UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________________________________
FORM 10-Q
For the quarterly period ended September 30, 2023
ACT OF 1934
For the transition period from to
Commission File Number 001-36362
____________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||||
(Address of registrant’s principal executive offices, Zip Code)
(425 ) 402-1400
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of exchange on which registered | ||||||
The | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit said files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
As of November 1, 2023, 44,031,322 shares of the registrant’s common stock were outstanding.
1
BIOLIFE SOLUTIONS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Balance Sheets
| September 30, | December 31, | ||||||||||
| (In thousands, except per share and share data) | 2023 | 2022 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Available-for-sale securities, current portion | |||||||||||
Accounts receivable, trade, net of allowance for credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Assets held for rent, net | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Financing lease right-of-use assets, net | |||||||||||
| Long-term deposits and other assets | |||||||||||
| Available-for-sale securities, long-term | |||||||||||
| Equity investments | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Sales taxes payable | |||||||||||
| Warranty liability | |||||||||||
| Lease liabilities, operating, current portion | |||||||||||
| Lease liabilities, financing, current portion | |||||||||||
| Debt, current portion | |||||||||||
| Contingent consideration, current portion | |||||||||||
| Total current liabilities | |||||||||||
| Contingent consideration, long-term | |||||||||||
| Lease liabilities, operating, long-term | |||||||||||
| Lease liabilities, financing, long-term | |||||||||||
| Debt, long-term | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss, net of taxes | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
3
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except per share and share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Product revenue | $ | $ | $ | $ | |||||||||||||||||||
| Service revenue | |||||||||||||||||||||||
| Rental revenue | |||||||||||||||||||||||
| Total product, rental, and service revenue | |||||||||||||||||||||||
| Costs and operating expenses: | |||||||||||||||||||||||
| Cost of product revenue (exclusive of intangible assets amortization) | |||||||||||||||||||||||
| Cost of service revenue (exclusive of intangible assets amortization) | |||||||||||||||||||||||
| Cost of rental revenue (exclusive of intangible assets amortization) | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Asset impairment charges | |||||||||||||||||||||||
| Intangible asset amortization | |||||||||||||||||||||||
| Change in fair value of contingent consideration | ( | ( | ( | ||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||
| Change in fair value of investments | |||||||||||||||||||||||
| Gain on settlement of Global Cooling escrow | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total other (expense) income, net | ( | ||||||||||||||||||||||
| Loss before income tax (expense) benefit | ( | ( | ( | ( | |||||||||||||||||||
| Income tax (expense) benefit | ( | ( | |||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss attributable to common shareholders: | |||||||||||||||||||||||
| Basic and Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per share attributable to common shareholders: | |||||||||||||||||||||||
| Basic and Diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average shares used to compute loss per share attributable to common shareholders: | |||||||||||||||||||||||
| Basic and Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
4
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustment, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gain (loss) on available-for-sale securities, net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | Series A Preferred Stock Shares | Series A Preferred Stock Amount | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration shares issued | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Settlement of Global Cooling escrow | - | - | ( | - | ( | - | - | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | Series A Preferred Stock Shares | Series A Preferred Stock Amount | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
6
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | Series A Preferred Stock Shares | Series A Preferred Stock Amount | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Fees incurred for registration filings | - | - | - | - | ( | - | - | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | - | - | ( | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Contingent consideration shares issued | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except share data) | Series A Preferred Stock Shares | Series A Preferred Stock Amount | Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
| Fees incurred for registration filings | - | - | - | - | ( | - | - | ( | |||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Stock option exercises | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued – on vested RSAs | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale securities | - | - | - | - | - | ( | - | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
7
BioLife Solutions, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
| Nine Months Ended September 30, | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
| Impairment of intangible assets | |||||||||||
| Impairment of long-lived assets | |||||||||||
| Settlement of Global Cooling escrow | ( | ||||||||||
| Depreciation | |||||||||||
| Amortization of intangible assets | |||||||||||
| Amortization of loan costs | |||||||||||
| Stock-based compensation | |||||||||||
| Non-cash lease expense | |||||||||||
| Deferred income tax expense (benefit) | ( | ||||||||||
| Change in fair value of contingent consideration | ( | ( | |||||||||
| Change in fair value of equity investments | ( | ||||||||||
| Accretion of investments | ( | ||||||||||
| Loss on disposal of property and equipment, net | |||||||||||
| Loss on disposal of assets held for rent, net | |||||||||||
| Other | |||||||||||
| Change in operating assets and liabilities, net of effects of acquisitions | |||||||||||
| Accounts receivable, trade, net | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable | ( | ( | |||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Warranty liability | ( | ( | |||||||||
| Sales taxes payable | |||||||||||
| Other | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of available-for-sale securities | ( | ( | |||||||||
| Proceeds from sale of available-for-sale securities | |||||||||||
| Maturities of available-for-sale securities | |||||||||||
| Purchases of assets held for rent | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities | |||||||||||
| Payments on equipment loans | ( | ( | |||||||||
| Proceeds from exercise of common stock options | |||||||||||
| Proceeds from term loans | |||||||||||
8
| Payments on term loans | ( | ( | |||||||||
| Fees paid related to issuance of common stock | ( | ||||||||||
| Proceeds from financed insurance premium | |||||||||||
| Payments on financed insurance premium | ( | ( | |||||||||
| Other | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash – beginning of period | |||||||||||
| Effects of currency translation on cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash – end of period | $ | $ | |||||||||
| Non-cash investing and financing activities | |||||||||||
| Purchase of property and equipment not yet paid | $ | $ | |||||||||
| Assets acquired under operating leases | $ | ( | $ | ||||||||
| Assets acquired under financing leases | $ | $ | |||||||||
| Unrealized gains and losses on currency translation | $ | ( | $ | ||||||||
| Unrealized gains and losses on available-for-sale securities | $ | ( | $ | ||||||||
| Cashless issuance of SciSafe earnout shares | $ | $ | |||||||||
| Cash interest paid | $ | $ | |||||||||
| Returned shares from settlement of Global Cooling escrow | $ | ( | $ | ||||||||
The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
9
BioLife Solutions, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and significant accounting policies
Business
BioLife Solutions, Inc. (“BioLife”, “us”, “we”, “our”, or the “Company”) is a developer, manufacturer, and supplier of a portfolio of bioproduction tools and services including proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, ultra-low temperature mechanical freezers, cryogenic and controlled rate freezers, and biological and pharmaceutical materials storage. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media are optimized to preserve cells in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our Sexton cell processing product line includes human platelet lysates (“hPL”) for cell expansion, reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® cryogenic vials that are purpose-built rigid containers used in cell and gene therapy (“CGT”) that can be filled manually or with high throughput systems, and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination. Our ThawSTAR® product line is composed of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products help administer temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our cryogenic freezer technology provides for controlled rate freezing and cryogenic storage of biologic materials. Our ultra-low temperature mechanical freezers allow biological materials and vaccines to be stored at temperatures which range from negative 20℃ to negative 86℃. Our evo® shipping containers provide cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of biologic materials and vaccines that can be stored at a wide range of temperatures.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates and assumptions by management affect the Company’s net realizable value of inventory, sales tax liabilities, valuation of market-based stock awards, valuations, fair value of marketable debt securities, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, stock-based compensation, contingent consideration from business combinations, and provision for income taxes.
The Company regularly assesses these estimates; however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
Basis of presentation
The Unaudited Condensed Consolidated Financial Statements and related footnote disclosures as of and for the three and nine months ended September 30, 2023 are unaudited, and are not necessarily indicative of the Company’s operating results for a full year. The Unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial results for the three and nine months ended September 30, 2023 in accordance with U.S. GAAP, however, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (the “SEC”) rules and regulations relating to interim financial statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023 (the “Annual Report”).
10
The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries, SAVSU Technologies, Inc. (“SAVSU”), Arctic Solutions, Inc. doing business as Custom Biogenic Systems (“CBS”), SciSafe Holdings, Inc. (“SciSafe”), BioLife Solutions B.V, Global Cooling, Inc. doing business as Stirling Ultracold (“Global Cooling” or “GCI”), and Sexton Biotechnologies, Inc. (“Sexton”). All intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Foreign currency translation
The Company translates items presented on its Unaudited Condensed Consolidated Balance Sheet, Unaudited Condensed Consolidated Statements of Operations, Unaudited Condensed Consolidated Statements of Comprehensive Loss, Unaudited Condensed Consolidated Statements of Shareholders’ Equity, and Unaudited Condensed Consolidated Statements of Cash Flows into U.S. dollars. For the Company’s subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S. dollars using current exchange rates at the balance sheet date; revenue and expenses are translated using average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of Accumulated Other Comprehensive Loss in the Unaudited Condensed Consolidated Statements of Shareholders' Equity.
Segment reporting
The Company views its operations and makes decisions regarding how to allocate resources and manages its business as one reportable segment and one reporting unit. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Significant accounting policies
There have been no significant changes to the accounting policies during the three and nine months ended September 30, 2023, as compared to the significant accounting policies described in our Annual Report.
Liquidity and capital resources
On September 30, 2023 and December 31, 2022, we had $42.2 million and $64.1 million in cash, cash equivalents, and available-for-sale securities, respectively. We have the ability to borrow up to $10 million under our Loan Agreement (as defined in Note 14 below). For additional information, see Note 14. Additionally, on October 19, 2023, we entered into a Securities Purchase Agreement with Casdin Partners Master Fund, L.P. ("Casdin") whereby the Company sold, and Casdin purchased, 927,165 shares of common stock of the Company at a share price of $11.19 per share for an aggregate purchase price of $10,374,976 , infusing additional capital into the Company. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Quarterly Report on Form 10-Q.
