BioLife Solutions(BLFS) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents BioLife Solutions, Inc.'s unaudited consolidated financial statements and management's discussion and analysis Item 1. Consolidated Financial Statements This section presents BioLife Solutions, Inc.'s unaudited consolidated financial statements and related notes for periods ended June 30, 2019, covering financial position, operations, equity, and cash flows Consolidated Balance Sheets This section provides BioLife Solutions, Inc.'s unaudited consolidated balance sheets as of June 30, 2019, and December 31, 2018 | Metric (in thousands) | June 30, 2019 | December 31, 2018 | | :-------------------- | :------------ | :---------------- | | Total Assets | $51,742 | $45,467 | | Total Liabilities | $5,476 | $2,319 | | Total Shareholders' Equity | $46,266 | $43,148 | - Total assets increased by $6.275 million, primarily driven by the acquisition of Astero Bio Corporation, which introduced intangible assets ($4.446 million) and goodwill ($9.524 million) to the balance sheet. Total liabilities significantly increased due to contingent consideration from the Astero acquisition and new lease liabilities under ASC 842[10] Consolidated Statements of Operations This section presents BioLife Solutions, Inc.'s unaudited consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 | Metric (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product Sales | $6,701 | $5,178 | $12,471 | $8,993 | | Gross Profit | $4,743 | $3,641 | $8,865 | $6,092 | | Operating Income | $919 | $1,285 | $1,410 | $1,424 | | Net Income | $838 | $1,139 | $1,265 | $1,143 | | Basic EPS | $0.04 | $0.07 | $0.07 | $0.06 | | Diluted EPS | $0.03 | $0.05 | $0.05 | $0.05 | - Product sales increased significantly year-over-year for both the three-month (29%) and six-month (39%) periods ended June 30, 2019. However, operating income and net income for the three months ended June 30, 2019, decreased compared to the prior year, primarily due to acquisition costs and the consolidation of Astero's net loss. For the six-month period, net income increased due to higher interest income and the elimination of preferred dividends[13] Consolidated Statements of Shareholders' Equity This section presents BioLife Solutions, Inc.'s unaudited consolidated statements of shareholders' equity for the six months ended June 30, 2019 | Metric (in thousands) | December 31, 2018 | June 30, 2019 | | :-------------------- | :---------------- | :------------ | | Common Stock Shares | 18,547,406 | 18,898,609 | | Additional Paid-in Capital | $114,160 | $116,013 | | Accumulated Deficit | $(71,031) | $(69,766) | | Total Shareholders' Equity | $43,148 | $46,266 | - Shareholders' equity increased from $43.1 million at December 31, 2018, to $46.3 million at June 30, 2019, driven by net income of $1.265 million, stock-based compensation of $1.252 million, and stock option/warrant exercises contributing $601,000[15] Consolidated Statements of Cash Flows This section presents BioLife Solutions, Inc.'s unaudited consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,079 | $953 | | Net cash used in investing activities | $(12,705) | $(1,061) | | Net cash provided by financing activities | $586 | $7,611 | | Net increase (decrease) in cash and cash equivalents | $(11,040) | $7,503 | | Cash and cash equivalents - end of period | $19,617 | $14,166 | - Net cash used in investing activities significantly increased to $12.7 million in the first six months of 2019, primarily due to the Astero Bio acquisition[22] - Net cash provided by financing activities decreased substantially from $7.6 million in 2018 to $0.586 million in 2019, mainly due to lower proceeds from stock option/warrant exercises and no preferred stock redemption in 2019[22] Notes to Consolidated Financial Statements This section provides detailed notes explaining the significant accounting policies and financial statement items for BioLife Solutions, Inc 1. Organization and Significant Accounting Policies This note details BioLife Solutions' business, accounting policies, consolidation principles, and revenue concentration, including the adoption of ASC 842 - BioLife Solutions is a leading developer, manufacturer, and supplier of biopreservation media (CryoStor, HypoThermosol) and automated thawing devices (ThawSTAR) for cell and gene therapies, aiming to reduce cell damage and standardize thawing processes[23][101] - The company adopted ASU 2016-02 (ASC 