Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and Full Year 2021 BioLife Solutions, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Troy Wichterman, please go ahead, sir.

Thank you, Grace. Good afternoon, everyone, and thank you for joining this call. Joining me on today's call are Mike Rice, Chairman and Chief Executive Officer; and Rod de Greef, President and Chief Operating Officer. Earlier today, we issued a press release announcing our financial results and operational highlights for the fourth quarter and full year of 2021. As a reminder, during this call, we may make certain projections and other forward-looking statements regarding future events or the future financial performance of the company or its acquisitions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business and that qualify as forward-looking statements, I refer you to our periodic and other public filings filed with the SEC. Company projections and forward-looking statements are based on factors that are subject to change, and therefore, these statements speak only as of the date they are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law. During this call, we will speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. These non-GAAP or adjusted financial metrics should not be viewed as an alternative to GAAP. However, in light of our M&A activity, we believe that the use of non-GAAP or adjusted metrics provides investors with a clearer view of our current financial results when compared to prior periods. Now I'd like to turn the call over to Mike Rice, Chairman and CEO of BioLife Solutions.

Thanks, Troy, and good afternoon, everyone. Thank you for joining our call. After my remarks, Troy will present our financials for Q4 and the full year of 2021 and our initial revenue guidance for 2022. Then Rod will provide an update on key operational initiatives he is managing targeting gross margin improvements, specifically for our Stirling ULT freezer platform. After that, we'll be glad to take your questions. Turning to Q4 revenue and customer highlights. It's clear that our acquisitions of fast-growing assets are complementing stellar growth in biopreservation media revenue. Top line total revenue was $37 million in Q4, this was up 153% year-over-year and 10% sequentially. Organic revenue growth in the fourth quarter was 64% year-over-year driven by biopreservation media revenue growth of 64% compared to Q4 of 2020. Starting in Q4, one large distributor began increasing their inventory power levels to get to a 90-day stock in response to strong downstream demand. We believe this will continue in Q1 2022 and then level off. In Q4, we gained at least 235 new customers across our 3 product and services platforms, and I'll remind you now what those are. First, cell processing, which includes biopreservation media and Sexton products. Second is our freezers and thaw systems platform comprised of CBS liquid nitrogen freezers and Stirling mechanical freezers and ThawSTAR systems; and finally, storage and cold chain services, which includes our SciSafe storage services and our evo Cold Chain management offering. New Q4 customers by product line included 15 now using biopreservation media, 7 new ThawSTAR users, 11 new evo Cold Chain end users, 17 new cryogenic freezer customers, 159 new Stirling freezer customers, 14 new biostorage customers, and 12 new cell processing customers now using Sexton products. These 235 new customers in Q4 compared to 213 in all…

Thank you, Mike. I'll start off with a review of our financial results for Q4 and full year 2021 and then provide a summary of our 2022 revenue guidance. Revenue for the fourth quarter totaled $37.3 million, representing 153% increase over 2020's fourth quarter revenue. Organic revenue increased 64% in Q4 2021 compared to Q4 2020. This was driven by biopreservation and media revenue of $13.4 million, which was up 64% in Q4 2021 compared to 2020. COVID-19 related revenue accounted for approximately 15% of our total revenue in the fourth quarter. Cell processing platform revenue was $14.8 million, up 81% over the same period in 2020. Organic growth was 64%. Freezers and Thaw systems platform revenue was $16.6 million, up 285% over the same period in 2020. COVID-19 related revenue accounted for approximately 15% of the freezer and Thaw systems platform revenue. Organic growth was 13%. Storage and storage services platform revenue was $5.9 million, up 164% over the same period in 2020. COVID-19 related revenue accounted for approximately 50% of the storage and storage services platform revenue. Organic growth was 164%. Revenue for the full year ended December 31, 2021, totaled $119.2 million, representing 148% increase over 2020. Organic revenue increased 37% in 2021 compared to 2020, driven by biopreservation media revenue of $43.1 million, which was up 39%. COVID-19-related revenue accounted for approximately 15% of total revenue for full year 2021. Cell processing platform revenue was $45 million, up 45% over 2020. Organic growth was 39%. Freezers and Thaw systems platform revenue was $56.6 million, up 318% over 2020. COVID-19-related revenue accounted for approximately 20% of the freezer and thaw systems platform revenue. Organic growth was 30%. Storage and storage services platform revenue was $17.6 million, up 389% over 2020. COVID-19 related revenue accounted for approximately 40%…

