BioLife Solutions, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. BioLife develops, manufactures, and sells cell- and tissue-preservation products, including HypoThermosol and CryoStor. Results for 2017 include BioLife alone; 2016 results included the majority-owned biologistex subsidiary, which was deconsolidated following a December 2016 restructuring.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $2.37 million | $1.85 million |
| Gross profit / margin | $1.44 million / 61% | $1.08 million / 58% |
| Operating expenses | $1.90 million | $2.57 million |
| Operating loss | $464,039 | $1.49 million |
| Net loss | $870,290 | $1.49 million |
| Net loss attributable to BioLife | $870,290 | $1.23 million |
| Net cash used in operating activities | $169,348 | $1.59 million |
- Revenue grew 28% year over year. Management attributed growth primarily to higher volume and selling price, including 51% higher sales to regenerative medicine customers and 20% higher distributor sales.
- Gross margin increased to 61%; management cited production-volume fluctuations, partly offset by a write-off of expired raw materials. Cost of product sales rose 20%.
- Operating expenses fell 26%, with reductions attributed mainly to biologistex deconsolidation and, for general and administrative costs, lower prior-year severance and other expenses. The changed consolidation scope makes year-over-year expense and loss comparisons less directly comparable.
- Q1 2017 other expense included $83,333 of related-party interest, $93,598 of debt-discount amortization, and a $229,368 equity-method loss on SAVSU. BioLife owns 45% of SAVSU; the filing reports SAVSU’s Q1 net loss as $509,706.
Balance sheet, cash flow, and liquidity
- Cash and cash equivalents were $2.29 million at March 31, 2017, up from $1.41 million at year-end. Operating activities used $169,348; investing activities used $37,152; financing activities provided $1.09 million, including $1.0 million of note proceeds and $120,000 from option exercises.
- Current assets were $5.58 million and current liabilities were $1.09 million. Total assets were $8.60 million; total liabilities were $5.80 million; shareholders’ equity was $2.80 million.
- Long-term related-party note carrying value was $3.94 million, net of discount, with $181,190 of accrued related-party interest. The company reported a $4.0 million carrying value and estimated fair value for long-term debt at quarter-end. Scheduled principal payments, including accrued interest to be included in principal, total $4.25 million.
- The WAVI credit facility’s maturity was extended from June 1, 2017 to June 1, 2022. Its fixed interest rate remains 10%. The company described four quarterly cash interest-only payments of $106,250 from September 2017 through June 2018, followed by quarterly principal payments of $265,625 plus interest from September 2018 through June 2022.
- Management expected existing cash to meet liquidity needs for at least 12 months, based on current revenue and expense expectations. It cautioned that weaker-than-expected revenue or insufficient expense control, including required note payments, could require additional equity or debt financing; an S-3 registration statement was available for potential financing.
Outlook, risks, and other notable items
- Management expected full-year gross margin on core biopreservation media products of 55%–60% and stated it expected continued adoption and use of those products. The filing provides no specific revenue or earnings guidance.
- Results may fluctuate with customers’ clinical-trial progress and enrollment, and the company relies on a relatively small number of customers and market sectors. Two customers accounted for approximately 21% of Q1 2017 product revenue; one customer represented approximately 22% of gross accounts receivable at quarter-end. Foreign customers contributed 22% of revenue.
- BioLife gained 36 customers in the quarter, including first orders from 20 regenerative medicine companies. Its SAVSU ownership is scheduled to decline from 45% to 40% on December 31, 2017 and to 25% on December 31, 2018. The company stated it had no obligation to provide future funding to SAVSU.
- Commitments include a Bothell lease through July 2021, with two optional five-year extensions; monthly base rent was approximately $57,000 at quarter-end, plus its share of certain taxes and operating costs. The company reported no material litigation and no off-balance-sheet arrangements.
- Management identified no significant changes to critical accounting policies. Adoption of stock-compensation guidance in Q1 resulted in a $27,908 cumulative-effect adjustment to accumulated deficit. Management said disclosure controls were effective at March 31, 2017.
Important facts for investors to verify
- Whether revenue growth and the expected 55%–60% gross margin are sustained, particularly given customer concentration and reliance on clinical-trial activity.
- The debt’s full repayment terms, interest burden, and effect on cash needs; confirm the scheduled payments and reported debt carrying value against the underlying WAVI agreement.
- Cash runway under scenarios of slower revenue growth or higher operating costs, and whether additional financing may be needed.
- SAVSU’s operating performance, investment valuation, and the implications of BioLife’s scheduled ownership reductions.
- The effect of deconsolidating biologistex on comparisons with 2016 results and on the company’s ongoing expense base.