BIOLIFE SOLUTIONS, INC. This Form 10-K contains "forward-looking statements". These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about our products, including our newly acquired products, customers, regulatory approvals, the potential utility of and market for our products and services, our ability to implement our business strategy and anticipated business and operations, in particular following our acquisitions in recent years, future financial and operational performance, our anticipated future growth strategy, including the acquisition of synergistic cell and gene therapy manufacturing tools and services or technologies, or other companies or technologies, capital requirements, intellectual property, suppliers, joint venture partners, future financial and operating results, the impact of the COVID-19 pandemic, plans, objectives, expectations and intentions, revenues, costs and expenses, interest rates, outcome of contingencies, business strategies, regulatory filings and requirements, the estimated potential size of markets, capital requirements, the terms of any capital financing agreements and other statements that are not historical facts. You can find many of these statements by looking for words like "believes", "expects", "anticipates", "estimates", "may", "should", "will", "could", "plan", "intend", or similar expressions in this Form 10-K. We intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that might cause such a difference include those discussed under "Risk Factors", as well as those discussed elsewhere in the Form 10-K.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K or, in the case of documents referred to or incorporated by reference, the date of those documents.
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events, except as may be required under applicableU.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. 23
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We are a life sciences company that develops and commercializes innovative technologies used in the manufacture, storage and transportation of biological materials and provides storage solutions for biological and pharmaceutical materials.
We develop, manufacture, and market bioproduction tools and services to the cell
and gene therapy ("CGT") industry and broader biopharma market, which are
designed to improve quality and de-risk biologic manufacturing, storage, and
distribution. 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 are comprised 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) storage
and storage 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 business which
supports several steps in the biologic material manufacturing and delivery
process. We have a diversified portfolio of tools and services that focus 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.
The consolidated financial statements as of December 31, 2021 and for the years
ended December 31, 2021 and 2020 have been corrected to correct immaterial prior
period errors as discussed in Note 2, Correction of immaterial errors to our
consolidated financial statements included in this Annual Report on Form 10-K.
Accordingly, Management's Discussion and Analysis reflects the impact of those
corrections.
OnAugust 9, 2021 , BioLife entered into an Agreement and Plan of Merger (the "Sexton Merger Agreement") withBLFS Merger Sub, Inc. , aDelaware corporation ("Sexton Merger Sub"),Fortis Advisors LLC , in its capacity as the representative of the stockholders of Sexton (the "Sexton Seller Representative") andSexton Biotechnologies, Inc. , aDelaware corporation. OnSeptember 1, 2021 , the Company completed the merger of Sexton Merger Sub with and into Sexton and Sexton became a wholly owned subsidiary of the Company (the "Sexton Merger"). As consideration for the Sexton Merger (the "Sexton Merger Consideration"), holders of common stock, preferred stock and options of Sexton, other than the Company (collectively, the "Sexton Participating Holders"), are entitled to receive an aggregate of 530,502 newly issued shares of the Company's common stock, subject to certain post-closing adjustments, of which 477,452 shares of Common Stock were issued to the Sexton Participating Holders at the Closing, and 53,050 shares of Common Stock, or approximately 10% of the Merger consideration, were deposited into an escrow account for indemnification and post-closing purchase price adjustment purposes. Prior to the merger, the Company held preferred stock in Sexton, which was accounted for using a measurement alternative that measures the securities at cost minus impairment, if any. The Company accounted for the merger as a step acquisition, which required remeasurement of the Company's existing ownership in Sexton to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value, resulting in the recognition of a non-cash gain of$6.5 million , which was included in the gain on acquisition ofSexton Biotechnologies, Inc. in the Consolidated Statements of Operations in the year endedDecember 31, 2021 . The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest based on the total merger consideration offered and the Company's stock price at acquisition. The Sexton Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was approximately$4.1 million , the deferred tax liability acquired was approximately$1.5 million , the fair value of the intangible assets acquired was approximately$8.8 million , and the residual goodwill was approximately$28.5 million . The fair value calculations required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.
