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By Brian Marckx, CFA

Q4 Results: Revenue Hits New All-Time Record, Positive Cash Flow, Strong 2013 Revenue Guidance…

BioLife Solutions (BLFS) filed their 10-K for year ending December 31, 2012 on March 29th. Q4 revenue came in at $2.1 million, as expected following the company's pre-announcement in early January. Revenue set a new all-time record and was up 153% yoy and 22% sequentially. This also marked the 10th consecutive quarter of sequential revenue growth. Importantly BLFS also generated positive cash flow from operations in Q4. For the full year 2012, revenue increased 105% to $5.7 million.

While contract manufacturing provided the bulk of revenue growth in Q4 (as well as for the full year 2012) as a result of the multi-year contract manufacturing agreement that began generating revenue in Q2, product sales (which should eventually be the long-term driver of BLFS's top-line) also posted positive growth in Q4 (+6%) and for the full year 2012 (+23%). Product sales benefitted, in part, from increased sales to customers in the hair restoration field, where BLFS's HypoThermosol biopreservation media continues to gain market share, specifically for use in ex vivo storage of hair grafts. We expect this segment to be a meaningful contributor to revenue in 2013 as well.

Q4 product sales to direct customers ($609k) were down 5% yoy but up 37% sequentially. Indirect customer sales ($207k) were up 60% yoy and up 19% sequentially. As we've noted in the past, given the inherent short-term volatility in product sales we would not read much into the slight yoy contraction in direct customer sales. 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." BLFS's headcount recently increased from 16 people to 28 people to prepare for this anticipated greater demand.

Q4 gross margin was 36.7% compared to our 39.2% estimate as a result of higher than estimated contract manufacturing revenue which carries a lower average gross margin. GM for the full year 2012 was 40.5%, down from 50.9% in 2011 due to the significant increase in contract manufacturing revenue. Management is guiding for 2013 GM in the range of 38% - 41%.

Net income and EPS for Q4 and the full year 2012 were ($512)k / ($0.01) and ($1.66) million / ($0.02) compared to the year-earlier periods of ($474)k / ($0.01) and ($2.02) million / ($0.03).

Cash

BLFS generated $169k of positive cash from operations in Q4. The company exited 2012 with $197k in cash and equivalents, up from just $7k at the end of Q3 2012. BLFS notes in the current 10-K that, "We believe our current cash and cash provided by operations will satisfy our working capital requirements, debt obligations and capital expenditures for the foreseeable future."

2013 Company Guidance

Management's current guidance for 2013 includes revenue in the range of $6.5MM - $7.0MM (implying growth of 15% - 24%), GM in the range of 38% - 41% (compared to 40.5% in 2012 - the potential contraction due to anticipated revenue growth from contract manufacturing), operating expenses increasing ~10% and implied positive operating cash flow.

BLFS expects revenue growth to be driven by increased sales to existing customers and the addition of new customers in the regenerative medicine market.

Our Outlook

We have made only minor adjustments to our model following Q4 results with our fundamental long-term outlook remaining intact. We model 2013 revenue and EPS of $6.9 million and ($0.02) and look for this to grow to $13.0 million and $0.01 in 2016. We are maintaining our Outperform rating and $0.70 price target on shares of BLFS. A copy of the full research report can be downloaded here >> BioLife Solutions Report

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