafe and intended to seek forgiveness, with no assurance of full forgiveness. Deferred employer Social Security taxes totaled $432,000 and are payable in 2021 and 2022.
- There were no material pending or threatened legal proceedings disclosed. Management said there were no material changes to the risk factors in the 2020 Form 10-K.
Important facts for investors to verify
- How much of revenue growth and future results reflects acquired businesses versus organic growth, and whether acquired operations can sustain margins.
- Final GCI purchase accounting, including tax attributes, deferred tax balances, goodwill and potential valuation changes; also review the related Section 382 study and tax-attribute limitations.
- Cash conversion and working-capital trends, especially receivables and inventory growth, alongside planned capital spending and acquisition-related financing needs.
- Status of the waived GCI debt covenants and future compliance, debt maturities, and exposure to floating LIBOR-based interest.
- Progress in remediating the material weakness and the implications for financial reporting reliability.
- Closing conditions, share dilution and integration risks for the proposed Sexton acquisition.
- Whether customer and supplier concentration, COVID-19 disruptions, warranty obligations, and contingent-consideration estimates change materially.