842) for leases effective January 1, 2019, resulting in the recording of $1.3 million in operating lease right-of-use assets and $1.8 million in lease liabilities, with no material impact on net earnings or cash flows[34][35] - The consolidated financial statements include Astero Bio Corporation as of April 1, 2019, following its acquisition. The company accounts for its 44.4% ownership in SAVSU Technologies using the equity method[36][37] | Revenue Concentration | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2018 | | :-------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Top Customer Revenue | 17% | 20% | 38% (3 customers) | 27% (2 customers) | | CryoStor Products Revenue | 82% | 86% | 87% | 86% | | Canada Revenue | 17% | 20% | 11% | 12% | | Other Foreign Revenue | 12% | 14% | 11% | 11% | 2. Fair Value Measurement This note details the Company's fair value measurements, classifying cash as Level 1 and contingent consideration as Level 3 | Asset/Liability (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :----------------------------- | :------ | :------ | :------ | :---- | | As of June 30, 2019: | | | | | | Total cash and cash equivalents | $19,617 | $— | $— | $19,617 | | Contingent consideration - business combinations | $— | $— | $1,931 | $1,931 | | As of December 31, 2018: | | | | | | Total cash and cash equivalents | $30,657 | $— | $— | $30,657 | - The Company had no Level 2 or Level 3 financial assets and no transfers between Level 1 and Level 2 during the reported periods. The fair value of contingent consideration remained unchanged from the acquisition date to June 30, 2019[45] 3. Acquisition of Astero Bio Corporation This note details the April 2019 acquisition of Astero Bio Corporation, including purchase price allocation, acquired assets, and pro forma financials - BioLife acquired Astero Bio Corporation on April 1, 2019, for $12.5 million cash and up to $8.5 million in contingent consideration, adding the ThawSTAR automated thawing device product line[46][48] | Purchase Price Allocation (in thousands) | Amount | | :--------------------------------------- | :----- | | Cash consideration | $12,521 | | Contingent consideration | $1,931 | | Working capital adjustment | $(71) | | Total consideration transferred | $14,381 | | Acquired Net Assets (in thousands) | Estimated Fair Value | | :--------------------------------- | :------------------- | | Developed technology | $3,920 | | Goodwill | $9,524 | | Customer relationships | $160 | | Tradenames | $470 | | Total identifiable intangible assets | $4,550 | | Pro Forma Financial Information (in thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--------------------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $12,681 | $9,016 | | Net income attributable to common stockholders | $801 | $258 | | Basic EPS | $0.04 | $0.02 | | Diluted EPS | $0.03 | $0.01 | 4. Inventory This note provides a breakdown of the Company's inventory components, including raw materials, work in progress, and finished goods | Inventory (in thousands) | June 30, 2019 | December 31, 2018 | | :----------------------- | :------------ | :---------------- | | Raw materials | $2,068 | $1,453 | | Work in progress | $275 | $652 | | Finished goods | $2,963 | $1,404 | | Total | $5,306 | $3,509 | - Total inventory increased from $3.509 million at December 31, 2018, to $5.306 million at June 30, 2019, primarily driven by increases in raw materials and finished goods[59] 5. Deferred Rent This note explains the elimination of deferred rent balances due to the adoption of ASU 2016-02 (ASC 842) - Deferred rent was eliminated at January 1, 2019, following the implementation of ASU 2016-02 (ASC 842). No deferred rent amortization was recorded for the three and six months ended June 30, 2019[60] 6. Share-based Compensation This note details the Company's share-based compensation plans, including stock options and restricted stock awards, with activity summaries and expenses | Stock Option Activity | Outstanding at beginning of year | Exercised | Forfeited | Outstanding at June 30, 2019 | | :-------------------- | :------------------------------- | :-------- | :-------- | :--------------------------- | | Service Vesting-Based Options | 2,043,402 | (236,061) | (3,438) | 1,803,903 | | Performance-Based Options | 964,997 | — | — | 964,997 | | Restricted Stock Activity | Outstanding at beginning of year | Granted | Vested | Forfeited | Outstanding at June 30, 2019 | | :------------------------ | :------------------------------- | :-------- | :-------- | :-------- | :--------------------------- | | Service Vesting-Based Restricted Stock | 279,919 | 177,718 | (86,142) | (21,269) | 350,226 | | Performance-Based Restricted Stock | — | 123,851 | — | — | 123,851 | | Total Stock Compensation Expense (in thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :---------------------------------------------- | :------------------------------- | :----------------------------- | | Research and development costs | $97 | $177 | | Sales and marketing costs | $131 | $297 | | General and administrative costs | $350 | $677 | | Cost of product sales | $68 | $101 | | Total | $646 | $1,252 | - Total unrecognized compensation cost for service vesting-based stock options was $279,000, expected to be recognized over 1.4 years. For performance-based restricted stock, $1.7 million in unrecognized costs is expected to be recognized over 1.5 years[63][74] 7. Warrants This note provides information on the Company's outstanding and exercisable warrants, including their number, exercise price, and activity | Warrants | June 30, 2019 | December 31, 2018 | | :--------- | :------------ | :---------------- | | Outstanding | 4,048,505 | 4,080,005 | | Exercisable | 4,048,505 | 4,080,005 | | Weighted Average Exercise Price | $4.34 | $4.35 | - During the six months ended June 30, 2019, 29,000 warrants were exercised at a weighted average exercise price of $4.75, yielding $138,000 in proceeds. Outstanding warrants have expiration dates between March 2021 and May 2021[76] 8. Income Taxes This note discusses the Company's income tax position, including the full valuation allowance against deferred tax assets - The Company maintains a full valuation allowance against its deferred tax assets, as it has not yet achieved a sustained level of profitability. This allowance may be released in the near-term if verifiable positive evidence of future profitability is observed[77] 9. Net Income (Loss) per Common Share This note outlines the calculation of basic and diluted earnings per share, including weighted average shares outstanding and dilutive securities | EPS Calculation (in thousands, except per share data) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stockholders | $838 | $1,046 | $1,265 | $943 | | Weighted average basic shares outstanding | 18,819,459 | 15,180,169 | 18,734,401 | 14,642,378 | | Effect of dilutive securities | 5,719,840 | 5,194,189 | 5,705,558 | 4,421,217 | | Weighted average diluted shares | 24,539,299 | 20,374,358 | 24,439,959 | 19,063,595 | | Basic earnings per share | $0.04 | $0.07 | $0.07 | $0.06 | | Diluted earnings per share | $0.03 | $0.05 | $0.05 | $0.05 | 10. Commitments & Contingencies This note discloses the Company's commitments, including employment agreements and the absence of material legal proceedings - The Company has indefinite employment agreements with its CEO, CFO, CTO, and several VPs, which include base salaries and potential severance payments under certain conditions[80] - No material legal proceedings are currently outstanding against the Company[81] 11. Revenue This note disaggregates the Company's revenue by market segment and product category for the three and six months ended June 30, 2019 and 2018 | Revenue by Market Segment (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Regenerative medicine | $3,978 | $2,985 | $6,157 | $5,089 | | Distributors | $2,215 | $1,695 | $5,319 | $2,734 | | Drug discovery | $248 | $263 | $486 | $640 | | BioBanking | $260 | $235 | $509 | $530 | | Total | $6,701 | $5,178 | $12,471 | $8,993 | | Revenue by Product Category (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Media | $6,327 | $5,178 | $12,097 | $8,993 | | Automated thawing products | $374 | $— | $374 | $— | | Total | $6,701 | $5,178 | $12,471 | $8,993 | - Regenerative medicine and distributor channels were the primary drivers of revenue growth. Automated thawing products, introduced through the Astero acquisition, contributed $374,000 in revenue for the three and six months ended June 30, 2019[84] 12. Leases This note details the Company's operating and financing leases, including discount rates, terms, and lease liability maturities after ASC 842 adoption - The Company's primary operating lease is for its Bothell, Washington headquarters, with a term until July 31, 2021. Weighted average discount rates used were 6.5% for operating leases and 8.1% for financing leases[85] | Lease