OnMarch 19, 2021 , the Company entered into an Agreement and Plan of Merger (the "GCI Merger Agreement") withBLFS Merger Subsidiary, Inc. , aDelaware corporation ("GCI Merger Sub"), Global Cooling, aDelaware corporation andAlbert Vierling andWilliam Baumel , in their capacity as the representatives of the stockholders of GCI (collectively, the "GCI Seller Representative"). 24
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OnMay 3, 2021 , pursuant to the GCI Merger Agreement, subject to the terms and conditions set forth therein, the transactions contemplated by the GCI Merger Agreement were consummated (the "GCI Closing"), GCI Merger Sub merged with and into GCI (the "GCI Merger" and, together with other transactions contemplated by the GCI Merger Agreement, the "GCI Transactions"), with GCI continuing as the surviving corporation in the GCI Merger and a wholly owned subsidiary of the Company. In the GCI Merger, all of the issued and outstanding shares of capital stock of GCI immediately prior to the filing of the Certificate of Merger with the Secretary of State of theState of Delaware (other than those properly exercising any applicable dissenter's rights underDelaware law) were converted into the right to receive the GCI Merger Consideration (as defined below). The Company paid the GCI Merger Consideration to the holders of common stock and preferred stock of GCI (collectively, the "GCI Stockholders"). The aggregate merger consideration paid pursuant to the GCI Merger Agreement to the GCI Stockholders was 6,646,870 newly issued shares of common stock, provided, however, that the GCI Merger Consideration otherwise payable to GCI Stockholders is subject to the withholding of the GCI Escrow Shares (as defined below) and is subject to reduction for indemnification obligations. The GCI Merger Consideration allocable to one GCI stockholder was reduced by 10,400 shares to satisfy an outstanding note receivable of$374,000 . In accordance with ASC 805, the Company recognized the settlement of pre-existing relationships in the forms of cash deposits, trade receivables, and trade payables, which are included in the consideration transferred. The GCI Merger Consideration is not subject to any purchase price adjustments. At the GCI Closing, approximately nine percent (9%) of the GCI Merger Consideration (the "Escrow Shares", along with any other dividends, distributions or other income on the GCI Escrow Shares, the "GCI Escrow Property") otherwise issuable to the GCI Stockholders (allocated pro rata among the GCI Stockholders based on the GCI Merger Consideration otherwise issuable to them at the GCI Closing), was deposited into a segregated escrow account in accordance with an escrow agreement entered into in connection with the GCI Transactions (the "GCI Escrow Agreement").
The GCI Escrow Property will be held for a period of up to twenty-four (24) months after the GCI Closing as the sole and exclusive source of payment for any post-GCI Closing indemnification claims (other than fraud claims), unless earlier released in accordance with the terms of the GCI Escrow Agreement.
The GCI Merger was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the net tangible assets acquired was$740,000 , the deferred tax liability acquired was$24.1 million , the fair value of the intangible assets acquired was$120.5 million , and the residual goodwill was$137.8 million . The fair value calculations for intangible assets required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.
OnSeptember 18, 2020 , BioLife entered into a Stock Purchase Agreement, by and among the Company,SciSafe Holdings, Inc. , aDelaware corporation, and the stockholders of SciSafe (collectively, the "SciSafe Sellers"), pursuant to which the Company agreed to purchase from the SciSafe Sellers one hundred percent (100%) of the issued and outstanding capital shares or other equity interests of SciSafe (the "SciSafe Acquisition"). The SciSafe Acquisition closedOctober 1, 2020 . In connection with the SciSafe Acquisition, the Company issued to the SciSafe Sellers 611,683 shares of common stock valued at$29.29 per share and a cash payment of$15 million , with$1.5 million held in escrow to account for adjustments for net working capital and as a security for, and a source of payment of, the Company's indemnity rights. Pending the occurrence of certain events, the Company will issue to the SciSafe Sellers an additional 626,000 shares of common stock, which are issuable to SciSafe Sellers upon SciSafe achieving certain specified revenue targets in each year from 2021 to 2024. The revenue target set for 2022 was met and, therefore, has resulted in 116,973 shares of common stock becoming issuable to the SciSafe Sellers. These shares will be issued during the year endedDecember 31, 2023 . The SciSafe Acquisition was accounted for as a purchase of a business under FASB ASC Topic 805, Business Combinations. The fair value of the contingent consideration was$3.7 million , the fair value of the net tangible assets acquired was$2.8 million , the deferred tax liability was$3.3 million , the fair value of the intangible assets acquired was$12.1 million , and the residual goodwill was$24.9 million . The fair value calculations for intangible assets required critical estimates, including, but not limited to, future expected cash flows, revenue and expense projections, discount rates, revenue volatility, and royalty rates.