Risks and uncertainties
Supply chain considerations
Our domestic and international supply chain operations were affected by the global pandemic of the coronavirus (“COVID-19”) and the resulting volatility and uncertainty it caused in the U.S. and international markets. The onset of the COVID-19 pandemic caused supply chains globally to become constrained, and these constraints historically impacted our business through both increased difficulty in obtaining semiconductor chips and increased pricing on available parts. However, as of the nine months ended September 30, 2023, both availability and pricing of semiconductor chips have improved and no longer pose constraints on our supply chain. We currently have sufficient supply for electrical component parts within our operations and do not foresee constraints to return over our supply chain.
11
| Accounts Receivable | Revenue | ||||||||||||||||||||||||||||||||||
| September 30, | December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Customer A | * | % | * | * | * | * | |||||||||||||||||||||||||||||
| Customer B | % | * | % | % | % | % | |||||||||||||||||||||||||||||
| Customer C | * | % | * | * | * | * | |||||||||||||||||||||||||||||
*less than 10%
Revenue from foreign customers is denominated in United States dollars or euros.
The following table represents the Company’s products representing more than 10% of the Company’s total revenues:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Product revenue concentration | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| CryoStor | % | % | % | % | |||||||||||||||||||
| 780XLE Freezer | % | % | % | % | |||||||||||||||||||
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Revenue by customers’ geographic locations(1) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
North America(2) | % | % | % | % | |||||||||||||||||||
| Europe, Middle East, Africa (EMEA) | % | % | % | % | |||||||||||||||||||
| Other | % | % | % | % | |||||||||||||||||||
| Total revenue | % | % | % | % | |||||||||||||||||||
(1) During the nine months ended September 30, 2023, the Company updated its methodology for determining the country of origin for its sales. Sales are now recorded by shipping country rather than billing country. The Company updated the methodology retrospectively, adjusting the prior year presentation for all regions presented.
In the three and nine months ended September 30, 2023, one supplier accounted for 14 % and 12 % of purchases, respectively. In the three and nine months ended September 30, 2022, no suppliers accounted for more than 10% of purchases.
As of September 30, 2023, one supplier accounted for 19 % of our accounts payable. As of December 31, 2022, one supplier accounted for 23 % of our accounts payable.
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Recent accounting pronouncements
As of January 1, 2023, we adopted the ASC 2016-13, Measurement of Credit Losses on Financial Instruments, which later was codified as ASC 326 (CECL). In addition to the adoption of ASC 326, the Company adopted the accompanying ASU No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. Both standards mark a significant change requiring the immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets. ASU 2022-02 specifically eliminates the accounting guidance for troubled debt restructurings and requires disclosure of current-period gross write-offs by year of loan origination. Additionally, ASU 2022-02 updates the accounting for credit losses under ASC 326 and adds enhanced disclosures with respect to loan refinancings and restructurings in the form of principal forgiveness, interest rate concessions, other-than-insignificant payment delays, or term extensions when the borrower is experiencing financial difficulties. ASC 326 is intended to improve financial reporting by corporations by requiring earlier recognition of credit losses on loans from corporations, held-to-maturity (HTM) securities, and certain other financial assets. ASC 326 also amended the impairment guidance for available-for-sale (AFS) debt securities in that it eliminated the Other Than Temporary Impairment (OTTI) impairment model. Under Subtopic ASC 326-30, Financial Instruments—Credit Losses—Available-for-Sale Debt Securities, changes in expected cash flows due to credit on AFS debt securities will be recorded through an allowance, rather than permanent write-downs for negative changes and prospective yield adjustments for positive changes, as required by the current OTTI model. ASC 326 replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. For the period ended September 30, 2023, the adoption of ASC 326 did not result in a material effect on the Company’s Unaudited Condensed Consolidated financial statements.
2. Correction of immaterial errors
As reported in our Annual Report, we determined that an error existed in our previously issued consolidated financial statements. Specifically, we identified we had established nexus in several jurisdictions beginning in the year ended December 31, 2019 in which we were not collecting and remitting sales taxes appropriately. The error was evaluated and recorded as of each period impacted by the error under the SEC guidance on evaluating the materiality of prior period misstatements to the Company’s financial statements. We evaluated the error and concluded that it was not material to any previously issued consolidated financial statements and accompanying Unaudited Condensed Consolidated financial statements. Although the error was not material to any period, we corrected the accompanying historical Unaudited Condensed Consolidated financial statements for each period impacted. The corrections to the quarter ended September 30, 2022 are presented below to reflect the sales tax liability and associated expenses owed within the period for comparative purposes.
The effect of the adjustments to our Unaudited Condensed Consolidated Balance Sheet as of September 30, 2022 was as follows:
| September 30, 2022 | |||||||||||||||||
| (In thousands) | As reported | Adjustment | As corrected | ||||||||||||||
| Prepaid expenses and other current assets | $ | $ | $ | ||||||||||||||
| Total current assets | |||||||||||||||||
| Total assets | |||||||||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||||||||
| Sales taxes payable | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Total liabilities | |||||||||||||||||
| Accumulated deficit | ( | ( | ( | ||||||||||||||
| Total shareholders’ equity | ( | ||||||||||||||||
| Total liabilities and shareholders’ equity | |||||||||||||||||
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The effect of the adjustments to our Unaudited Condensed Consolidated Statements of Operations for the quarter ended September 30, 2022 was as follows:
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||
| (In thousands, except per share and share data) | As reported | Adjustment | As corrected | As reported | Adjustment | As corrected | |||||||||||||||||||||||||||||
| General and administrative | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||||||||
| Operating loss | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Interest income (expense) | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Total other income, net | ( | ( | |||||||||||||||||||||||||||||||||
| Loss before income tax benefit | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net loss per basic and diluted share | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
The effect of the adjustments to our Unaudited Condensed Consolidated Statements of Cash Flows for the quarter ended September 30, 2022 was as follows:
| Nine Months Ended September 30, 2022 | |||||||||||||||||
| (In thousands) | As reported | Adjustment | As corrected | ||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | |||||||||||
| Prepaid expenses and other current assets | ( | ( | ( | ||||||||||||||
| Sales taxes payable | |||||||||||||||||
3. Impairment of property and equipment and definite-lived intangible assets
Subsequent to the second quarter of 2023, the Company began to actively seek divestment of its GCI and CBS freezer product lines (the "Freezer Business"). The announcement, coupled with broader economic uncertainty leading to reductions in spending across the biopharma industry and the Company's customer base constituted interim triggering events that required further analysis with respect to potential impairment to goodwill, indefinite-lived intangibles, and its long-lived asset groups. The Company performed an interim quantitative impairment test as of the September 30, 2023 balance sheet date.
To assess any potential impairment of goodwill, the Company compared the carrying value of its single reporting unit against its market capitalization, noting that the market capitalization exceeded the carrying value. As such, goodwill was not impaired as of September 30, 2023.
As a part of the interim quantitative impairment analysis performed, the Company determined that decreases in the market price of the GCI long-lived asset group and historical operating cash flow losses for both GCI and CBS were indicative of potential impairment. The recoverability tests performed over the asset groups of the Freezer Business resulted in a $9.7 million non-cash impairment charge over property and equipment and a $5.8 million non-cash impairment charge over definite-lived intangible assets reflected in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the entirety of the asset groups' carrying value.
In order to determine the fair value of the property and equipment, acquired technology, customer relationships, and tradename definite-lived intangible assets, the Company utilized the market approach and discounted cash flow analyses to
14
determine if the recoverability of the Freezer Business asset groups were above its carrying value. The key assumptions associated with determining the estimated fair value include (i) the amount and timing of projected future cash flows (including revenue and expenses), (ii) the discount rate selected to measure the risks inherent in the future cash flows, (iii) the assessment of the asset’s life cycle, and (iv) the competitive trends impacting the asset. As a result of the analysis, we recognized non-cash impairment charges of $9.7 million, $3.1 million, $0.2 million, and $2.5 million during the period ended September 30, 2023 for the property and equipment, acquired technology, customer relationships, and tradename definite-lived intangible assets, respectively, in the line item titled, "Asset impairment charges" in the Company's Unaudited Condensed Consolidated Statements of Operations, which represents the difference between the estimated fair value of the Company’s definite-lived intangible assets and their carrying values.
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors. Estimating the fair value of the Company’s reporting unit and definite-lived intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include projected future revenue growth rates, EBITDA margins, terminal growth rates, discount rates, royalty rates and other market factors. If current expectations of future growth rates, margins and cash flows are not met, or if market factors outside of our control change significantly, then our reporting unit, indefinite-lived intangible assets, and definite-lived intangible assets might become impaired in the future, negatively impacting our operating results and financial position. As the carrying amounts of the Company’s definite-lived intangible assets were impaired as of September 30, 2023 and written down to fair value, those amounts are more susceptible to an impairment risk if there are unfavorable changes in assumptions and estimates.