Liabilities Maturities (in thousands) | Operating Leases | Financing Leases | | :------------------------------------------ | :--------------- | :--------------- | | 2019 (less than one year) | $362 | $7 | | 2020 | $764 | $15 | | 2021 | $452 | $3 | | Total lease payments | $1,578 | $25 | | Less: interest | $(107) | $(2) | | Total present value of lease liabilities | $1,471 | $23 | 13. Subsequent Event This note discloses BioLife's acquisition of the remaining 56% of SAVSU Technologies in August 2019, with initial accounting incomplete - On July 8, 2019, BioLife exercised its option to acquire the remaining 56% of SAVSU Technologies for 1.1 million shares of common stock, with the acquisition closing on August 7, 2019[87] - The initial accounting for the SAVSU acquisition is incomplete, and detailed financial information will be provided in the Q3 2019 10-Q[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of BioLife Solutions' financial condition and results of operations for the period ended June 30, 2019 Forward Looking Statements This section highlights that the report contains forward-looking statements regarding future financial and operational performance, subject to risks and uncertainties - The report contains forward-looking statements regarding future financial and operating results, product developments, acquisitions (Astero and SAVSU), market acceptance, liquidity, and capital requirements, which are subject to risks and uncertainties[90][91] Overview This section provides an overview of BioLife Solutions, Inc.'s business, focusing on its biopreservation media and automated thawing devices, and its investment in SAVSU Technologies - BioLife Solutions, Inc. develops and markets proprietary biopreservation media (HypoThermosol FRS and CryoStor) and automated thawing devices (ThawSTAR) for regenerative medicine, biobanking, and drug discovery markets[96][99][101] - The company owned a 44.4% interest in SAVSU Technologies, Inc. as of June 30, 2019, and exercised its option to acquire the remaining 56% in July 2019, with the acquisition closing in August 2019[102] Highlights for the Second Quarter of 2019 This section summarizes key financial and operational achievements for BioLife Solutions during the second quarter of 2019 | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :----- | :------ | :------ | :------- | :------- | | Revenue | $6.7M | $5.178M | $12.471M | $8.993M | | Revenue Growth (YoY) | 29% | | 39% | | | Gross Margin | 71% | 70% | 71% | 68% | | Operating Income | $0.919M | $1.3M | $1.410M | $1.424M | | Net Income Attributable to Common Stockholders | $0.838M | $1.0M | $1.3M | $0.943M | - Key operational highlights include gaining 51 new customers in Q2 2019 (37 regenerative medicine companies), exercising the option to acquire SAVSU Technologies, SAVSU's selection by Novartis for ZOLGENSMA® cold chain management, and BioLife's common shares being added to the Russell 3000 Index[103][104] Results of Operations This section details the Company's financial performance comparison for the three and six months ended June 30, 2019, versus 2018 Revenue and Gross Margin This section analyzes BioLife Solutions' revenue and gross margin performance for the three and six months ended June 30, 2019 and 2018 | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $6,701 | $5,178 | $12,471 | $8,993 | | % Change | 29% | | 39% | | | Cost of Sales | $1,958 | $1,537 | $3,606 | $2,901 | | % Change | 27% | | 24% | | | Gross Profit | $4,743 | $3,641 | $8,865 | $6,092 | | % Change | 30% | | 46% | | | Gross Margin % | 71% | 70% | 71% | 68% | - Revenue growth was primarily driven by a 33% increase in direct sales to regenerative medicine customers and 31% growth from distributors, along with initial revenue from ThawSTAR products[109] - Gross margin improved due to lower overhead and raw material costs per liter sold, despite lower margins from Astero acquisition inventory step-up[111] Operating Expenses This section details the Company's operating expenses, including R&D, S&M, G&A, and acquisition costs, for the three and six months ended June 30, 2019 and 2018 | Operating Expense (in thousands) | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $739 | $325 | $1,111 | $671 | | % Change | 128% | | 66% | | | Sales and marketing | $928 | $641 | $1,776 | $1,253 | | % Change | 45% | | 42% | | | General and administrative | $2,118 | $1,390 | $4,321 | $2,744 | | % Change | 52% | | 57% | | | Acquisition costs | $39 | $— | $247 | $— | | % Change | 100% | | 100% | | | Total Operating Expenses | $3,824 | $2,356 | $7,455 | $4,668 | | % Change | 62% | | 60% | | | % of Revenue | 57% | 46% | 60% | 52% | - Increases in R&D and S&M expenses were primarily due to Astero development and sales/marketing activities, and amortization of intangible assets from the acquisition. G&A expenses rose due to higher performance-based compensation, consulting, and accounting fees related to internal controls audit[114][115][116] Other Income (Expenses) This section discusses other income and expenses, including interest income and loss from equity-method investment, for the three and six months ended June 30, 2019 and 2018 - Interest income increased due to higher average short-term liquid investments[118] - Loss from equity-method investment in SAVSU reflects BioLife's proportionate share of SAVSU's net loss[119] Liquidity and Capital Resources This section discusses the Company's cash position, liquidity needs, and cash flow activities for the six months ended June 30, 2019 and 2018 | Cash & Cash Equivalents (in millions) | June 30, 2019 | December 31, 2018 | | :------------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $19.6 | $30.7 | - The Company expects current cash and cash equivalents to be sufficient for over one year, but may seek additional financing for acquisitions or if revenues do not meet expectations[121][122] | Cash Flow Activity (in millions) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1.1 | $1.0 | | Net cash used in investing activities | $(12.7) | $(1.1) | | Net cash provided by financing activities | $0.6 | $7.6 | - The significant increase in cash used in investing activities was primarily due to the Astero acquisition[124] - The decrease in financing activities was mainly due to lower proceeds from warrant and stock option exercises and no preferred stock redemption in 2019[125] Off-Balance Sheet Arrangements This section confirms that the Company had no off-balance sheet arrangements as of June 30, 2019 - As of June 30, 2019, the Company did not have any off-balance sheet arrangements[126] Critical Accounting Policies and Significant Judgments and Estimates This section discusses the critical accounting policies and significant judgments and estimates used in preparing the Company's financial statements - The preparation of financial statements requires significant estimates and assumptions, including those related to accounts receivable allowances, fair value of share-based compensation, contingencies, income taxes, useful lives of intangible assets, and business combination accounting (especially for Astero acquisition)[127][128] Contractual Obligations This section states that there have been no significant changes to contractual obligations since December 31, 2018 - There have been no significant changes to contractual obligations in the six months ended June 30, 2019, from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[132] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section indicates no applicable quantitative and qualitative disclosures about market risk for the Company - This section is not applicable to the Company[133] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and internal control over financial reporting as of June 30, 2019 - As of June 30, 2019, the Company's disclosure controls and procedures were evaluated as effective by management, including the CEO and CFO[134] - There were no changes in internal control over financial reporting during the quarter ended June 30, 2019, that materially affected or are reasonably likely to materially affect internal control over financial reporting[135] - Management acknowledges that no control system can provide absolute assurance against all errors and fraud due to inherent limitations and resource constraints[136] PART II. OTHER INFORMATION This section includes additional information such as exhibits and required signatures for the Form 10-Q filing Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL Taxonomy Extensions - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and various XBRL Taxonomy Extension documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases)[137] Signatures This section contains the required signatures for the Form 10-Q, confirming its due authorization and filing - The report was signed by Roderick de Greef, Chief Financial Officer, on August 9, 2019, on behalf of BioLife Solutions, Inc[142]