Thanks, Troy. Since the time of our last call in mid-November, I was in my current role for about 1.5 weeks. And over the last 90 days, we've gained a much better understanding of the operational dynamics related to the Stirling product line. As we identified and drilled down on the most critical items, it's clear that the root cause of the operational issues is the increase in unit production, which exceeded 100% between 2020 and 2021. This rapid and unexpected growth exposed certain weaknesses in product design, manufacturing processes, supply chain and organization. As I mentioned on the last call, we believe the design and manufacturing issues impacting quality have largely been mitigated over the last 12 months through the implementation of a number of engineering improvements, significant changes to the manufacturing workflow on factory floor, and the development of a more robust quality program. The incremental warranty accrual we took in Q4 reflects a change in estimate related to the scope and scale of the historical quality issues. And we believe that more recent production will not have the same warranty costs as evidenced by increased first past yield metrics and lower 90-day field failure rates over the last several months. The doubling of units produced also exposed the weakness in our supply chain in 2 ways. First, many of our critical components were sole-sourced. And second, a number of those sole-sourced vendors simply could not scale fast enough with the level of quality we needed. We've largely completed the key vendor transition we spoke about on the last call, and we'll issue that original vendor to support our dual source approach going forward. We have identified a number of other critical sole-sourced components and are in the process of securing and qualifying secondary sources for those items.…

Thanks, Rod. I'd like to summarize 2 key takeaways from Q4 and the full year 2021. First, it's clear that demand for our bioproduction tools and services portfolio continues to grow as more CGT and biopharma companies realize the value our solutions can provide in reducing risk. We built a phenomenal customer base and can see great potential in cross-selling to capture revenue synergies. We have very high-trust, sticky customer relationships and are determined to provide stellar experiences with all of our products and services. Second, while usage at Stirling are clearly disappointing, our Stirling ULT freezer platform is differentiated. And I'm confident that our leadership team and rank and file team members will continue to resolve the issues to position our ULT freezer platform as truly class-defining. All of the other platforms of the business are performing well. Finally, I'm pleased to say that overall, product demand so far in Q1 is strong, and we're looking forward to sharing our results on our next earnings call. Now I'll turn the call back over to the operator to take your questions. Grace?

Just maybe to start, I think it would be great to -- if there's any way for us to frame expectations for the margins, whether it's in Q1 based on what you're seeing so far or even from a first half versus second half perspective. I think it would be great to hear how -- if your visibility has changed into what those incremental warranty accrual estimate surcharges and write-offs could look like going forward compared to your visibility at the time of the Q3 call.

Yes. Thanks for the question, Max. So we do not give margin guidance or guidance by quarter. However, what I can tell you for the full year of 2022, assuming our improvement initiatives are completed as we expect, overall gross margin should continue to improve throughout the year. We still believe we will obtain our 3-year financial goal metric of 50% gross margins through the combination of supply chain improvements, leveraging product volumes, and new product introductions. So I think what you're going to see through 2022 is more of an improvement throughout the year versus a onetime improvement in Q1.

And Max, it's Rod here. To add to that, I think that with respect to warranty, everything we know is out today, right? So we don't anticipate any sort of additional one-off or incremental warranty accruals at this point in time, and we're sort of half-way through the quarter. So nothing has changed from our perspective when we took a look at the Q4 numbers.

Okay. Got it. And you added a solid 159 new customers for Stirling in Q4. It would be great to hear, well, there's a -- is there a backlog building in that segment of the freezer business? Or how does that current manufacturing capacity for Stirling sort of match up with your demand at this point? And how that might -- how could that play out during the year?

Yes. Max, Mike here. There is a backlog building. We don't quantify it or report on it. But Rob, maybe you could just speak to capacity.

Yes. I think the capacity is well there. I think the challenges that we've had, Max, over the last couple of 3 quarters really have to do with supplier issues really impacting factory flow production levels. That has gotten better, for sure, and Q4 was better than Q3. And so far in Q1, it's been better as well. But I would not say it's completely where it needs to be. But we're eating into the backlog, and our objective is to make sure that our lead times are no more than 2 weeks for any particular model that we have on the Stirling side.

Next up, we have Paul Knight from KeyBanc.

Could you -- if you look at the contributors to the impact on EBITDA and specifically operating income, you mentioned SciSafe, Stirling, public costs biostorage sites. Would it be fair to say the significant factor is Stirling in that operating income impact?

Paul, it's Troy. Yes. I would say that's a fair statement.

Okay. And then where -- you added 3 biostorage sites. Where are those being added?

They're added in the Netherlands, Massachusetts and New Jersey.

And then lastly, it looks like your customer count went up a lot; 700 versus 218 in 2020. What are the factors behind that? Is it the direct sales force you've added via Stirling? Or what is it behind that large increase?