4. Fair value measurement
In accordance with FASB ASC Topic 820, the Company measures its financial instruments at fair value on a recurring basis. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying value of our marketable debt securities, which are accounted for as available-for-sale, are classified within either Level 1 or Level 2 in the fair value hierarchy because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The carrying values of our long-term debt, which is classified within Level 2 in the fair value hierarchy, approximates fair value as our borrowings with lenders are at interest rates that approximate market rates for comparable loans. The fair values of investments and contingent consideration classified as Level 3 were derived from management assumptions. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The fair value of the SciSafe Contingent Consideration Liability was valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5 %, a risk-free rate of approximately 0.20 %, asset volatility of 60 %, and revenue volatility of 15 %. Significant changes in any of those inputs in isolation would result in a significant change in the fair value measurement of the liability. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. At the acquisition date, the contingent consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the SciSafe Contingent Consideration Liability was re-measured to fair value with changes recorded in the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. During the most recent re-measurement of the SciSafe
15
Contingent Consideration Liability as of September 30, 2023, the Company used a discount rate of 14.5 %, a risk-free rate of approximately 4.9 %, asset volatility of 71 %, and revenue volatility of 36 %. The SciSafe Contingent Consideration Liability is included in the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 in the amounts of $0.3 million and $4.3 million, respectively. The changes in fair value of contingent consideration associated with this liability are included within the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. These changes in fair value of contingent consideration associated with this liability are included within the Change in Fair Value of Contingent Consideration in the Unaudited Condensed Consolidated Statements of Operations. These changes were $1.6 million and $1.8 million of benefit for the three and nine months ended September 30, 2023, respectively, and $2.3 million of expense and $3.3 million of benefit for the three and nine months ended September 30, 2022, respectively. As of the year ended December 31, 2022, the second hurdle associated with this liability was satisfied and 116,973 shares were issued as payment during the second quarter of 2023.
There were no remeasurements to fair value during the three and nine months ended September 30, 2023 of financial assets and liabilities that are not measured at fair value on a recurring basis.
The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, based on the three-tier fair value hierarchy:
(In thousands)
| As of September 30, 2023 | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market accounts | $ | $ | $ | $ | |||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| U.S. government securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration - business combinations | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market accounts | $ | $ | $ | $ | |||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| U.S. government securities | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration - business combinations | |||||||||||||||||||||||
| Debt | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
There have been no transfers of assets or liabilities between the fair value measurement levels.
16
The following table presents the changes in fair value of contingent consideration liabilities which are measured using Level 3 inputs:
| Nine Months Ended September 30, | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Beginning balance as of December 31, 2022 and 2021 | $ | $ | |||||||||
| Change in fair value recognized in net loss | ( | ( | |||||||||
| Payment of contingent consideration earned | ( | ( | |||||||||
| Ending balance | $ | $ | |||||||||
5. Investments
Available-for-sale securities
The Company’s portfolio of available-for-sale marketable securities consists of the following:
| September 30, 2023 | |||||||||||||||||||||||
| Amortized Cost | Gross unrealized | Estimated Fair Value | |||||||||||||||||||||
| (In thousands) | Gains | Losses | |||||||||||||||||||||
| Available-for-sale securities, current portion | |||||||||||||||||||||||
| U.S. government securities | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total short-term | |||||||||||||||||||||||
| Available-for-sale securities, long-term | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total marketable securities | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross unrealized | Estimated Fair Value | |||||||||||||||||||||
| (In thousands) | Gains | Losses | |||||||||||||||||||||
| Available-for-sale securities, current portion | |||||||||||||||||||||||
| U.S. government securities | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total short-term | |||||||||||||||||||||||
| Available-for-sale securities, long-term | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total marketable securities | $ | $ | $ | $ | |||||||||||||||||||
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| September 30, 2023 | |||||||||||
| (In thousands) | Amortized Cost | Estimated Fair Value | |||||||||
| Due in one year or less | $ | $ | |||||||||
| Due after one year through five years | |||||||||||
| Total | $ | $ | |||||||||
Equity investments
The Company periodically invests in non-marketable equity securities of private companies without a readily determinable fair value to promote business and strategic objectives. The securities are carried at cost minus impairment, if any, plus or minus changes resulting from observable process changes in orderly transactions for identical or similar transactions of the same issuer. These securities included Series A-1 and A-2 Preferred Stock in iVexSol, Inc. carried at $4.1 995,000
6. Inventories
Inventories consist of the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work in progress | |||||||||||
| Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
7. Leases
The Company has various operating lease agreements for office space, warehouses, manufacturing, and production locations as well as vehicles and other equipment. Our real estate leases have remaining lease terms of to ten years . We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from to five years . Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. For certain leases, we receive incentives from our landlords, such as rent abatements, which effectively reduce the total lease payments owed for these leases. Vehicle and other equipment operating leases have terms between and five years .
Our financing leases relate to research equipment, machinery, and other equipment.
The table below presents certain information related to the weighted average discount rate and weighted average remaining lease term for the Company’s leases as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Weighted average discount rate - operating leases | % | % | |||||||||
| Weighted average discount rate - finance leases | % | % | |||||||||
| Weighted average remaining lease term in years - operating leases | |||||||||||
| Weighted average remaining lease term in years - finance leases | |||||||||||
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The components of lease expense for the three and nine months ended September 30, 2023 and 2022 were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease costs | |||||||||||||||||||||||
| Total operating lease costs | |||||||||||||||||||||||
| Variable lease costs | |||||||||||||||||||||||
| Total lease costs | $ | $ | $ | $ | |||||||||||||||||||
Maturities of our lease liabilities as of September 30, 2023 are as follows:
| (In thousands) | Operating Leases | Financing Leases | |||||||||
| 2023 (3 months remaining) | $ | $ | |||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less: interest | ( | ( | |||||||||
| Total present value of lease liabilities | $ | $ | |||||||||
8. Assets held for rent
Assets held for rent consist of the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Shippers placed in service | $ | $ | |||||||||
| Fixed assets held for rent | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Subtotal | |||||||||||
| Shippers and related components in production | |||||||||||
| Total | $ | $ | |||||||||
Shippers and related components in production include shippers complete and ready to be deployed and placed in service upon a customer order, shippers in the process of being assembled, and components available to build shippers. We recognized $0.9 million and $2.8 million in depreciation expense related to assets held for rent during the three and nine months ended September 30, 2023, respectively, and $0.9 million and $2.7 million during the three and nine months ended September 30, 2022, respectively.
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9. Property and equipment
Property and equipment consist of the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
Property and equipment(1) | |||||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture and computer equipment | |||||||||||
| Manufacturing and other equipment | |||||||||||
| Construction in-progress | |||||||||||
| Subtotal | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
(1) The entirety of the carrying values and accumulated depreciation of the Freezer Business property and equipment assets were impaired during the three months ended September 30, 2023. Refer to Note 3: Impairment of property and equipment and definite-lived intangible assets for more information on the assessed non-cash impairment charges.
Depreciation expense for property and equipment was $1.0 million and $2.9 million for the three and nine months ended September 30, 2023, respectively, and $0.9 million and $2.4 million during the three and nine months ended September 30, 2022, respectively.
10. Goodwill and intangible assets
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination is determined to have an indefinite useful life and is not amortized but instead is tested for impairment at least annually in accordance with ASC 350.
Intangible assets
Intangible assets, net consisted of the following as of September 30, 2023 and December 31, 2022:
| (In thousands, except weighted average useful life) | September 30, 2023 | ||||||||||||||||||||||
| Intangible assets: | Gross Carrying Value | Accumulated Amortization | Net Carrying Value | Weighted Average Useful Life (in years) | |||||||||||||||||||
Customer relationships(1) | $ | $ | ( | $ | |||||||||||||||||||
Tradenames(1) | ( | ||||||||||||||||||||||
Technology - acquired(1) | ( | ||||||||||||||||||||||
| Non-compete agreements | ( | ||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | |||||||||||||||||||
(1) The entirety of the gross carrying values and accumulated amortization of the specified intangible assets above associated with the Freezer Business were impaired during the three months ended September 30, 2023. Refer to Note 3: Impairment of property and equipment and definite-lived intangible assets for more information on the assessed non-cash impairment charges.
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| (In thousands, except weighted average useful life) | December 31, 2022 | ||||||||||||||||||||||
| Intangible assets: | Gross Carrying Value(1) | Accumulated Amortization(1) | Net Carrying Value | Weighted Average Useful Life (in years)(1) | |||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||
| Tradenames | ( | ||||||||||||||||||||||
| Technology - acquired | ( | ||||||||||||||||||||||
| Non-compete agreements | ( | ||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | |||||||||||||||||||
(1) Both the Gross Carrying Value and Accumulated Amortization balances as of December 31, 2022 contain immaterial adjustments to reflect impairments taken during the year ended December 31, 2022 on each of the intangible asset classes presented here. Each intangible asset class was adjusted as follows: Customer relationships: $0.8 million, Tradenames: $2.4 million, Technology - acquired: $4.1 million, and Non-compete agreements: $0.4 million. The Weighted Average Useful Life was additionally adjusted to reflect the updated balances subsequent to the impairment charges.
Amortization expense for definite-lived intangible assets was $1.4 million and $4.3 million for the three and nine months ended September 30, 2023, respectively and $2.5 million and $8.2 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the Company expects to record the following amortization expense for definite-lived intangible assets:
| (In thousands) | Amortization Expense | ||||
| For the Years Ending December 31, | |||||
| 2023 (3 months remaining) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total | $ | ||||
11. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Accrued compensation | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Deferred revenue, current | |||||||||||
| Accrued taxes | |||||||||||
| Other | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
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12. Warranty reserve liability
The Company reserves estimated exposures on known claims, as well as anticipated claims, for product warranty and rework cost, based on historical product liability claims. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product costs, changes in product mix and any significant changes in sales volume.
A rollforward of our warranty liability is as follows:
| Nine Months Ended September 30, | |||||||||||
| (In thousands) | 2023 | 2022 | |||||||||
| Beginning balance as of December 31, 2022 and 2021 | $ | $ | |||||||||
Provision for warranties(1) | |||||||||||
Settlements of warranty claims(1) | ( | ( | |||||||||
| Ending balance | $ | $ | |||||||||
13. Commitments and contingencies
Employment agreements
We have employment agreements with certain key employees. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the employee or upon the employee resigning for good reason.
Litigation
From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business. The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. Management is not aware of any significant pending or threatened litigation that is anticipated to result in unfavorable judgments against the Company.
