BioLife Solutions, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results are consolidated and include Global Cooling from May 3, 2021 and Sexton from September 1, 2021; SciSafe was acquired in 2020. BioLife develops and sells bioproduction tools and provides storage and cold-chain services for the cell and gene therapy industry.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $33.8M | $11.3M | $81.9M | $33.4M |
| Operating loss | $(11.2)M | $(1.2)M | $(16.7)M | $(0.8)M |
| Net income (loss) | $0.1M | $(1.1)M | $6.8M | $4.8M |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(3.8)M | $4.4M |
Revenue increased 200% in Q3 and 145% for the first nine months. Q3 product revenue was $29.2M, service revenue $2.3M and rental revenue $2.3M. Acquired Global Cooling accounted for $14.0M of Q3 freezer-and-thaw revenue growth; acquisitions and increased demand also contributed to higher service and rental revenue.
Gross margin, calculated from reported revenue and direct costs of product, service and rental revenue, was approximately 26% in Q3 and 38% for the nine-month period, versus approximately 57% and 58%, respectively, in 2020. The filing attributes the lower margin percentage primarily to a greater contribution from lower-margin acquired product lines, and also cites higher warranty expense and material costs.
Net income includes substantial non-operating and tax items: Q3 included a $6.5M non-cash gain from remeasuring BioLife’s prior Sexton investment and a $5.0M income tax benefit. Nine-month results included a $17.5M tax benefit, including discrete benefits tied to Global Cooling and stock compensation. Operating losses therefore provide additional context for reported net income.
Balance sheet, liquidity and cash flow
- At September 30, 2021, cash and cash equivalents were $75.1M, down from $90.4M at December 31, 2020. Current assets were $130.5M and current liabilities $35.8M.
- Total assets were $559.4M, up from $234.8M, largely reflecting acquisitions. Goodwill was $223.9M and net intangible assets were $155.0M.
- Total debt, net of issuance costs, was $7.9M; this excludes operating and finance lease liabilities. A $2.2M line-of-credit balance was reported at quarter-end. BioLife said it paid off the line and related interest on October 14, 2021.
- Nine-month investing cash outflow was $10.7M, primarily for property, equipment and rental assets. Financing cash outflow was $0.7M, compared with $100.8M inflow in 2020, which included equity financings.
- Management said available cash should meet liquidity needs for the foreseeable future, while noting that additional capital might be pursued for acquisitions or strategic investments and might not be available on reasonable terms.
Material changes and notable items
- Global Cooling was acquired in May for consideration of approximately $234.9M, principally BioLife shares. Sexton was acquired in September for approximately $39.9M, including shares and BioLife’s previously held investment. Share count rose to 41.4M from 33.0M at year-end, primarily reflecting acquisition consideration and other share issuances.
- Acquisition accounting remained incomplete for certain acquired assets, liabilities and tax matters. Global Cooling contributed $28.5M revenue and a $7.6M net loss from acquisition through September 30; Sexton contributed $0.4M revenue and a $0.2M net loss from acquisition through September 30.
- Operating expenses increased materially with acquisitions, hiring and stock-based compensation. Management expects R&D, sales and marketing, and general and administrative expenses to increase as the business and product portfolio expand.
- Reported disclosure controls and procedures were not effective at quarter-end because a previously identified material weakness in controls over accounting for complex financial instruments had not been fully remediated. Management reported remediation work was ongoing.
Outlook, risks and contingencies
- The filing provides no numerical revenue or earnings guidance. Management cites growth opportunities from product adoption and acquisitions, but results depend on execution and integration.
- COVID-19 could disrupt customer activity, supply chains, logistics, staffing, sales efforts and access to capital. Management says the eventual impact remains uncertain.
- Customer concentration is notable: one customer represented approximately 19% of Q3 revenue and 14% of nine-month revenue. Two customers accounted for 29% of gross receivables at quarter-end.
- As of September 30, the company was not in compliance with certain reporting and financial covenants on acquired Global Cooling debt. It reported subsequent actions: payoff of the line of credit and refinancing of term notes, with amended agreements removing the original financial covenants.
- Contingent consideration from acquisitions was $8.2M at quarter-end and depends on estimates and other unobservable valuation inputs. The company also reported a $5.6M warranty reserve, including liabilities assumed in the Global Cooling acquisition.
- Management reported no material pending or threatened litigation and no material changes to the risk factors in its 2020 Form 10-K. The filing notes potential limits on use of tax attributes under Section 382; related studies were underway.
Key facts investors should verify
- How much of reported revenue growth and future growth is organic versus acquired, and whether acquired businesses can improve margins.
- Drivers of the sharp decline in gross margin, including acquired product mix, warranty claims and material costs.
- Whether operating cash flow improves as receivables and inventory grow, and how planned capital spending affects cash balances.
- Final acquisition purchase-price allocations, including Global Cooling and Sexton tax accounting, goodwill, and acquired intangible valuations.
- Completion of debt-covenant remediation and the terms and repayment profile of refinanced term loans.
- Remediation of the material weakness in financial reporting controls and whether disclosure controls become effective.