Critical accounting policies and estimates
We have identified the policies and estimates below as being critical to our
business operations and the understanding of our results of operations. These
policies require management's most difficult, subjective, or complex judgements,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. The impact of any associated risks related to these
policies on our business operations are discussed throughout "Management's
Discussion and Analysis of Financial Condition," including in the "Results of
Operations" section, where such policies affect our reported and expected
financial results. Although we believe that our estimates, assumptions, and
judgements are reasonable, they are based upon information presently available.
Actual results may differ significantly from these estimates under different
assumptions, judgments, or conditions.
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Table of Contents Revenue recognition To determine revenue recognition for contractual arrangements that we determine are within the scope ofFinancial Accounting Standards Board ("FASB") Topic 606, Revenue from Contracts with Customers, we perform the following five steps: (i) identify each contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to our performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the relevant performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the 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. The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of biopreservation media, ThawSTAR, and freezer products. We recognize product revenue, including shipping and handling charges billed to customers, when we transfer control of our products to our customers. Shipping and handling costs are classified as part of cost of product revenue in the Consolidated Statement of Operations. Service revenues are generated from the storage of biological and pharmaceutical materials. We recognize service revenues 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 paragraph 606-10-32-18, 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 or variable consideration as of and during the years endedDecember 31, 2022 , 2021, and 2020. The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems 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. Business combinations Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our Consolidated Statements of Operations. We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technologies, trademarks, tradenames, patents, and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets. 26
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Intangible assets and goodwill
Intangible assets
Intangible assets with a definite life are amortized over their estimated useful
lives using the straight-line method and the amortization expense is recorded
within intangible asset amortization in the Consolidated Statements of
Operations. If the estimate of a definite-lived intangible asset's remaining
useful life is changed, the remaining carrying amount of the intangible asset is
amortized prospectively over the revised remaining useful life. Definite-lived
intangible assets and their related estimated useful lives are reviewed at least
annually to determine if any adverse conditions exist that would indicate the
carrying value of these assets may not be recoverable.
Indefinite-lived intangibles are carried at the initially recorded fair value
less any recognized impairment. In-process research and development ("IPR&D") is
initially capitalized at fair value as an intangible asset with an indefinite
life. When the IPR&D project is complete, it is reclassified as a definite-lived
intangible asset and is amortized over its estimated useful life. If an IPR&D
project is abandoned, a charge would be recorded for the value of the related
intangible asset to our Consolidated Statement of Operations in the period it is
abandoned. Indefinite-lived intangibles are tested annually for impairment.
Impairment assessments are conducted more frequently if certain conditions
exist, including a change in the competitive landscape, any internal decisions
to pursue new or different technology strategies, a loss of a significant
customer, or a significant change in the marketplace, including changes in the
prices paid for the Company's products or changes in the size of the market for
the Company's products. If impairment indicators are present, the Company
determines whether the underlying intangible asset is recoverable through
estimated future undiscounted cash flows. If the asset is not found to be
recoverable, it is written down to the estimated fair value of the asset based
on the sum of the future discounted cash flows expected to result from the use
and disposition of the asset.