Indemnification
As permitted under Delaware law and in accordance with the Company’s bylaws, the Company is required to indemnify its officers and directors for certain errors and occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of September 30, 2023 and December 31, 2022.
Purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable pricing provisions and the approximate timing of the transactions. As of September 30, 2023, our total short-term obligations were $14.3 million.
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Non-income related taxes
Companies are required to collect and remit sales tax from certain customers if the company is determined to have nexus in a particular state. Upon the determination of nexus, which varies by state, companies are additionally required to maintain detailed record of specific product and customer information within each jurisdiction in which it has established nexus to appropriately determine their sales tax liability, requiring technical knowledge of each jurisdiction’s tax case law. During the year ended December 31, 2022, the Company determined that a sales tax liability related to the periods of 2019 through 2022 was probable and determined an estimated liability. The estimated liability was approximately $5.2 million and $3.7 million as of September 30, 2023 and December 31, 2022, respectively. Outside of the analysis performed to determine the sales tax liability related to the periods of 2019 through 2022, we assessed approximately $0.1 million and $0.3 million of sales tax obligations generated during the normal course of business as of September 30, 2023 and December 31, 2022, respectively. Due to the variety of jurisdictions in which this estimated liability relates to and our ongoing assessment of sales taxes owed, we cannot predict when final liabilities will be satisfied. We will reevaluate the estimated liability and timing of satisfaction each reporting period.
Settlement of Global Cooling escrow
On May 3, 2021, the Company acquired GCI pursuant to an Agreement and Plan of Merger, dated as of March 19, 2021 (the “GCI Merger Agreement”). Pursuant to the GCI Merger Agreement, the aggregate consideration paid to former stockholders of GCI (collectively, the “GCI Stockholders”) was 6,646,870 newly issued shares of common stock (the “GCI Merger Consideration”) were provided with the requirement that the GCI Merger Consideration otherwise payable to GCI Stockholders were subject to reduction for indemnification obligations. Approximately 9 % of the GCI Merger Consideration (the "GCI Escrow Shares") otherwise issuable to the GCI Stockholders were deposited into a segregated escrow account (the “GCI Escrow Account”) in accordance with an escrow agreement entered into in connection with the closing of the transactions contemplated by the GCI Merger Agreement (the “GCI Escrow Agreement”). Of the GCI Escrow Shares, an amount equal to 5 % of the GCI Merger Consideration were considered general escrow shares (the “General Escrow Shares”). The General Escrow Shares were eligible to be held in escrow for a period of up to 18 months after the closing of the GCI acquisition as the sole and exclusive source of payment for any indemnification claims made by the Company.
On September 28, 2022, BioLife asserted an indemnification claim pursuant to the GCI Merger Agreement. On June 5, 2023, the Company entered into a Settlement Agreement with the representatives of the GCI Stockholders, pursuant to which the parties agreed to release 65 % of the General Escrow Shares, totaling 216,024 shares, to the Company from the GCI Escrow Account. These shares were returned to the Company and subsequently cancelled. As a result of the settlement, the Company recorded a $5.1 million gain recognizing the return of the shares during the second quarter of 2023.
14. Long-term debt
2022 term loan 2
Upon acquisition of Global Cooling in May 2021, the Company assumed three term notes. In October 2021, the Company entered into amended and restated term notes for all three term notes. Pursuant to the loan agreements, one lender provided two term notes in the amounts of $1.4 million and $1.4 million. A separate lender provided one term note in the amount of $1.8 million. All three term notes bear interest at a fixed rate of 4 %, were interest-only with one balloon principal payment at maturity, and could be pre-paid without penalty at any time. As of September 20, 2022, the Company fully extinguished one of the three term notes. All financial covenants included in the original agreements previously in effect were removed by the amended loan agreements.
2022 term loan 3
On September 20, 2022, the Company and certain of its subsidiaries entered into a term loan agreement, which provided for up to $50.0 million in aggregate principal to be drawn. The term loan matures on June 1, 2026. The agreement provided for borrowings of up to $30.0 million upon closing and options to borrow up to $10.0 million between closing and June 30, 2023, up to $10.0 million upon the achievement of certain revenue milestones, and an additional $10.0 million at the discretion of the lender. The Company borrowed $20.0 million upon closing. As of September 30, 2023, the Company had not drawn additional funding nor had it met the revenue milestones outlined within the term loan agreement. The Company has until December 31, 2023 to draw an additional $10.0 million, subject to approval from the lender. Payments on the borrowing are interest-only through June 2024, with additional criteria allowing for interest-only payments to continue
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through June 2025. Tranches borrowed under the term loan agreement bear interest at the Wall Street Journal prime rate plus 0.5 %. However, the interest rate is subject to a ceiling that restricts the interest rate for each tranche from exceeding 1.0 % above the overall rate applicable to each tranche at their respective funding dates and has a balloon payment due at the earliest of term loan maturity, repayment of the term loan in full, or termination of the loan agreement at $1.2 million. The term loan agreement contains customary representations and warranties as well as customary affirmative and negative covenants. As of September 30, 2023, the Company is in compliance with the covenants set forth in the 2022 term loan 3 agreement. In the event that borrowings under 2022 term loan 3 exceed $20.0 million, the Company will become subject to certain financial covenants.
Long-term debt consisted of the following as of September 30, 2023 and December 31, 2022:
| September 30, | December 31, | ||||||||||||||||||||||
| (In thousands) | Maturity Date | Interest Rate | 2023 | 2022 | |||||||||||||||||||
| 2022 term loan 2 | Various | % | |||||||||||||||||||||
| 2022 term loan 3 | Jun-26 | % | |||||||||||||||||||||
| Insurance premium financing | Apr-24 | % | |||||||||||||||||||||
| Freezer equipment loan | Dec-25 | % | |||||||||||||||||||||
| Manufacturing equipment loans | Oct-25 | % | |||||||||||||||||||||
| Freezer installation loan | Various | % | |||||||||||||||||||||
| Other loans | Various | Various | |||||||||||||||||||||
| Total debt, excluding unamortized debt issuance costs | |||||||||||||||||||||||
| Less: unamortized debt issuance costs | ( | ( | |||||||||||||||||||||
| Total debt | |||||||||||||||||||||||
| Less: current portion | ( | ( | |||||||||||||||||||||
| Total long-term debt | $ | $ | |||||||||||||||||||||
2022 term loan 3 is secured by substantially all assets of BioLife, SAVSU, CBS, SciSafe, Global Cooling and Sexton, other than intellectual property. 2022 term loan 2 is secured by substantially all assets of Global Cooling and is effectively subordinated to the security interest established by the lenders of 2022 term loan 3. Equipment loans are secured by the financed equipment.
As of September 30, 2023, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:
| (In thousands) | Amount | ||||
| 2023 (3 months remaining) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total debt | $ | ||||
15. Revenue
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consideration we are entitled to in exchange for the goods or services we transfer to the customer. Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price, taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 90 days. As of September 30, 2023 and December 31, 2022, our deferred revenue balance totaled $0.7 million and $0.6 million, respectively. During the three and nine months ended September 30, 2023, the Company recognized approximately $0.1 million and $0.4 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the year. During the three and nine months ended September 30, 2022, the Company recognized approximately $26 thousand and $0.5 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the year.
The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of cell processing tools, freezers, thawing devices, and cold chain products. We recognize product revenue, including shipping and handling charges billed to customers, at a point in time when we transfer control of our products to our customers, which is upon shipment for substantially all transactions. Shipping and handling costs are classified as part of cost of product revenue in the Condensed Consolidated Statements of Operations. Service revenue is generated from the storage of biological and pharmaceutical materials. We recognize service revenue over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC Topic 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of and during the three and nine months ended September 30, 2023.
The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems within its biostorage services product line to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under month-to-month rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.
The Company enters into various customer service agreements (collectively, “Service Contracts”) with customers to provide biological and pharmaceutical storage services. In certain of these Service Contracts, the property, plant, and equipment or operating right-of-use assets used to store the customer product are used only for the benefit of one customer. This is primarily driven by the customer’s desire to ensure that sufficient storage capacity is available in a specific geographic location for a set period of time. These agreements may include extension and termination clauses. These Service Contracts do not allow for customers to purchase the underlying assets.
The Company has assessed its Service Contracts and concluded that certain of the contracts for the storage of customer products met the criteria to be considered a leasing arrangement (“Embedded Leases”), with the Company as the lessor. The specific Service Contracts that met the criteria were those that provided a single customer with the ability to substantially direct the use of the Company’s property, plant, and equipment or operating right-of-use assets.
Applying the practical expedient from ASC Topic 842, consistent with the previous guidance, the Company will continue to recognize operating right-of-use asset embedded lessor arrangements on its Unaudited Condensed Consolidated Balance Sheets in operating right-of-use assets.
None of the Embedded Leases identified by the Company qualify as a sales-type or direct finance lease. None of the operating leases for which the Company is the lessor include options for the lessee to purchase the underlying asset at the end of the lease term or residual value guarantees, nor are any such operating leases with related parties.
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Embedded Leases may contain both lease and non-lease components. We have elected to utilize the practical expedient from ASC Topic 842 to account for lease and non-lease components together as a single combined lease component as the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. Non-lease components of the Company’s rental arrangements include reimbursements of lessor costs.
Total bioproduction tools and services revenue for the three and nine months ended September 30, 2023 and 2022 were composed of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except percentages) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Product revenue | |||||||||||||||||||||||
| Freezer and thaw | $ | $ | $ | $ | |||||||||||||||||||
| Cell processing | |||||||||||||||||||||||
| Biostorage services | |||||||||||||||||||||||
| Service revenue | |||||||||||||||||||||||
| Biostorage services | |||||||||||||||||||||||
| Freezer and thaw | |||||||||||||||||||||||
| Rental revenue | |||||||||||||||||||||||
| Biostorage services | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
The following table includes estimated rental revenue expected to be recognized in the future related to embedded leases as well as estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting periods. The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, Revenue from Contracts with Customers. The estimated revenue in the following table does not include contracts with the original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of September 30, 2023.