Paul, Mike here. Yes, you hit it on the head, for sure. Having the new integrated freezer sales team, which is comprised mostly of the folks that came over from Stirling, has been great. They and the other folks can now speak fluidly enough to identify opportunities across the platforms, particularly with large accounts where we already have relationships. So it's really a combination of their efforts, our marketing. Just the really uplift in awareness of the BioLife brand, particularly that these new companies are now part of BioLife. So as you can imagine, we're maximizing that and exploiting that in every way possible through social media and our direct marketing and what the sellers have in their arsenal as far as talking points. So all of the above.

Next up, we have Jacob Johnson from Stephens.

Maybe just following up on Max's questions about gross margins. Troy, I certainly appreciate the improving throughout 2022. But maybe just kind of as a starting point, you talked about 39% gross margins kind of ex the onetime items. So if we use that as a starting point, are there any kind of these charges related to Stirling that we should assume kind of continue into 1Q and then maybe roll off and then you can maybe improve from that 39%? Just using that 39% as a bridge would be kind of helpful as we think about 2022.

Yes. Jacob, it's Rod here. I think that we are going to continue to have some not immaterial PPBs as we go through at least the first and second quarter, which is why I kind of referenced the second half of the year versus the first half of the year. So I know that's not giving you a specific number, but I do think that Stirling is going to be a drag for the next quarter -- first quarter here and then into the second quarter. I think at that point in time, a number of sources suggest that the supply chain will ease a bit. At that point in time also, we'll have the benefit of having a number of critical components have second sources so that we are not held hostage, so to speak, by one company who can -- feels like they can pretty much do what they want to do. So I think those things will all be in play by the second half of the year.

And one thing to add there, too, Jacob. Mike mentioned, too, that we have a distributor that is increasing their par value, and that's going to continue into Q1 and Q2, which has a few percentage points impact on gross margin.

Okay. And then on the media side, I mean, a really strong 4Q, really strong outlook into 2022. I guess 2 questions. One, can you just talk about the strength here between commercial customers, maybe clinical customers and then distributors? And then, Mike, I think you mentioned a large distributor building inventory. Can you just give us some more color around that dynamic? It sounds like it'll play out in 1Q and then maybe taper off after that.

Yes. Glad to, Jacob. So this distributor is 1 of the 2 that I cited that, in combination with the other one, found more than 4,200 homes for our media products. So they're just completely wired in. They've got dedicated marketing resources for the BioLife portfolio. We're in constant communication with them. It's also the distributor that I mentioned that is distributing the ThawSTAR vial thaw and soon to add the cryobag or the CV format. So they're just a fantastic partner. Now they do enjoy a pretty hefty discount. And so because their revenue is significant, to Troy's point, that does have a margin impact. But it's nothing we would ever try to engineer ourselves out of there. So productive. They're finding so many homes for the products, several of which are end users that will become clinical applications and 4- wheel commercial customers at some point. And we know that just based on the transition of some already of communication to us where we can provide better scientific clin-reg support through Dr. Matthew and some other folks. So that's just a fantastic relationship. And I think that the other distributor, the 2 I mentioned, while not as productive, is still doing a really good job. But they're more focused on the research use-only market. Now with respect to your comment about commercial applications. As I count up from the ARM data from the JPMorgan inaugural address there, I want to say that we're in perhaps 10 of the 23 or so applications that are listed in 2022 and 2023 for which REG filings, approval filings will be made. So it's really strong. The inbound inquiries to use media continue at a really strong pace. Dr. Matthew and now Sean Werner, Dr. Werner from Sexton, who's also helping support customers on the clin-reg scientific side are really busy, to put it mildly. I mean they're handling many, many customer inquiries. And I'll say that with some serious pride and kudos to what AB has been able to do here in the last year, has been to support our media use in applications -- clinical applications outside the U.S. which has been quite a quagmire for AB to navigate, and he's done it masterfully, particularly where the initial inquiries from all these customers and/or their in-country reg bodies says, "Give us the formula." And we don't do that, as you know. The proprietary media is, in fact, proprietary. Nobody knows the formula other than the U.S. FDA, and AB has done a masterful job helping those customers adopt and us seeing the media being incorporated into approved products. So just really phenomenal. That tide is really lifting the media boat for us, and we would expect that to continue over the next several years.

Got it. And then just 2 quick last questions. I appreciate the kind of COVID disclosure around the storage business. But I think inevitably, we'll get questions around the duration of it. So I'll ask you kind of how should we think about the durability of those revenues. And then another quick follow-up. I got a question around the 10-K being delayed. I just figured I'd give you the forum to maybe comment on what's going on there.