Goodwill
We test goodwill for impairment on an annual basis, and between annual tests if
events and circumstances indicate it is more likely than not that the fair value
of our goodwill is less than its carrying value. Events that would indicate
impairment and trigger an interim impairment assessment include, but are not
limited to, current economic and market conditions, including a decline in the
Company's market capitalization, a significant adverse change in legal factors,
business climate or operational performance of the business, and an adverse
action or assessment by a regulator. Goodwill is tested for impairment in the
fourth quarter of each year, or more frequently as warranted by events or
changes in circumstances mentioned above. Accounting guidance also permits an
optional qualitative assessment for goodwill to determine whether it is more
likely than not that the carrying value of a reporting unit exceeds its fair
value. If, after this qualitative assessment, we determine that it is not more
likely than not that the fair value of a reporting unit is less than its
carrying amount, then no further quantitative testing would be necessary. A
quantitative assessment is performed if the qualitative assessment results in a
more likely than not determination or if a qualitative assessment is not
performed. The quantitative assessment considers whether the carrying amount of
a reporting unit exceeds its fair value, in which case an impairment charge is
recorded to the extent the reporting unit's carrying value exceeds its fair
value. The Company operates as one reporting unit as of the goodwill impairment
measurement date in the fourth quarter of 2022.
Warranty guarantees
Our freezer and thaw and certain cell processing products are warranted to
provide assurance that the product will function as expected and to ensure
customer confidence in design and overall quality. Warranty coverage on our
products is generally provided for specified periods of time and on select
products' hours of usage, and generally covers parts, labor, and other expenses
for non-maintenance repairs. Warranty coverage generally does not cover operator
abuse or improper use.
At the time of sale, we recognize expense and record a warranty accrual by
product line for estimated costs in connection with forecasted future warranty
claims. Our estimate of the cost of future warranty claims is based primarily on
the estimated number of products under warranty, historical average costs
incurred to service warranty claims, the trend in the historical ratio of
warranty claims for each part covered, and the historical length of time between
the sale and resulting warranty claim. If applicable, historical claims
experience may be adjusted for known product design improvements or for the
impact of unusual product quality issues. We periodically assess the adequacy of
our warranty accruals based on changes in our estimates and assumptions and
record any necessary adjustments if the cost of actual claim experience differs
from our estimate and indicates that adjustments to our warranty accrual are
necessary. Factors that could have an impact on actual future claims and our
warranty accrual include, but are not limited to, items such as performance of
new products; product failure rates; factors impacting product usage, such as
changes in sales volumes and shifts in product mix; manufacturing quality and
product design issues, including significant manufacturing or design defects not
discovered until after the product is delivered to customers; higher or lower
than expected service and component part costs to satisfactorily address the
repair, and, if applicable, changes to the warranty coverage periods.
Additionally, from time to time, we also establish warranty accruals for our
estimate of the costs necessary to settle major rework campaigns on a
product-specific basis during the period in which the circumstances giving rise
to the major rework campaign become known and when the costs to satisfactorily
address the situation are both probable and estimable. The warranty accrual for
the cost of a major rework campaign is primarily based on an estimate of the
cost to repair each affected unit and the number of affected units expected to
be repaired.
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We believe that our analysis of historical warranty claim trends and knowledge of potential manufacturing and/or product design improvements or issues provide sufficient information to establish a reasonable estimate for the cost of future warranty claims at the time of sale and our warranty accruals as of the date of our Consolidated Balance Sheets. We believe that our$8.3 million warranty accrual as ofDecember 31, 2022 is adequate and historically has been adequate; however, due to the inherent uncertainty in the accrual estimation process, including forecasting future warranty claims, costs associated with servicing future warranty claims, and unexpected major rework campaigns that may arise in the future, our actual warranty costs incurred may differ from our warranty accrual estimate. An unexpected increase in warranty claims and/or in the costs associated with servicing those claims would result in an increase in our warranty accruals and a decrease in our net earnings. Contingent consideration We estimate the acquisition date fair value of the acquisition-related contingent consideration using various valuation approaches, including option pricing models andMonte Carlo simulations, as well as significant unobservable inputs, reflecting the Company's assessment of the assumptions market participants would use to value these liabilities. The fair value of the contingent consideration is remeasured each reporting period, with any change in the value recorded in our Consolidated Statements of Operations as change in fair value of contingent consideration. 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. Provision for income taxes The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, Accounting for Income Taxes, the Company determined that the Company's recorded deferred tax liabilities as ofDecember 31, 2022 would be a sufficient source of taxable income to realize all of its deferred tax assets except for a portion of its net operating loss carryforwards. As a result, a full valuation allowance on its deferred tax assets was recorded as ofDecember 31, 2022 . The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company is generally subject to examination byU.S. federal and local income tax authorities for all tax years in which loss carryforward is available. The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As ofDecember 31, 2022 , the Company has an unrecognized tax benefit of$610,000 related to tax attributes being carried forward. The Company is generally subject to examination byU.S. federal and local income tax authorities for all tax years in which loss carryforward is available. As ofDecember 31, 2022 , the Company hadU.S. federal net operating loss ("NOL") carryforwards of approximately$128.6 million , which is available to reduce future taxable income. Approximately$39.5 million of NOL will expire from 2023 through 2037, and approximately$89.1 million of NOL will be carried forward indefinitely. The NOL carryforwards are subject to an annual limitation in the event of certain cumulative changes in the ownership interest. This limits the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Subsequent ownership changes may further affect the limitation in future years. 28
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Recent accounting standards update
See Note 1: "Organization and significant accounting policies - recent accounting pronouncements," to our Consolidated Financial Statements included in this report for more information.