The balances in the table below are partially based on judgments involved in estimating future orders from customers pursuant to their respective contracts:
| (In thousands) | 2023 (3 months remaining) | 2024 | Total | ||||||||||||||
| Rental revenue | $ | $ | $ | ||||||||||||||
| Service revenue | $ | $ | $ | ||||||||||||||
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16. Stock-based compensation
Service vesting-based stock options
The following is a summary of service vesting-based stock option activity for the September 30, 2023, and the status of service vesting-based stock options outstanding as of September 30, 2023:
| Nine Months Ended September 30, 2023 | |||||||||||
| Options | Wtd. Avg. Exercise Price | ||||||||||
| Outstanding as of beginning of year | $ | ||||||||||
| Exercised | ( | ||||||||||
| Outstanding as of September 30, 2023 | $ | ||||||||||
| Stock options exercisable as of September 30, 2023 | $ | ||||||||||
As of September 30, 2023, there was $3.3 million of aggregate intrinsic value of outstanding and exercisable service vesting-based stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the reporting period and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2023. This amount will change based on the fair market value of the Company’s stock. Intrinsic value of service vesting-based awards exercised was $0.5 million and $3.3 million during the three and nine months ended September 30, 2023, respectively. There were no 2.3 years. There were no unrecognized compensation costs for service vesting-based stock options as of September 30, 2023.
Restricted stock
Service vesting-based restricted stock
The following is a summary of service vesting-based restricted stock activity for the three and nine months ended September 30, 2023, and the status of unvested service vesting-based restricted stock outstanding as of September 30, 2023:
| Nine Months Ended September 30, 2023 | |||||||||||
| Shares | Wtd. Avg. Grant Date Fair Value | ||||||||||
| Outstanding as of beginning of year | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested as of September 30, 2023 | $ | ||||||||||
The aggregate fair value of the service vesting-based awards granted was $1.0 million and $16.8 million during the three and nine months ended September 30, 2023, respectively. The aggregate fair value of the service vesting-based awards that vested was $5.0 million and $16.9 million during the three and nine months ended September 30, 2023, respectively.
We recognized stock compensation expense related to service vesting-based awards of $9.1 million and $23.3 million during the three and nine months ended September 30, 2023, respectively. As of September 30, 2023, there was $33.0
27
million in unrecognized compensation costs related to service vesting-based awards. We expect to recognize those costs over 2.2 years.
Market-based restricted stock
The following is a summary of market-based restricted stock activity under our stock option plan for the three and nine months ended September 30, 2023 and the status of market-based restricted stock outstanding as of September 30, 2023:
| Nine Months Ended September 30, 2023 | |||||||||||
| Shares | Wtd. Avg. Grant | ||||||||||
| Outstanding as of beginning of year | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Non-vested as of September 30, 2023 | $ | ||||||||||
On February 8, 2021, the Company granted 30,616 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. On March 31, 2023, the Company’s Compensation Committee determined the TSR attainment was 100 % of the targeted shares and 30,616 shares were granted and immediately vested to the executives of the Company based on our total shareholder return during the period beginning on January 1, 2021 through December 31, 2022 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined at the grant date using a Monte Carlo simulation with the following assumptions: a historical volatility of 68 %, 0 % dividend yield and a risk-free interest rate of 0.1 %. The historical volatility was based on the most recent 2 -year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0 % dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2 -year term associated with the market condition of the award. The fair value of this award of $1.3 million was being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2022.
On February 24, 2022, the Company granted 240,428 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0 % and 200 % of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2022 through December 31, 2023 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 63 %, 0 % dividend yield and a risk-free interest rate of 1.5 %. The historical volatility was based on the most recent 2 -year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0 % dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2 -year term associated with the market condition of the award. The fair value of this award of $6.7 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2023.
On January 8, 2023, the Company granted 268,738 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0 % and 200 % of the number of restricted shares granted to each recipient based on our total shareholder return during the period beginning on January 1, 2023 through December 31, 2024 as compared to the total shareholder return of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 78 %, 0 % dividend yield and a risk-free interest rate of 4.4 %. The historical volatility was based on the most recent 2 -year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0 % dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S.
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Treasury Strips as of the Measurement Date with a maturity consistent with the 2 -year term associated with the market condition of the award. The fair value of this award of $6.8 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2024.
We recognized stock compensation expense of $1.6 million and $4.9 million related to market-based restricted stock awards for the three and nine months ended September 30, 2023, respectively, and $1.2 million and $3.1 million during the three and nine months ended September 30, 2022. As of September 30, 2023, there was $4.9 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.1 years.
There were no 6.5 million during the nine months ended September 30, 2023, and $6.7 million during the nine months ended September 30, 2022. The aggregate fair value of the market-based awards that vested was $0.7 million during the nine months ended September 30, 2023, and $5.0 million during the nine months ended September 30, 2022.
Total stock compensation expense
Compensation expense associated with equity-based awards is recognized on a straight-line basis over the requisite service period, with awards generally vesting over a 4 year period, and forfeitures recognized as incurred. We recorded total stock compensation expense for the three and nine months ended September 30, 2023 and 2022, as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||
| General and administrative costs | |||||||||||||||||||||||
| Sales and marketing costs | |||||||||||||||||||||||
| Research and development costs | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
17. Income taxes
The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. The income tax expense of $0.2 million for the nine months ended September 30, 2023 resulted in an effective income tax rate of negative 0.4 %. Included in the $0.2 million was a discrete tax benefit of $1.2 million related to stock compensation shortfall tax expenses, which were offset by a change in the valuation allowance.
The Company’s US projected effective income tax rate without discrete items was negative 0.4 %, which is lower than the US federal statutory rate of 21 % primarily due to the increase in the valuation allowance on US deferred tax assets and non-deductible executive compensation offset by a non-taxable gain, state tax benefits, and research tax credits.
Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. In determining the need for a valuation allowance, the Company’s management evaluates both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. After reviewing the evidence available, the Company’s management believes there is uncertainty regarding the future realizability of the U.S. net operating loss carryforward and is projecting a full valuation allowance of $48.2 million by year end. If operating results improve and projections indicate future utilization of the tax attributes, all or a portion of the valuation allowance would be released, resulting in a corresponding non-cash income tax benefit.
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18. Net loss per common share
The Company considers its unvested restricted shares, which contain non-forfeitable rights to dividends, participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two-class method and the treasury stock method, whichever is more dilutive. In periods when we have a net loss, common stock equivalents are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
The following table presents computations of basic and diluted earnings per share:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (In thousands, except share and earnings per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Basic earnings (loss) per common share | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss allocated to common shareholders | ( | ( | ( | ( | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average common shares issued and outstanding | |||||||||||||||||||||||
| Basic and diluted loss per common share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The following table sets forth the number of weighted-average common shares excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Stock options and restricted stock awards | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
19. Employee benefit plan
20. Subsequent events
The Company has evaluated events subsequent to September 30, 2023 through the date of this filing to assess the need for potential recognition or disclosure.
On October 19, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Casdin, whereby the Company sold, and Casdin purchased, 927,165 shares of common stock of the Company, par value $0.001 per share, at a purchase price of $11.19 per share for an aggregate purchase price of $10,374,976.35 (the “Private
30
Placement”). For further information on the Purchase Agreement, please see the Company’s Form 8-K filed with the SEC on October 19, 2023.
Additionally, on October 19, 2023, Michael Rice, the Chief Executive Officer and Chairman of the Board of Directors of the Company (the "Board"), retired from his positions as Chairman of the Board and Chief Executive Officer of the Company. Mr. Rice’s resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. In connection with Mr. Rice’s resignation, the Company and Mr. Rice entered into a Separation, Release of Claims and Consulting Agreement (the "Separation Agreement") on October 19, 2023 (the “Separation Date”), pursuant to which Mr. Rice will serve as a consultant for the Company beginning on the Separation Date and ending on the six-month anniversary thereof.
On October 19, 2023, the Board appointed Roderick de Greef as the President and Chief Executive Officer of the Company and Chairman of the Board. In connection with Mr. de Greef’s appointment as Chief Executive Officer, on October 19, 2023, the Company and Mr. de Greef entered into an Employment Agreement (the “de Greef Employment Agreement”).
For further information on the resignation of Mr. Rice and appointment of Mr. de Greef, including the Separation Agreement and de Greef Employment Agreement referenced above, please see the Company's Form 8-K filed with the SEC on October 23, 2023.
Other than the events outlined above, based upon this evaluation, it was determined that no other subsequent events occurred that require recognition or disclosure in the Consolidated Financial Statements.
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Item 2. Management’s discussion and analysis of financial condition and results of operations
Forward looking statements
Certain statements contained in this Quarterly Report on Form 10-Q are not historical facts and may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “plans,” “expects,” “believes,” “anticipates,” “designed,” and similar words are intended to identify forward-looking statements. Forward-looking statements are based on our current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. A description of certain of these risks, uncertainties and other matters can be found in filings we make with the U.S. Securities and Exchange Commission (the “SEC”), all of which are available at www.sec.gov, including our Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by us. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update these forward-looking statements to reflect events or circumstances that occur after the date hereof or to reflect any change in its expectations with regard to these forward-looking statements or the occurrence of unanticipated events.
Overview
Management’s discussion and analysis provides additional insight into the Company and is provided as a supplement to, and should be read in conjunction with, our Annual Report.