Yes, go ahead, Troy. You can start with COVID.

I'll start with the COVID question and duration there, Jacob. The duration on those is depending on what facility and what customer we're serving. But as you noticed in our guidance for the storage and storage services, which includes the SciSafe business, its a pretty wide range. And part of the reason to that is because there is a U.S. COVID contract that tails off in Q2. So if that customer renews their contract, right, that's going to be another tailwind of revenue there for BioLife. So that's kind of why you see that wider range in the storage and storage services business. And then in regards to the late filing, thank you for bringing that up because we do pride ourselves on filing on time and realize this is important. It's really just a simple fact that our auditors have not completed the audit report yet. And this is primarily driven by the 2021 acquisitions. And now that BioLife is an accelerated filer, a large accelerated filer, this compressed the time line by 30 days. So that's kind of really the 2 reasons.

You next question comes from the line of Thomas Flaten from Lake Street Capital.

Interesting to see the positive impact or the more positive impact that the distributors are having. As you guys build the business out new product lines, et cetera, should -- how should we think about the impact that distributors will have maybe over the medium-term horizon? How do you guys think about integrating product lines into them? And will they become a lesser force in terms of revenue growth there? I'm just wondering if you guys could put some color around there.

Yes. Thomas, Mike here. Good question. Well, I think the early evidence is, as I mentioned on the call, one of our largest media customers is carrying ThawSTAR bioformat, will add most likely the cryobag format this year. That will be very helpful. One of our other largest ULT freezer distributors is going to be adding the liquid nitrogen freezers as well. So we've got full leverage there to expand those relationships and to do it in a smart way where it makes sense, where we can reduce overlap and leverage the strengths of those particular groups. So more to come on that, for sure.

Great. And then just a question. You guys provided overall growth, organic growth and also COVID-related revenue. Can you just walk us through how those are related? What are the discounts from overall to organic, given that most of your acquisitions have been on board for a while? I would have expected to see those align maybe a little bit more. Can you just walk us through how we should think about those numbers?

Yes, sure. So we only do it, obviously, right, organic would be a same-store comparable. So we have to own it for that full period. So we acquired SciSafe in Q4 of 2020. So they're a comparable for Q4 2021, but not a comparable for full year over full year. And then the Stirling and Sexton acquisitions acquired in 2021 did not factor into the organic growth that we're disclosing.

Okay. So that's the only delta there. Okay. Just want to make sure.

That's the only one that -- yes, yes, exactly.

Next up, we have Yuan Zhi from Riley Securities.

So I have 2 questions. The first one is across the cell therapy supply chain, where do you guys see the market opportunities in 2022? For example, you guys have cell processing, freezers, storage and logistics. Just want to hear your thoughts and even beyond your product portfolios.

Yuan, Mike here. Great question. Well, I'm happy to tell you and everyone that we see tremendous lift and opportunities for us throughout the portions of the workflow where we participate, whether it's preservation media, whether it's storage, distribution, cell processing. So we fully intend to be a dominant supplier of products and services in those particular workflow segments or sockets, if you want to call them that. So I'd say storage is going to boom. Clearly, media is going to boom. Cell processing, our team at Sexton are knocking it out of the park doing really, really well. So across the board.

Got it. And another question is can you guys comment on what's your competitive edge on your evo system? Like, is it because of pricing, compatibility? And can you comment on which regions are those 2 customers are testing to get evo online?

Yes. Good question. We can give a little help, but not the full answer you're seeking, okay? So in a nutshell, the evo platform is differentiated by a number of approved patented and also patent applied for features, which translate directly into some benefits for customers, which are all about reducing risk. So the #1 differentiator would be thermal hold time or the ability for the evo container to maintain interior payload temperature for a much longer than competing systems, particularly in dynamic environments, which I'm going to define that now for the world as a doer being tipped on its side or even upside down in some cases. Now I'm being intentional there because other companies may describe dynamic as something which is really more of a static nature. So just to get that out there. And that's important. All liquid nitrogen doers have a vent. And when they get tipped over, the LN2 gas escapes, and off gases , to use the fancy word for it. And when that happens, the internal payload cavity starts to warm up. And as you know, Yuan and other folks, temperature cycling or temperature variation or excursions are death knell or a death knell for cell and gene therapies. They don't like that at all. And again, in the interest to help customers reduce risk of delivering a nonviable dose, how do we do that? Well, the evo container can protect this and maintain the temperature. If cells are destroyed from temperature excursions, they're not viable anymore, they do not elicit the desired therapeutic effect, the patient doesn't respond and hence, our customer doesn't get paid because, as you know, reimbursement is predicated on that initial and sustained positive patient response. So that's really important. I'd also say that our go-to-market strategy…

And maybe a quick follow-up here. Can you comment on which region or continent has evo system being tested, like America or Europe or Asia Pacific? Just want to hear your comments there.

