BioLife Solutions, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The company develops and sells cell and tissue preservation products and operates the biologistex cold-chain shipping joint venture. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $2.14 million | $1.63 million | $5.98 million | $4.63 million |
| Gross profit | $1.21 million | $0.97 million | $3.41 million | $2.67 million |
| Gross margin | 57% | 60% | 57% | 58% |
| Operating loss | $1.14 million | $1.30 million | $4.22 million | $3.61 million |
| Net loss attributable to BioLife | $0.97 million; $0.08/share | $1.07 million; $0.09/share | $3.55 million; $0.28/share | $3.09 million; $0.26/share |
| Net cash used in operating activities | — | $3.66 million | $3.70 million |
At September 30, 2016, cash and cash equivalents were $1.37 million, total current assets $4.97 million, current liabilities $3.46 million, and total liabilities $4.18 million. The company had $2.00 million outstanding under a related-party facility, carried at $1.75 million net of debt discount, plus $39,524 of accrued related-party interest. Cash declined $0.80 million over the first nine months. Investing activities provided $0.66 million and financing activities provided $2.19 million.
Material changes versus the prior comparable period
- Revenue increased 31% in Q3 and 29% for the first nine months. Core biopreservation product sales grew 31% and 32%, respectively; nine-month 2015 revenue also included $86,881 of contract manufacturing revenue, versus none in 2016.
- Management cited stronger regenerative medicine and distributor sales, partly offset by a 39% year-over-year decline in hair-transplantation sales in Q3.
- Gross margin eased to 57% from 60% in Q3 and to 57% from 58% year to date, attributed to higher raw-material and overhead costs and product mix.
- Q3 attributable net loss narrowed, primarily because there were no 2016 SAVSU participation fees; nine-month attributable loss widened amid increased headcount and biologistex development and launch spending.
- Research and development expense rose 51% in Q3 and 68% year to date; sales and marketing expense rose 21% and 32%, respectively. Nine-month operating expenses increased 21% overall.
Outlook, risks, and unusual items
- Management estimated at least 25% full-year growth in core product revenue versus 2015 and forecast full-year core-product gross margin of 55%–60%.
- Management expected positive operating cash flow “next year,” believing the remaining $2 million of scheduled WAVI advances plus operating cash would be sufficient to reach that point. This is not assured: the note matures June 1, 2017, and management said repayment may require additional financing or an amendment to the note.
- The $4 million WAVI facility bears 10% annual interest, is unsecured and senior to existing debt, and includes four scheduled $1 million advances. Two advances had been received by September 30, 2016. BioLife issued 550,000 warrants at $1.75 exercise price; the associated $374,390 debt discount is being amortized. Nine-month results also include an $86,736 write-off of deferred financing costs related to a proposed stock issuance registration statement.
- Customer concentration is meaningful: two customers accounted for approximately 25% of Q3 product revenue; one customer accounted for 12% of nine-month product revenue. Two customers represented approximately 35% of gross receivables at quarter-end.
- The biologistex joint venture had a remaining commitment of approximately $1.9 million for Smart Containers. The company also reported 10-year supply agreements with Kite Pharma and Bellicum Pharmaceuticals and product use in multiple clinical and commercial programs.
- Management cautioned that sales and cash balances may fluctuate with customer clinical-trial progress and that revenue depends on a relatively small number of customers and market sectors. It may seek additional debt or equity financing; equity issuance could dilute shareholders. No material litigation or off-balance-sheet arrangements were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether the remaining WAVI advances were received, whether positive operating cash flow was achieved, and how the June 2017 note was repaid or amended.
- Actual full-year core product revenue growth and gross margin versus management’s stated ranges.
- Changes in customer concentration, receivables collection, and demand across regenerative medicine, distributor, and hair-transplantation channels.
- Cash needs and execution risks associated with the biologistex joint venture, including the Smart Container purchase commitment.
- Potential dilution from outstanding warrants, options, restricted stock, or future financing; 7.60 million warrants were outstanding at September 30, 2016.