We are a life sciences company that develops, manufactures, and markets bioproduction tools and services which are designed to improve quality and de-risk biologic manufacturing, storage, distribution, and transportation in the cell and gene therapy (“CGT”) industry and broader biopharma markets. Our products are used in basic and applied research and commercial manufacturing of biologic-based therapies. Customers use our products to maintain the health and function of biologic material during sourcing, manufacturing, storage, and distribution.
Our current portfolio of bioproduction tools and services is composed of three revenue lines that contain seven main offerings: (i) cell processing (including biopreservation media for the preservation of cells and tissues, human platelet lysate media for the supplementation of cell expansion, cryogenic vials and automated fill machines that provide high-quality, efficient, and precise mixes of solutions), (ii) freezers and thaw systems (including a full line of mechanical ultra-low temperature (“ULT”), isothermal, and liquid nitrogen freezers and accessories, automated thaw devices which provide controlled, consistent thawing of frozen biologics in vials and cryobags), and (iii) biostorage services (including biological and pharmaceutical storage services, and “smart”, cloud connected devices for transporting biologic payloads).
We currently operate as one bioproduction tools and services reporting segment which supports several steps in the biologic material manufacturing and delivery process. We have a diversified portfolio of tools and services that focuses on biopreservation, cell processing, frozen biologic storage products and services, cold-chain transportation, and thawing of biologic materials. We have in-house expertise in cryobiology and continue to capitalize on opportunities to maximize the value of our product platform for our extensive customer base through both organic growth innovations and acquisitions.
Our products
Our bioproduction tools and services are composed of three revenue lines that contain seven main offerings:
•Cell processing
◦Biopreservation media
◦Human platelet lysate media (“hPL”), cryogenic vials, and automated cell-processing fill machines
•Freezers and thaw systems
◦Ultra-low temperature freezers
◦Cryogenic freezers and accessories
◦Automated thawing devices
•Biostorage services
◦Biological and pharmaceutical material storage
◦Cloud connected “smart” shipping containers
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Biopreservation media
Our proprietary biopreservation media products, HypoThermosol FRS and CryoStor, are formulated to mitigate preservation-induced, delayed-onset cell damage and death, which result when cells and tissues are subjected to reduced temperatures. Our technology can provide our CGT customers with significant shelf-life extension of biologic source material and final cell products and can also greatly improve post-preservation cell and tissue viability and function. Our biopreservation media are serum-free, protein-free, fully defined, and manufactured under current Good Manufacturing Practices ("cGMP"). We strive to source wherever possible, the highest available grade, multi-compendium raw materials. We estimate our cell processing products have been incorporated in over 700 customer clinical applications, including numerous chimeric antigen receptor (“CAR”) T cell and other cell types.
Stability (i.e. shelf-life) and functional recovery are crucial aspects of academic research and clinical practice in the biopreservation of biologic-based source material, intermediate derivatives, and isolated, derived, and expanded cellular products and therapies. Limited stability is especially critical in the CGT field, where harvested cells and tissues will lose viability over time, if not maintained appropriately at normothermic body temperature (37ºC) or stored in a hypothermic state in an effective preservation medium. Chilling (hypothermia) is used to reduce metabolism and delay degradation of harvested cells and tissues. However, subjecting biologic material to hypothermic environments induces damaging molecular stress and structural changes. Although cooling successfully reduces metabolism (i.e., lowers demand for energy), various levels of cellular damage and death occur when using suboptimal methods. Traditional biopreservation media range from simple “balanced salt” (electrolyte) formulations to complex mixtures of electrolytes, energy substrates such as sugars, osmotic buffering agents and antibiotics. The limited stability, which results from the use of these traditional biopreservation media formulations, is a significant shortcoming that our optimized proprietary products address with great success.
Our scientific research activities over the last 30+ years enabled a detailed understanding of the molecular basis for the hypothermic and cryogenic (low-temperature induced) damage/destruction of cells through apoptosis and necrosis. This research led directly to the development of our HypoThermosol FRS and CryoStor technologies. Our proprietary biopreservation media products are specifically formulated to:
•Minimize cell and tissue swelling
•Reduce free radical levels upon formation
•Maintain appropriate low temperature ionic balances
•Provide regenerative, high energy substrates to stimulate recovery upon warming
•Avoid the creation of an acidic state (acidosis)
•Inhibit the onset of apoptosis and necrosis
A key feature of our biopreservation media products is their “fully-defined” profile. All of our cGMP products are serum-free, protein-free and are formulated and filled using aseptic processing. We strive to use USP/Multicompendial grade or the highest quality available synthetic components. All of these features benefit prospective customers by facilitating the qualification process required to incorporate our products into their regulatory filings.
Competing biopreservation media products are often formulated with simple isotonic media cocktails, animal serum, potentially a single sugar or human protein. A key differentiator of our proprietary HypoThermosol FRS and CryoStor formulation is the engineered optimization of the key ionic component concentrations for low temperature environments, as opposed to normothermic body temperature around 37°C, as found in culture media or saline-based isotonic formulas. Competing cryopreservation freeze media is often composed of a single permeating cryoprotectant such as dimethyl sulfoxide (“DMSO”). Our CryoStor formulations incorporate multiple permeating and non-permeating cryoprotectant agents which allow for multiple mechanisms of protection and reduces the dependence on a single cryoprotectant. We believe that our products offer significant advantages over in-house formulations, or commercial “generic” preservation media, including, time savings, improved quality of components, more rigorous quality control release testing, cost effectiveness, and improved preservation efficacy.
The results of independent testing demonstrate that our biopreservation media products significantly extend shelf-life and improve cell and tissue post-thaw viability and function. Our products have demonstrated improved biopreservation outcomes, including greatly extended shelf-life and post-thaw viability, across a broad array of cell and tissue types.
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We estimate that annual revenue from each customer commercial application in which our products are used could range from $500,000 to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic based therapy.
Human platelet lysate media, cryogenic vials and automated cell-processing fill machines
Our bioproduction tools portfolio includes hPL for cell expansion, which reduces risk and improves downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal closed system vials that are purpose-built rigid containers used in CGT that can be filled manually or with high throughput systems, and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination..
For our Sexton vials and media, we estimate that annual revenue from each customer commercial application in which these products are used could also range from $500,000 to $2.0 million, if such application is approved and our customer commences large scale commercial manufacturing of the biologic-based therapy.
Ultra-low temperature freezers
Our portfolio of class defining ultra-low temperature freezers range in size from portable units to stationary upright freezers to accommodate a wide variety of use cases. Users can configure these freezers to achieve temperatures between -20°C and -86°C. The portfolio was designed to be environmentally friendly and energy efficient, using as little as 2.8 kWh/day at temperatures of -80°C. The freezers do not use compressor-based or cascade refrigeration systems. Instead, they use patented free-piston Stirling engine technology that uses fewer moving parts, resulting in maintenance cost savings for end users.
Liquid nitrogen freezers and storage devices
Our line of cryogenic freezers offer leading design and manufacture of state-of-the-art liquid nitrogen laboratory freezers, cryogenic equipment, and accessories.
Our line of liquid nitrogen freezers are controlled-rate freezers and Isothermal LN2 freezers, constructed with a patented system which stores liquid nitrogen in a jacketed space in the walls of the freezer. This dry storage method eliminates liquid nitrogen contact with stored specimens, reduces the risk of cross-contamination and provides increased user safety in a laboratory setting. To accommodate customer requirements, we offer customizable features including wide bodied and extended height.
To accompany the offerings of cryogenic freezer equipment, we supply equipment for storing critically important biological materials. This storage equipment includes upright freezer racks, chest freezer racks, liquid nitrogen freezer racks, canisters/cassettes and frames as well as laboratory boxes and dividers. Due to our onsite design and manufacturing capability, racks and canisters can be customized to address customers’ varying requirements.
In order to provide customers with a proactive approach to safety and monitoring of equipment containing liquefied gas, we offer Versalert, a patented wireless remote asset monitoring system that can monitor and record temperatures. Versalert has an intelligent mesh network system that enables customers to view current equipment conditions and receive alarm notification on smartphones, tablets or personal computers and maintain permanent electronic records for regulatory compliance and legal verification.
Automated, water-free thawing products
The ThawSTAR line includes automated vial and cryobag thawing products that control the heat and timing of the thawing process of biologic material. Our customizable, automated, water-free thawing products uses algorithmic programmed, heating plates to consistently bring biologic material from a frozen state to a liquid state in a controlled and consistent manner. This helps reduce cell structure damage during the temperature transition. The ThawSTAR products can reduce risks of contamination versus using a traditional water bath.
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Biological and pharmaceutical storage
We are a premier provider of biological and pharmaceutical storage services, including cold chain logistics that ensures materials are kept at target temperatures from the moment that the materials leave the customer’s premises to their ultimate return. Our state-of-the-art monitoring systems allow for customers to monitor the storage temperatures of their materials throughout the entire logistics chain.
We operate six storage facilities in the USA and one facility in the Netherlands.
evo cloud connected shipping containers
We are a leading developer and supplier of next generation cold chain management tools for cell and gene therapies. Our cloud-connected shipping containers and evo.is cloud app allows biologic products to be traced and tracked in real time. Our evo platform consists of rentable cloud-connected shippers that include technologies enabling tracking software to provide real-time information on geolocation, payload temperature, ambient temperature, tilt of shipper, humidity, altitude, and real-time alerts when a shipper has been opened. Our internally developed evo.is software allows customers to customize alert notifications both in data measurements and user requirements. The evo Dry Vapor Shipper (“DVS”) is specifically marketed for use with cell and gene therapies. The evo DVS has an improved form factor and ergonomics over the traditional dewar, including extended thermal performance, reduced liquid nitrogen recharge time, improved payload extractors, and ability to maintain temperature for longer periods if tilted on its side.
