Q3 Results Beat Big. Revenue Guidance Increased
By Brian Marckx, CFA
BioLife Solutions reported financial results for the third quarter ending September 30, 2012 on November 13th. Results were well ahead of our estimates, beating our numbers on both the top and bottom lines with sales benefitting from a huge jump in contract manufacturing revenue which, combined with flat operating expense, resulted in net income coming in almost $300k better than our estimate. BLFS continues to hit financial milestones, turning in another record revenue quarter (marking the 9th in a row) which also generated positive cash from operations (albeit just barely and was negative ex-changes in working capital). Perhaps even more important is that management continues to expect strong growth in Q4 and raised their full-year revenue guidance to $5 million (up from $4.1 million previously). And while BLFS does not provide specific financial or operational guidance beyond the current year, based on communications in recent press/earnings releases and public filings relative to business activities and market opportunities/trends, we have a greater sense that their awareness-building efforts relative to the competitive benefits of their biopreservation media have and will continue pay dividends in the form of increasing the customer base and growing revenues. As such we have made some material upward adjustments to our revenue estimates for 2012 as well as for our out-years. The adjustments to our financial model, which drives our valuation of BLFS, has pushed our per share price target up from $0.30 to $0.50.
Revenue Up 135%, Op Expenses Remain Low
Q3 revenue was $1.7 million, up 135% yoy, up 53% sequentially and well ahead of our $854k estimate. The majority of the $828k top-line beat came from significantly higher than modeled ($1.1MM A vs. $379k E) contract manufacturing revenue. The recent commencement of deliveries to the new contract manufacturing customer helped push contract manufacturing revenue up from $102k in Q3 2011 and $341k in Q2 2012. For Q3 2012 contract manufacturing accounted for 63% of total revenue and contributed 99% and 122% of the total revenue growth on a yoy and sequential basis, respectively.
Product sales to direct ($446k) and indirect ($174k) customers were up slightly (2%) on a yoy basis and down 17% on a sequentially. As noted in previous updates, we would not read much into the quarterly gyrations and repeat that likely more representative of a long-term outlook for product sales is that BioLife recently added headcount to its direct and indirect sales teams (as well as production personnel) in order "to manage growing demand and projections."
Gross margin was 35.4% compared to our 42.5% estimate which is directly attributable to the big beat in contract manufacturing revenue, which carries a lower GM compared to product sales. We model GM for the full year 2012 of 41.7% (GM averaged 45.5% through first nine months).
Operating expenses of $744k were about 8% lower than our $808k estimate. Net income and EPS were ($352k) and (0.01) compared to our ($640k) and ($0.01) estimates.
BioLife exited Q3 with $8k in cash and equivalents, down from $155k at the end of Q2. Cash used in operating activities in Q3 was an inflow of $121. Ex-changes in working capital cash used in operating activities was an outflow of $226k. BLFS expects to achieve positive cash flow from operations in Q4 as well.
Our fundamental long-term outlook remains intact following Q3 results. And as indicated, given the stronger than anticipated recent financial results and near-term guidance along with our view that certain business activities and opportunities are materializing more rapidly than perhaps we had previously anticipated, we have made some upward adjustments to our modeled revenue for both the remainder of the current year as well as for out-years. We now model 2012 revenue and EPS of $5.0 million and ($0.02), up from $3.8 million and ($0.03) prior to Q3 results.
Our 2015 revenue estimate has moved from to $8.9 million, up from $6.9 million previously. The upward revisions to our model have moved our price target from $0.30/share to $0.50/share. Our valuation methodology is based on comp valuations (see our full report which includes our financial model and valuation).
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