Yes. Well, I'll say that the evo platform is currently in use in all of the developed continents of the world. And of those nearly 4,000 shipments to 600 or so and unique destinations, those are all over the globe, Yuan. And I can say with a little more specificity that the current approved CAR T-cell company that is using evo has deployed evo in Western Europe countries and now in the U.S., and we would expect that their use to increase over time as more and more clinical centers get trained up on what's this new container, it looks a little bit different, that whole kind of thing. Now with respect to the second approved CAR T-cell therapy company I mentioned that has 2 therapies already approved. Those are U.S., and if not, soon to be European approvals, as you can imagine. So really just great adoption across the globe and something that we see continuing clearly this year and beyond.

Your next question comes from the line of Jason McCarthy from Maxim.

This is Mike Okunewitch on the line for Jason McCarthy. So I wanted to see if you had any data on the total number of new cell and gene therapy applications, which are entering clinical studies in 2021. And my reason for asking is that it looks like you had something like 63 new master file references over the past year. And there has to be some significant percentage of the total number that are entering clinical studies. So could you give any additional color on that?

Yes, I can. And look, I can't cite it from memory, but if you look at the ARM data for their Jan 1, 2021, JPMorgan state of the union address and get the total from that deck and do the same thing for this year, you can see how it goes. And it's certainly up a fair amount, no doubt about it. But I will say that our master files are just one component of the increase in our numbers because we have some outside U.S. applications, which, as you know, don't use the U.S. master file mechanism, okay?

And then one more, I guess, on Stirling. I just wanted to get an idea of how the relationship looks with the customer after a unit is placed. Are there any significant recurring revenues? Or is that more of a one-time capital expense? And then how often would customers and users replace one of those freezers?

Yes. Really good questions, Mike. I would say that for the most part, once the freezer is bought, it's kind of done, other than the initiative Rod is working on through his customer service team to establish a profitable revenue center of service revenue. So that will be really cool. And just a little bit of an aside, when I started my career, I was a field service rep and a service manager. So I've got a strong interest in helping Rod and his team flesh this out and build the right business practices and the right margin goals and all that. So we're really bullish about that for sure. But there aren't really a meaningful follow-on revenue of racks or assessors or things like that. There's some, but it's basically kind of one and done until they need more. But the useful life just figure about 5 to 7 to 9 years, something like that, yes.

Your next question comes from the line of Mike Ott from Oppenheimer.

I'm on for Suraj this evening. Rod, curious if you can share just any additional specifics around the Stirling issues. I know you gave a lot of color. But beyond the kind of scale up in their volumes, staffing issues you cited, was anything design or, I guess, broadly manufacturing-related? And did you know, I guess, of those issues at the time of acquisition?

Yes. I think that the issue of what we knew and didn't know, that, I think, is something that we're going to kind of hold close to our vest based on company council advice. As it relates to more specifics, I think it can be really boiled down into 2 -- well, really 3 categories. The first is actual -- some design limitations, particularly around the engine manufacturing process that had to be revamped in a pretty big way from going from a couple of thousand freezers to nearly 8,000 freezers. That's one. I think the -- probably the one that had the biggest impact with respect to overall quality was vendors and the inability of a handful of really critical vendors to simply not scale, not increase 100-plus percent with the quality that we needed. And that, particularly in the last half of last year, created a significant amount of problems. I think that we're not completely done with all that, but we're largely through it. Now we are starting to face some issues around just the availability of components, which is why again, the second source piece becomes so important, not just in terms of the geographical location of those single source vendors, but just the ability to leverage other parts of our company, for example, electronic components that we might use or that can be obtained by our contract manufacturer on our thaw device that can be used for the boards on the Stirling freezers. That's just a real-time example of something that we've done where consolidating those activities just makes a lot of sense.

And I'm showing no further questions at this time. I would now like to turn the conference back to our Chairman and CEO of BioLife Solutions, Mike Rice, for some closing remarks, sir?

Thank you, Grace, and thanks, again, everyone, for your interest in BioLife. 2022 will be another inflection year as we capture demand and realize the benefits of the quality and margin improvement initiatives currently underway. We remain confident in reaching our stated midterm financial goals. Thank you for your support of BioLife, and good evening.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now all disconnect.