We utilize couriers who already have established logistic channels and distribution centers. Our strategy greatly reduces the cash need to build out specialized facilities around the world. Our partnerships with several white glove couriers allow us to scale our sales and marketing effort by leveraging their salesforce. Our courier partnerships market our evo platform to their existing cell and gene therapy customers as a cost effective and innovative solution. We also market directly to our existing and prospective customers who can utilize the evo platform through our courier partnerships.
Critical accounting policies and estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to the recently updated policy below in addition to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 1 to the Consolidated Financial Statements included in our Annual Report and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Stock-based compensation
We measure and record compensation expense using the applicable accounting guidance for share-based payments related to stock options, time-based restricted stock, market-based restricted stock awards and performance-based awards granted to our directors and employees. The fair value of market-based restricted stock awards is estimated at the date of grant using the Monte Carlo Simulation model. The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. In valuing our market-based stock awards, significant judgment is required in determining the expected volatility of our common stock. Expected volatility for our market-based restricted stock awards is based on the historical volatility of our own stock and the stock of companies within our defined peer group. Further, our expected volatility may change in the future, which could substantially change the grant-date fair value of future awards and, ultimately, the expense we record. The fair value of restricted stock, including performance awards, without a market condition is estimated using the current market price of our common stock on the date of grant.
We expense stock-based compensation for stock options, restricted stock awards, and performance awards over the requisite service period. For awards with only a service condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire award. For awards with a market condition, we expense over the vesting period regardless of the value that the award recipients will ultimately receive. Share-based compensation expense from both service vesting-based and market-based awards are adjusted for forfeitures as incurred.
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Results of operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the related footnotes thereto.
Revenues
Total revenue for three and nine months ended September 30, 2023 and 2022 consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Product revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Freezer and thaw | $ | 13,188 | $ | 15,326 | $ | (2,138) | (14) | % | $ | 39,417 | $ | 49,331 | $ | (9,914) | (20) | % | |||||||||||||||||||||||||||||||
| Cell processing | 13,338 | 18,082 | $ | (4,744) | (26) | % | 51,004 | 48,336 | $ | 2,668 | 6 | % | |||||||||||||||||||||||||||||||||||
| Biostorage services | 365 | 260 | $ | 105 | 40 | % | 1,099 | 560 | $ | 539 | 96 | % | |||||||||||||||||||||||||||||||||||
| Service revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Biostorage services | 4,186 | 4,312 | $ | (126) | (3) | % | 12,166 | 11,099 | $ | 1,067 | 10 | % | |||||||||||||||||||||||||||||||||||
| Freezer and thaw | 192 | 18 | $ | 174 | NM | 877 | 18 | $ | 859 | NM | |||||||||||||||||||||||||||||||||||||
| Rental revenue | |||||||||||||||||||||||||||||||||||||||||||||||
| Biostorage services | 2,059 | 2,749 | $ | (690) | (25) | % | 5,975 | 8,156 | $ | (2,181) | (27) | % | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | 33,328 | $ | 40,747 | $ | (7,419) | (18) | % | $ | 110,538 | $ | 117,500 | $ | (6,962) | (6) | % | |||||||||||||||||||||||||||||||
Product revenue
Product revenue was $26.9 million for the three months ended September 30, 2023, representing a decrease of $6.8 million, or 20%, compared with the same period in 2022, and was $91.5 million for the nine months ended September 30, 2023, representing a decrease of $6.7 million, or 6.8%, compared with the same period in 2022. The decrease for the three months ended September 30, 2023 is primarily driven by decreases in sales within our ULT freezer and thaw and cell processing product lines compared to the same period in 2022, while the decrease for the nine months ended September 30, 2023 can be attributed to decreases in sales within our ULT freezer and thaw product line. Decreases in cell processing product revenues are largely driven by an overall decrease in capital expenditure investment from the broader biopharma markets in addition to our customers destocking inventory levels compared to the prior year.
Product revenue from our freezer and thaw products decreased by $2.1 million and $9.9 million, or 14% and 20%, in the three and nine months ended September 30, 2023, respectively, compared with the same period in 2022. The decrease can be attributed to a decrease in sales of our ULT freezer line compared to the prior year.
Product revenue from our cell processing products decreased by $4.7 million, or by 26%, during the three months ended September 30, 2023, and increased by $2.7 million, or by 6%, in the nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The decrease in revenue from cell processing products is driven by customers reducing safety stock levels and an overall decrease in capital expenditure investment from the broader biopharma markets.
Product revenue from our biostorage services increased by $0.1 million and $0.5 million, or 40% and 96%, in the three and nine months ended September 30, 2023, respectively, compared with the same periods in 2022. The increases relate to larger volumes of consumables sold from our evo product line.
Service revenue
Service revenue was $4.4 million and $13.0 million for the three and nine months ended September 30, 2023, respectively, representing an increase of $48 thousand and $1.9 million, or 1% and 17%, compared with the same periods in 2022. The increase relates primarily to the expansion of service revenues generated by SciSafe storage services.
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Rental revenue
Rental revenue was $2.1 million and $6.0 million for the three and nine months ended September 30, 2023, respectively, representing a decrease of $0.7 million and $2.2 million, or 25% and 27%, compared with the same periods in 2022. The decrease can be attributed to the expiration of an agreement with a major customer for the storage of material inputs in the COVID-19 vaccine during the prior year.
Costs and operating expenses
Total costs and operating expenses for three and nine months ended September 30, 2023 and 2022 were composed of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Cost of product, rental, and service revenue | $ | 21,679 | $ | 27,009 | $ | (5,330) | (20) | % | $ | 73,036 | $ | 77,649 | $ | (4,613) | (6) | % | |||||||||||||||||||||||||||||||
| General and administrative | 12,513 | 11,916 | $ | 597 | 5 | % | 42,757 | 35,098 | $ | 7,659 | 22 | % | |||||||||||||||||||||||||||||||||||
| Sales and marketing | 7,256 | 5,278 | $ | 1,978 | 37 | % | 20,045 | 15,601 | $ | 4,444 | 28 | % | |||||||||||||||||||||||||||||||||||
| Research and development | 5,402 | 3,425 | $ | 1,977 | 58 | % | 14,397 | 10,634 | $ | 3,763 | 35 | % | |||||||||||||||||||||||||||||||||||
| Asset impairment charges | 15,485 | — | $ | 15,485 | — | % | 15,485 | 69,900 | $ | (54,415) | (78) | % | |||||||||||||||||||||||||||||||||||
| Intangible asset amortization | 1,356 | 2,513 | $ | (1,157) | (46) | % | 4,266 | 8,236 | $ | (3,970) | (48) | % | |||||||||||||||||||||||||||||||||||
| Change in fair value of contingent consideration | (1,580) | 2,346 | $ | (3,926) | NM | (1,778) | (3,348) | $ | 1,570 | NM | |||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 62,111 | $ | 52,487 | $ | 9,624 | 18 | % | $ | 168,208 | $ | 213,770 | $ | (45,562) | (21) | % | |||||||||||||||||||||||||||||||
Cost of product, rental, and service revenue
Cost of revenue decreased $5.3 million and $4.6 million for the three and nine months ended September 30, 2023, or 20% and 6%, respectively, compared to the same periods in 2022, due primarily to decreases in sales across multiple product lines compared to the prior year.
Cost of revenue inclusive of intangible amortization related to acquired technology was 67% and 68% as a percentage of revenue for the three and nine months ended September 30, 2023, respectively, compared to 67% and 69% as a percentage of revenue for the three and nine months ended September 30, 2022, respectively. The decrease in cost of revenue inclusive of intangible amortization related to acquired technology for the nine months ended September 30, 2023 is a result of a favorable product mix in our media product line and a greater concentration of higher margin revenue as a percentage of total revenue, offset by increases in personnel expenses, including stock-based compensation expenses, and an increase in inventory reserve compared to the prior year.
General and administrative
General and administrative (“G&A”) expense consists primarily of personnel-related costs, including non-cash stock-based expense for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.
G&A expenses for the three and nine months ended September 30, 2023 increased $0.6 million and $7.7 million, or 5% and 22%, respectively, compared with the same periods in 2022. The increase reflects increased headcount compared to the prior year, driving increases in personnel expenses from stock-based compensation and increases in professional services fees. We additionally experienced one-time increases in severance costs compared to the prior year.
We expect G&A expense to decrease in future periods due to the ongoing initiative to divest the freezer product lines from our current product portfolio.
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Sales and marketing
Sales and marketing expense (“S&M”) consists primarily of salaries and other personnel-related costs, including non-cash stock-based expense, for sales and marketing personnel, consulting fees, trade show costs, travel expenses, sales commissions, and advertising costs.
S&M expense for the three and nine months ended September 30, 2023 increased $2.0 million and $4.4 million, or 37% and 28%, respectively, compared with the same periods in 2022. The increase is primarily due to one-time increases in severance costs in addition to increased marketing and advertising fees associated with sales expansion efforts.
We expect S&M expense to decrease in future periods due to the ongoing initiative to divest the freezer product lines from our current product portfolio.
Research and development
Research and development (“R&D”) expense consists primarily of salaries and other personnel-related costs, including non-cash stock-based compensation expense, for research and development personnel, consulting fees, and external product development service costs.
R&D expense for the three and nine months ended September 30, 2023 increased $2.0 million and $3.8 million, or 58% and 35%, respectively, compared with the same period in 2022. The increase is primarily due to a $1.0 million write-off of R&D supplies from the Freezer Business, one-time increases in severance costs, and research milestone payments.
We expect our R&D expense to decrease in future periods due to the ongoing initiative to divest the freezer product lines from our current product portfolio.
