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BioLife Solutions (BLFSD) announced results for Q4 and the full year ending 12/31/2013. 2013 was another record year with revenue of $9.0M, up 58% from $5.7M in 2012, which was the previous best. 2013 revenue crushed management's guidance of $6.5M - $7.0M provided at the end of 2012.
BioLife is involved in the development and manufacture of biopreservation media products. These are used to maintain the viability of biological material including cells, whole blood, and tissues. Per MedMarket Diligence, demand for biopreservation media is estimated to grow at an annual rate of almost 20% over the next several years.
Q4 revenue increased 12% yoy to $2.3M, coming in just a hair shy of the all time quarterly record, which was set in Q2 2013. BLFSD has been on a tear, with revenue increasing consistently over the last three years from $2.1M in 2010, growing at a CAGR of over 62% through 2013. Revenue has now increased sequentially for 13 of the last 14 quarters.
Encouraging is that product sales, the expected driver of the company's top-line over the long term, has been a contributor to the record revenue. For the full year, product sales increased 30% yoy with contract manufacturing posting 68% growth. Perhaps more telling of the recent momentum in product sales is that it (i.e. - sales from products) was the major impetus to total revenue growth in Q3 and Q4 of this year, reversing a trend that saw contract manufacturing driving the top line since early 2012. Product sales topped $1M for the first time in Q3 2013 and grew about 20% sequentially to $1.2M in Q4. Management is guiding for product sales to grow 25% - 35% in 2014.
The company noted that product sales made directly to their customers increased from 2012 due to a 9% increase in volume and a 20% increase in average selling price, clearly indicating greater demand and pricing power.
Importantly, the robust revenue growth is not coming at the expense of margins with gross margin widening by 150 basis points from 40.5% in 2012 to 42% in 2013. Gross margins likely benefited to a certain extent from the increase selling prices. Similar to management's revenue guidance, their gross margin guidance of 38% - 41% proved conservative.
Full-year net income and EPS came in at ($1.1)M and ($0.22) compared to our ($927)k and ($0.19) estimates. The difference entirely related to higher than modeled G&A expense as BLFSD recently added some headcount.
Q4 and full year 2013 cash flow from operations were inflows of $79k and $146k, respectively. Ex-changes in working capital these figures were outflows of $370k and $480k. Cash flow significantly improved from Q4 and the full year 2012 when, ex-changes in working capital, these figures were outflows of $708k and $765k. BLFSD exited 2013 with $156k in cash and equivalents.
While we expect BioLife will raise additional capital to further the roll-out of their biopreservation media products and to execute the conversion of the outstanding promissory notes to equity (discussed further below), the recent improvement in cash flow is indicative of the ramping revenue and an obvious positive sign.
Maintaining $17 Target, Outperform Rating
We have made only minor adjustments to our model following Q4/2013 results. We look for revenue of $9.8M in 2014. This includes product sales of approximately $5.0M, implying growth of about 28%. Management's product sales guidance is for growth of 25% - 35% over 2013. Given that management's guidance has historically been conservative, our product sales number could potentially end up very conservative. We forecast contract manufacturing revenue of approximately $4.8M, implying growth of 8% from 2013. We look for EPS of ($0.16) in 2014, compared to ($0.22) in 2013.
Our comparable group (STEM, LIFE, SIAL, ISCO, CYTX) used to value BioLife consists of direct competitors as well as small stem cell therapeutics and regenerative medicine companies. Our valuation metrics include enterprise value to sales (EV/sales) and price to sales (P/S) multiples using sales at trailing twelve months (TTM), estimated 2014, and estimated 2015 (estimates from analyst forecasts). Based on these six metrics, BioLife is valued between approximately $12/share and $21/share. Average of all six metrics is about $17/share. We are maintaining our Outperform rating and $17.00/share price target.
Operational Activities... Record Revenue Complemented By Shored Up Balance Sheet
In addition to the streak of setting new revenue records BioLife made progress on several other fronts during 2013. This includes the agreement with HemaCare, which beefed up BLFSD's marketing/distribution capabilities. In August, BLFSD announced that STEMCELL Technologies, with which BLFSD has had an ongoing relationship with since 2009, will use CryoStor in the launch of over 50 primary cell products, which will be marketed to researchers. In September, BLFSD penned an agreement with SAVSU Technologies whereby they are now acting as exclusive distributor for that company's thermal packaging products. SAVSU's containers are used to ship temperature sensitive biologics, are used in the stem cell and regenerative medicine markets and should be a complementary fit for BLFSD's sales team and to the company's storage medium products. The SAVSU line is expected to be a more meaningful contributor to BLFSD's revenue during 2014.
More importantly, 2013 saw growth in the customer base, increasing demand for the products and higher selling prices - all of which suggest greater awareness of the benefits of the company's biopreservation media and increased adoption throughout the industry. Telling in this regard is that (per BLFSD's press release) HypoThermosol is now being used by over 60 practices in the hair transplantation market and was used in approximately 5,000 procedures in 2013. This is an area that was virtually untapped just two years prior. According to the International Society of Hair Restoration, there are approximately 1M hair transplantation patients every year, representing a large and attractive market for BioLife.
Their biopreservation products also continue to further penetrate the regenerative medicine market and continue to be used in about 100 hospital-approved and clinical trial stage products and therapies including several Phase II and Phase III trials. In December, BLFSD announced that Discgenics, a development stage regenerative medicine company, will incorporate CryoStor in the development of their early-stage injectable therapy for back pain. This is one more shot on goal for BLFSD in terms of potentially hitting a home run with an FDA approved therapy using the company's biopreservation media.
The most recent major news came just before year-end when BLFSD disclosed that they signed agreements with the two debt holders of the company's promissory notes to convert the notes to equity. Under the agreements, the entire (approximately) $14 million of outstanding company debt and interest will be converted to common stock in connection with the next equity issuance. The notes are secured by all of the company's assets and accrue annual interest at 7% (payable at maturity). As a reminder, the maturity date of the notes had been extended several times, the most recent of which was announced in June 2012 - extending the maturity date to 2016. Conversion of the debt to equity will significantly shore up the balance sheet and materially improve the company's risk profile. As we noted in an investor note following news of the agreement, we view this as significant and expect the improved risk profile upon debt conversion to also be reflected in the valuation of the company.
And while conversion will significantly increase the share count, the number of new shares issued though conversion will likely be only a small fraction (perhaps 10% - 15%, depending on the price/share of the next equity issuance) of what it would have been if the debt was converted just 18 months ago due to a substantial increase in the stock price over that time.
Shortly afterwards BLFSD executed a 1 for 14 reverse stock split in their quest to uplist to NASDAQ.