Discussions of 2020 results and year-to-year comparisons between 2021 and 2020 that are omitted in this Annual Report on Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 . Results of operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the related footnotes thereto.
Revenue Revenue for years endedDecember 31, 2022 , 2021, and 2020 were comprised of the following: Year Ended December 31, 2022 vs. 2021 2021 vs. 2020 (In thousands, except percentages) 2022 2021?¹? 2020?²? $ Change % Change $ Change % Change Product revenue Freezer and thaw$ 66,682 $ 56,620 $ 13,548 $ 10,062 18 %$ 43,072 318 % Cell processing 68,509 44,965 30,946 23,544 52 % 14,019 45 % Storage and cold chain services 809 328 46 481 147 % 282 613 % Service revenue Freezer and thaw 74 - - 74 - % - - % Storage and cold chain services 15,234 9,817 1,752 5,417 55 % 8,065 460 % Rental revenue Storage and cold chain services 10,451 7,426 1,795 3,025 41 % 5,631 314 % Total revenue$ 161,759 $ 119,156 $ 48,087 $ 42,603 36 %$ 71,069 148 %
(1) 2021 revenue includes product revenue related to Global Cooling from
2021 through
(2) 2020 revenue includes service revenue related to SciSafe from
2020 through December 31, 2020 .
Revenue growth in the year ended December 31, 2022 , as compared to the year
ended December 31, 2021 , was driven primarily by organic growth in our cell
processing product and storage and cold chain services rental product lines,
which grew by 45% and 51%, respectively. During the year ended December 31,
2021 , revenues diversified significantly compared to the year ended December 31,
2020 . This diversification was primarily driven by the acquisition of Global
Cooling and Sexton in May and September of 2021, respectively. Most notably, the
Company's freezer and thaw revenues increased by 318% as a result of the
acquisition of Global Cooling and growth in LN2 freezer sales in 2021.
Revenue concentrations with one customer increased to 18% in the year ended
December 31, 2022 from 17% from the same customer in the year ended December 31,
2021 , primarily as a result of increased sales to a prominent international
distributor. Revenue concentrations with one customer increased to 17% in the
year ended December 31, 2021 from 13% from a different customer in the year
ended December 31, 2020 , primarily as a result of concentrations of freezer
sales to a prominent international distributor.
In the year ended December 31, 2022 , revenue increased by $42.6 million , or 36%,
from the year ended December 31, 2021 . Of this increase, $27.7 million , or 23%,
of the increase was driven by organic growth. Of the $27.7 million , $19.4
million is derived from our cell processing product line, $1.6 million from our
freezer and thaw product and services product lines, and $6.7 million from our
storage and cold chain services product line. The remaining $14.9 million , or
13%, was driven by earning full year revenues from the acquisitions of Global
Cooling and Sexton compared to partial revenues earned during the prior year.