Asset impairment charges
Relates to the non-cash write-down of both property and equipment and definite-lived intangible assets that resulted from a quantitative fair value assessment performed as of September 30, 2023. Macroeconomic conditions and the announcement of efforts to divest the Freezer Business resulted in assessing the associated long-lived assets for impairment. For more information on the nature of the impairment charges assessed, see Note 3.
Intangible asset amortization
Intangible asset amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, SciSafe, Global Cooling, and Sexton in which we acquired definite-lived intangible assets.
Change in fair value of contingent consideration
Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our SciSafe acquisition. The benefit recognized in the three and nine months ended September 30, 2023 relates primarily to changes in our estimated probability of achieving budgeted operational results set forth within our contingent consideration arrangement, as certain contingent consideration arrangements are payable in BioLife’s shares.
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Other (expense) income
Total other income and expenses for the three and nine months ended September 30, 2023 and 2022 were composed of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands, except percentages) | 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Change in fair value of investments | $ | — | $ | 697 | $ | (697) | NM | $ | — | $ | 697 | $ | (697) | NM | |||||||||||||||||||||||||||||||||
| Gain on settlement of Global Cooling escrow | $ | — | $ | — | $ | - | NM | $ | 5,115 | $ | — | $ | 5,115 | NM | |||||||||||||||||||||||||||||||||
| Interest expense, net | $ | (476) | $ | (15) | $ | (461) | 3073 | % | $ | (1,305) | $ | (250) | $ | (1,055) | 422 | % | |||||||||||||||||||||||||||||||
| Other income | 242 | 142 | $ | 100 | NM | 1,027 | 270 | $ | 757 | 280 | % | ||||||||||||||||||||||||||||||||||||
| Total other (expense) income, net | $ | (234) | $ | 824 | $ | (1,058) | (128) | % | $ | 4,837 | $ | 717 | $ | 4,120 | 575 | % | |||||||||||||||||||||||||||||||
Change in fair value of investments
Reflects the change in fair value of the Company’s equity investments.
Gain on settlement of Global Cooling escrow
Reflects the non-cash gain associated with our settlement of an indemnification in connection with our acquisition of Global Cooling, and subsequent release to us of certain shares of our common stock from the third-party escrow account established in connection with that transaction. For additional information, see Note 13.
Interest expense, net
Interest expense, net incurred during the three and nine months ended September 30, 2023 related primarily to the term loan obtained in September 2022, financed insurance premiums, and a loan assumed in the acquisition of Global Cooling. We also earn interest on cash held in our money market account. Increases in interest expenses during the three and nine months ended September 30, 2023 can also be attributed to the increases in interest rates set by the United States Federal Reserve, causing the variable interest component on our 2022 term loan to be exposed to increasing interest rates.
Liquidity and capital resources
On September 30, 2023 and December 31, 2022, we had $42.2 million and $64.1 million in cash, cash equivalents, and available-for-sale securities, respectively. We also have the ability to borrow up to an additional $10.0 million under our 2022 term loan 3. See Note 14: Long-term debt for additional details on borrowing requirements under 2022 term loan 3. Additionally, on October 19, 2023, we entered into a Securities Purchase Agreement with Casdin whereby the Company sold, and Casdin purchased, 927,165 shares of common stock of the Company at a share price of $11.19 per share for an aggregate purchase price of $10,374,976, infusing additional capital into the Company. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Quarterly Report on Form 10-Q. However, the Company may choose to raise additional capital through a debt or equity financing for strategic purposes. Additional capital, if required, may not be available on reasonable terms, if at all.
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Cash flows
| Nine Months Ended September 30, | |||||||||||||||||
| (In thousands, except percentages) | 2023 | 2022 | $ Change | ||||||||||||||
| Operating activities | $ | (14,809) | $ | (16,345) | $ | 1,536 | |||||||||||
| Investing activities | 13,880 | (43,223) | $ | 57,103 | |||||||||||||
| Financing activities | 750 | $ | 16,941 | $ | (16,191) | ||||||||||||
| Net decrease in cash and cash equivalents | $ | (179) | $ | (42,627) | $ | 42,448 | |||||||||||
Net cash used in operating activities
Net cash used by operating activities was $14.8 million during the nine months ended September 30, 2023 compared to $16.3 million during the nine months ended September 30, 2022. The decrease in cash used by operating activities was primarily due to the result of the timing of collection and disbursement of working capital related items in accounts receivable, prepaid expenses, and accounts payable.
Net cash provided by (used in) investing activities
Net cash provided by investing activities totaled $13.9 million during the nine months ended September 30, 2023 compared to $43.2 million used by investing activities for the nine months ended September 30, 2022. The increase in cash provided by investing activities was primarily driven by $42.5 million in maturities of our investments in available-for-sale marketable securities made throughout the year ended December 31, 2022. This was offset by $22.7 million in investments made in additional available-for-sale marketable securities in addition to $8.5 million of property and equipment and assets held for rent purchases.
Net cash provided by financing activities
Net cash provided by financing activities totaled $0.8 million during the nine months ended September 30, 2023, compared to $16.9 million used in financing activities during the nine months ended September 30, 2022. The decrease in cash provided by financing activities was primarily the result of the proceeds of the $20.0 million term loan executed during the nine months ended September 30, 2022 with no similar financing transaction taking place during the nine months ended September 30, 2023.
Off-balance sheet arrangements
As of September 30, 2023, we did not have any off-balance sheet arrangements.
Contractual obligations
Our material cash requirements include contractual and other obligations which we previously disclosed within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. Other than the contractual obligation listed below, there have been no significant changes to these obligations in the three months ended September 30, 2023.
Purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable pricing provisions and the approximate timing of the transactions. As of September 30, 2023, our total short-term obligations were $14.3 million.
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Item 3. Quantitative and qualitative disclosures about market risk
Interest rate risk
Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. Our long-term debt primarily bears interest at a fixed rate, with a variable component subject to an interest rate ceiling. Fluctuations in interest rates therefore do not materially impact our consolidated financial statements from long-term debt. For additional information, see Note 14.
Foreign currency exchange risk
For a discussion of market risks related to foreign currency exchange rates, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report. During the nine months ended September 30, 2023, there were no material changes or developments that would materially alter the market risk assessment of our exposures to foreign currency exchange rates performed as of December 31, 2022.
Item 4. Controls and procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were not effective, due to the material weaknesses in our internal controls over financial reporting. As previously reported, we identified material weaknesses in our internal controls over financial reporting as of December 31, 2022 with regard to (i) inappropriately designed entity-level controls impacting the control environment, risk assessment procedures, and monitoring activities to prevent or detect material misstatements to the consolidated financial statements attributed to an insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, ineffective identification and assessment or risks impacting internal control over financial reporting, and ineffective monitoring controls; (ii) information system logical access within certain key financial systems; (iii) accounting policies and procedures and related controls over complex financial statement areas; (iv) accounting policies, procedures, and related controls over revenue recognition and procure to pay processes; and (v) inadequate risk assessment procedures, or maintenance of effectively designed and implemented accounting policies, procedures, and related controls, over the recognition and measurement of indirect tax liabilities in the consolidated financial statements in accordance with the applicable financial reporting requirements.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Control
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within BioLife Solutions have been detected.
Remediation
We are continuing to implement remediation plans outlined in our Annual Report. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. Management, with the oversight of the Audit Committee of the Board, will continue to take steps necessary to remedy the material weaknesses to reinforce the overall design and capability of our control environment.
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PART II: Other information
Item 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 1A. RISK FACTORS
The matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements that involve risks or uncertainties. These statements are neither promises nor guarantees, but are based on various assumptions by management regarding future circumstances, over many of which BioLife has little or no control. A number of important risks and uncertainties, including those identified under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the period ended December 31, 2022 and in subsequent filings, could cause our actual results to differ materially from those in the forward-looking statements. There are no material changes to the risk factors described in our Annual Report on Form 10-K for the period ended December 31, 2022.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During our fiscal quarter ended September 30, 2023, certain of our officers (as defined in Rule 16a-1(f) under the Exchange Act) and directors entered into contracts, instructions, or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule 10b5-1(c) under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information. We refer to these contracts, instructions, and written plans as “Rule 10b5-1 trading plans” and each one as a “Rule 10b5-1 trading plan.” The following table identifies and provides the material terms of the Rule 10b5-1 trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) adopted terminated by our officers and directors during the three months ended
| Name and Position | Plan Adoption / Termination | Plan Adoption / Termination Date | Expiration Date | Number of Shares Purchased (Sold) / Terminated under Plan | ||||||||||||||||||||||
Aby J. Mathew, EVP & Chief Scientific Officer(1) | December 31, 2023 | 123,404 | ||||||||||||||||||||||||
(1) On August 17, 2023, Aby J. Mathew , EVP & Chief Scientific Officer , terminated the remaining portion of his 10b5-1 Plan originally adopted on November 15, 2022 for the sale of up to 263,404 shares of the Company's common stock until December 31, 2023. The trading arrangement was in place solely for the potential exercise of vested stock options and for sales intended to satisfy tax obligations payable due to the vesting and settlement of certain restricted stock awards. Since the adoption of the 10b5-1 Plan, 140,000 shares of the Company's common stock were sold out of the original 263,404 shares.
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Item 6. Exhibits
| Exhibit No. | Description | |||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
32.1# | ||||||||
32.2# | ||||||||
| 101.INS** | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH** | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF** | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB** | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | |||||||
| # | The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report on Form 10-Q), unless the Company specifically incorporates the foregoing information into those documents by reference. | |||||||
| ** | In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIOLIFE SOLUTIONS, INC. | |||||
Date: November 9, 2023 | /s/ Troy Wichterman | ||||
| Troy Wichterman | |||||
| Chief Financial Officer | |||||
| (Duly authorized officer and principal financial and accounting officer) | |||||
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