BioLife Solutions, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; unaudited. Amounts are in U.S. dollars, generally millions unless stated otherwise.
Business context
BioLife develops and supplies bioproduction tools and services for cell and gene therapy and biopharma, including cell-processing products, freezers and thaw systems, biological storage services, and cold-chain shipping containers. It reports as one operating segment. Comparisons are affected by the 2021 acquisitions of Global Cooling and Sexton, which were included for only part of the prior-year comparison period.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $40.7 | $33.8 | $117.5 | $81.9 |
| Gross profit / margin | $13.7 / 33.7% | $8.9 / 26.4% | $39.9 / 33.9% | $30.9 / 37.7% |
| Operating loss | $(11.4) | $(11.2) | $(95.3) | $(16.7) |
| Net income (loss) | $(10.0) | $0.1 | $(89.6) | $6.8 |
| Basic loss per share | $(0.23) | $0.00 | $(2.11) | $0.18 |
Revenue grew 21% in Q3 and 44% for the nine months. Q3 product revenue was $33.7 million, service revenue $4.3 million, and rental revenue $2.7 million. For the nine months, cell-processing product revenue rose 60%, freezer and thaw product revenue 23%, service revenue 74%, and rental revenue 63% versus 2021.
Q3 gross margin improved year over year; nine-month gross margin declined, reflecting the broader cost base and product mix. Management said warranty expense fell as the company addressed quality issues in the ULT freezer line. Operating expenses included a $69.9 million noncash intangible-asset impairment in the first half of 2022, a major driver of the nine-month operating and net losses. Q3 also included $2.3 million of expense from remeasuring contingent consideration; the nine-month period recorded a $3.3 million benefit from that remeasurement.
Cash flow and balance sheet: Cash used in operations was $16.3 million for the nine months, versus $3.8 million used in 2021; management attributed the increase mainly to working-capital timing. Investing activities used $43.2 million, including purchases of available-for-sale securities; financing provided $16.9 million, including a $20 million term-loan draw. Cash and cash equivalents were $27.0 million; available-for-sale securities were $35.1 million, giving reported cash, cash equivalents, and securities of $62.1 million. Current assets were $135.9 million and current liabilities $36.9 million.
Total debt was $26.3 million, including the new $20 million term loan; long-term debt was $24.2 million and current debt $2.1 million. The term loan matures in June 2026, bears a variable rate subject to a ceiling, and provides for additional borrowing subject to conditions. The company reported compliance with its covenants as of filing and stated that financial covenants apply if borrowings exceed $20 million. Management believes available liquid resources are sufficient for at least 12 months from filing.
Material changes, outlook, and risks
- Impairment: The company recorded $69.9 million of noncash intangible-asset impairment in the nine-month period after a market-capitalization decline, an abandoned development project, and revised forecasts. Goodwill was not impaired. Management noted that intangible-asset values remain sensitive to forecasts and market assumptions.
- Operating costs: Management expects G&A, sales and marketing, and R&D costs to rise as it supports the expanded business and product portfolio. Product costs may vary with production volumes, raw-material and transportation costs, and customer and product mix.
- Liquidity and capital: The company may seek debt or equity capital for acquisitions or strategic investments; it cautioned that financing may not be available on reasonable terms.
- Business risks: COVID-related supply-chain disruptions, higher supplier prices, and production stoppages affected operations. The filing also identifies cybersecurity threats, customer and supplier concentration, and possible future impairment as risks. One customer represented 19% of Q3 revenue and 14% of nine-month revenue; another represented 22% of receivables at quarter-end.
- Controls: Management concluded disclosure controls were not effective because of previously identified material weaknesses in financial reporting controls, including staffing and oversight, system access, complex accounting, lease accounting, valuation processes, and financial-statement presentation. Remediation efforts were underway.
- Other items: No significant pending or threatened litigation was identified, and the company reported no off-balance-sheet arrangements. No formal revenue or earnings guidance is provided in the filing.
Important facts for investors to verify
- Whether revenue growth translates into improved operating performance, particularly as nine-month cash use from operations increased.
- The assumptions behind the $69.9 million impairment and the sensitivity of remaining intangible assets to revised forecasts.
- Progress in remediating material weaknesses and the timing of any conclusion that controls are effective.
- Term-loan borrowing availability, interest-rate terms, covenant triggers, and the company’s cash and securities runway.
- Resolution of ULT freezer quality and warranty issues, and continued exposure to supply-chain costs and customer concentration.