Revenue is impacted by the relatively high degree of customer concentration, the
timing of orders, the development efforts of our customers or end-users and
regulatory approvals for biologics that incorporate our products, which may
result in significant quarterly fluctuations. Such fluctuations are expected,
but they may not be predictive of future revenue or otherwise indicative of a
trend.
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Table of Contents Costs and operating expenses
Total costs and operating expenses for years ended
Year Ended December 31, 2022 vs. 2021 2021 vs. 2020
(In thousands, except
percentages) 2022 2021 2020 $
Change % Change $ Change % Change
Cost of product, rental,
and service revenue
31 % $ 61,462 298 %
Research and development 14,798 11,821 6,720 2,977
25 % 5,101 76 %
Sales and marketing 21,570 14,006 6,413 7,564 54 % 7,593 118 %
General and
administrative 47,670 33,668 15,273 14,002 42 % 18,395 120 %
Intangible asset
impairment charges 110,364 - - 110,364 - % - - %
Intangible asset
amortization 9,697 8,202 3,033 1,495 18 % 5,169 170 %
Acquisition costs 18 1,636 668 (1,618 ) (99 )% 968 145 %
Change in fair value of contingent consideration (4,754 ) 2,875 1,575 (7,629 ) (265 )% 1,300
83 %
Total operating expenses
99 % $ 99,988 184 %
Cost of product, rental, and service revenue
In the year ended
We expect the cost of product, rental, and service revenue to fluctuate in future quarters based on production volumes, product mix, and the impact of any future acquisitions.
Cost of product, rental, and service revenue as a percentage of revenue was 70%, 69%, and 43% for the years endedDecember 31, 2022 , 2021, and 2020, respectively. Cost of product, rental, and service revenue in the years endedDecember 31, 2022 , 2021, and 2020 includes$251,000 ,$1.1 million , and$411,000 , respectively, in inventory step-up expense recorded in the purchase accounting of our Global Cooling,CBS , andAsteroBio Corporation ("Astero") acquisitions. The cost of product, rental, and service revenue as a percentage of revenue was relatively consistent between the years endedDecember 31, 2022 and 2021, at 70% and 69%, respectively. Despite these percentages being relatively consistent, the Company experienced decreases in warranty expenses in the year endedDecember 31, 2022 that were offset by increases in material and overhead costs driven by increases in personnel expenses, including stock-based compensation expenses, during the year. Additionally, material cost increases derived from our difficulties in obtaining sheet metal and electrical components incorporating semiconductor chips for the manufacture of our ULT freezer products due to the effects of COVID-19 during the year endedDecember 31, 2021 were mitigated during the current year. Through the diversification of suppliers, we experienced improved pricing from the year endedDecember 31, 2021 . We were still experiencing constraints in supply for semiconductor chips as ofDecember 31, 2022 . Though our costs to obtain semiconductor components normalized throughout the year, we were still experiencing constraints in obtaining electrical component parts. These constraints are expected to improve through diversification of our semiconductor supply chain partnerships. We have sufficient supply for electrical component parts within our operations for the foreseeable future.
Research and development expenses
During the years ended
R&D expense increased$3.0 million in the year endedDecember 31, 2022 , or 25%, compared with the year endedDecember 31, 2021 . The increase is primarily due to$2.5 million of increased personnel costs in cash and stock-based compensation expenses from the full year ownership of Global Cooling and Sexton.
We expect sustained R&D expense increases through the year ended
Sales and marketing expenses
Sales and marketing expense ("S&M") consisted primarily of personnel-related
costs, stock based compensation expense, trade shows, sales commissions, and
advertising.
S&M expense increased $7.6 million in the year ended December 31, 2022 , or 54%,
compared with the year ended December 31, 2021 . The increase is primarily due to
$5.0 million of increased personnel expenses from cash and stock compensation.
The increase was also driven by a $1.5 million increase in advertising and trade
show costs from the expansion of our product outreach.
We expect S&M expense to increase as we expand our product line offerings and our presence in the markets in which we participate.
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General and administrative expenses
General and administrative ("G&A") expense consists primarily of personnel-related expenses, non-cash stock-based compensation for administrative personnel and members of the board of directors, professional fees, such as accounting and legal, and corporate insurance.
