BLFS: Q2 Results. Guidance Affirmed (BLFS)

BLFS: Q2 Results. Guidance Affirmed

Brian Marckx, CFA

Q2 Results

BioLife Solutions (BLFS) reported financial results for the second quarter ending June 30, 2012 on August 14th. Revenue came in at $1.1 million, as expected following the company's pre-announcement in early July. Revenue was an all-time quarterly record and represented growth of 76% yoy and 31% sequentially. This is also the eighth consecutive quarter of sequential revenue growth. BioLife also notes that they have now completed the expansion of their corporate office and operations space as well as the build-out of their second clean room.

Also as expected, contract manufacturing revenue was a significant contributor following commencement of deliveries to the new contract manufacturing customer during Q2. Contract manufacturing revenue was $341k in Q2, up from just $67k in Q2 2011 and $0 in the first quarter of this year. For Q2 2012 contract manufacturing accounted for 31% of total revenue and contributed 58% and 131% of the total revenue growth on a yoy and sequential basis, respectively.

Product sales to both direct ($497k) and indirect ($254k) customers were also very strong on a yoy basis, up 22% and 79% respectively. While direct customer sales fell 33% sequentially, we would not read much into that as the company's product sales can be choppy quarter-to-quarter – we also note that indirect sales increased 79% sequentially. Importantly and likely more representative of a long-term outlook for product sales, BioLife recently added headcount to its direct and indirect sales teams (as well as production personnel) in order "to manage growing demand and projections." In the earnings release BLFS affirms previously issued revenue guidance of $4.1 million for 2012.

Gross margin was 41.5%, slightly more narrow than our 43.3% estimate. As expected GM came in significantly from Q1 (58.6%) as a result of the lower margin from contract manufacturing sales and increased costs related ramp up in production to meet demand from the new customer. We model a consistent widening of GM throughout the remainder of 2012.

Operating expenses came in about 15% higher ($762A vs $665E) than our estimate, most of which relates to the addition to the sales staff during the quarter.

Net income and EPS were ($499k) and (0.01) compared to our ($394k) and ($0.01) estimates.

Cash
BioLife exited Q2 with $155k in cash and equivalents, up from $71k at the end of Q1. Cash used in operating activities in Q2 was an inflow of $761k, benefitting from $785k in deferred rent related to the tenant improvements to the additional manufacturing space – these tenant improvements were funded by the landlord but will be amortized back to rent beginning in January 2013. Cash balance also benefitted from $300k in sales of promissory notes during Q2. Stripping out changes in working capital (proxy for EBITDA), cash used in operating activities was an outflow of $400k in Q2. BLFS continues to expect to achieve positive cash flow from operations by the end of 2012.

Our Outlook
Out Outlook remains intact following Q2 results as does our recommendation. We continue to model 2012 revenue of $3.8 million and EPS of ($0.03). We are maintaining our Outperform rating and moving our price target from $0.25/share to $0.30/share based on an increase in comp valuations (see our valuation in our full report on BLFS).

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