BioLife Solutions (BLFS) Goes Shopping
BioLife (BLFS)
reported Q4 results yesterday after the close that surpassed revenue expectations. Revenue was up 77.5% to $14.7 million (beating by $1.2 million) while adjusted EPS of -$0.01 was in-line. For the full-year 2020 revenue was up 76% to $48.1 million, driven largely by Media products, which grew by 32% to $31 million.The historical results are good but the bigger news, and focus of the conference call, was the announced acquisition of Stirling Ultracold, an Ohio-based company that makes mechanical freezers designed for cell and gene therapies and other biopharma applications. The acquisition target generated 2020 revenue of $39 million, which amounts to 80% of BioLife’s 2020 revenue, and expected 2021 revenue is $60 million, implying it is growing at 54%. In contrast, prior to the earnings report BioLife was expected to generate 2021 revenue of $70 million, implying growth of around 45%.
Bottom line – Stirling is smaller, but not a lot smaller, and growing faster. However, as an equipment manufacturer it has lower gross margins (low 30% range) than BioLife, which enjoys nice gross profits from its media business. The acquisition will reduce the company’s gross profit profile in the near term, which is a trend that occurred in 2020 as well due to acquisitions.
In 2020, BioLife’s adjusted gross margin was 58%, compared to 69% in 2019. There was a good deal of talk about this trend on the conference call. Some analysts wonder why it is acquiring lower profit targets. Management said it believes it can greatly increase gross margins (it forecasts mid to high 40% for Stirling within one to three years) and that it can serve a lot more customers by having a larger portfolio of solutions. In short management said, yeah, media is high margin, but it can only get you so far. We need to be more diversified.
BioLife is paying for the deal with 6.6 million shares of stock (roughly 20% of outstanding shares). The implied acquisition price is $258 million. In exchange it gets a faster growing, lower margin company with room for improvement and which greatly expands the strategic positioning of BioLife.
New 2021 guidance assumes the acquisition closes on May 1. Revenue guidance goes to $101 million to $110 million (up 110% to 129%), assuming $35 million to $37 million from Stirling.
BioLife will report results on three product categories in 2021: Media, Freezer and Thaw Systems, and Services. Media is seen up 23% - 29% to $38 million - $40 million (37% of company total). Freezer and Thaw Systems is seen up 50% to $50 million - $54 million (50% of company total) and Services is seen around $13 million - $16 million (13% of company total).
There are a lot more details, but the bottom line here is the company continues to make major acquisitions and build a bigger portfolio of solutions to address demand in the cell and gene therapy market. I think big investors would like to see an acquisition that is accretive to profit margins, but at the same time finding one at a reasonable price may be harder than a tie up where management teams come together and drive efficiencies.
Finally, we were hoping for disclosure of the large commercial client BioLife has been working with on vaccine distribution, but management said it doesn’t have permission to disclose. It hopes to have that before too long.
I think the big picture investment thesis here continues to warrant buying and holding BLFS. There’s some noise from these acquisitions and investors are trying to sort out all the pros and cons. That explains why BLFS shot up 20% this morning, fell back to yesterday’s close, and is up around 6% now.
The bottom line is management is trying to build a bigger company and it seems to be making progress. Market cap remains just $1.35 billion. I’d like to see some follow through in the stock following this event and will keep at buy for now. BUY