In the year endedDecember 31, 2022 , G&A expenses increased by$14.0 million , or 42%, compared with the year endedDecember 31, 2021 . Of this increase,$7.7 million , or 55%, was driven by increased personnel expenses from cash and stock-based compensation. The remaining costs primarily relate to an increase of$3.2 million in professional services fees and$1.2 million on the losses incurred from asset disposal.
We expect G&A expense to increase as we continue to execute on our growth strategy.
Intangible asset impairment charges
Intangible asset impairment charges consist of the impairments incurred of$69.9 million and$40.5 million during the quarter endedJune 30, 2022 and impairment assessment date ofOctober 1, 2022 , respectively. These impairment charges impacted both definite and indefinite-lived intangible assets acquired during the acquisition of Global Cooling. See Note 11:Goodwill and intangible assets of our accompanying Consolidated Financial Statements for more information on the events and assessment leading to these non-cash impairment charges during the year endedDecember 31, 2022 .
Intangible asset amortization expense
Amortization expense consists of charges related to the amortization of
intangible assets associated with the acquisitions of Global Cooling, Custom
Biogenic Systems ("CBS"), SciSafe, Sexton, SAVSU Technologies, Inc. ("SAVSU"),
and Astero in which we acquired definite-lived intangible assets.
Acquisition costs
Acquisition costs consist of legal, accounting, third-party valuations, and other due diligence costs related to our Global Cooling, SciSafe, and Sexton acquisitions.
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,
Other income and expenses
Total other income and expenses for the years ended
Year Ended December 31, 2022 vs. 2021 2021 vs. 2020
(In thousands, except
percentages) 2022 2021 2020 $ Change % Change $ Change % Change Change in fair value of warrant liability $ -$ (121 ) $ 3,601 $ 121 (100 )%$ (3,722 ) (103 )% Change in fair value of investments 697 - 1,319 697 - % (1,319 ) (100 )% Interest (expense) income, net (687 ) (485 ) 40 (202 ) 42 % (525 ) (1,313 )% Other income 704 289 - 415 144 % 289 - % Gain on acquisition of Sexton - 6,451 - (6,451 ) (100 )% 6,451 - % Total other income (expense), net$ 714 $ 6,134 $ 4,960 $ (5,420 ) (88 )%$ 1,174 24 % Change in fair value of warrant liability. Reflects the changes in fair value associated with the periodic "mark-to-market" valuation of certain warrants that were issued in 2014. See Note 1: "Organization and Significant Accounting Policies" of our accompanying Consolidated Financial Statements "Certain Warrants which have Features that may Result in Cash Settlement" for more information.
Change in fair value of investments. Reflects fair value adjustments to our investment in iVexSol.
Interest (expense) income, net. Interest expense incurred in the year endedDecember 31, 2022 related primarily to the loan obtained inSeptember 2022 and two loans that were 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 year endedDecember 31, 2022 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. 31
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Gain on acquisition of
Income Tax Benefit Income tax benefit for the years endedDecember 31, 2022 , 2021 and 2020 was as follows: Year Ended December 31, 2022 vs. 2021 2021 vs. 2020 (In thousands, except percentages) 2022 2021 2020 $ Change % Change $ Change % Change Income tax benefit$ 5,022 $ 20,118 $ 3,264 $ (15,096 ) (75 )%$ 16,854 516 % Effective tax rate 4 % 69 % 255 % The income tax benefit recognized in the year endedDecember 31, 2022 primarily related to losses generated in 2022. Our effective tax rate for 2022 was lower than theU.S. statutory rate of 21% primarily due to the change in our valuation allowance. The income tax benefit recognized in the year endedDecember 31, 2021 primarily related to losses generated in 2021 and the recognition of the release of our valuation allowance related to the acquisition of Global Cooling. Our effective tax rate for 2021 was higher than theU.S. statutory rate of 21% primarily due to windfall benefits on stock compensation, 162(m) limitations on executive compensation, and the change in our valuation allowance.
Liquidity and capital resources
We believe our cash, cash equivalents, restricted cash, cash generated from operations, available-for-sale securities, and credit lines will satisfy, for at least the next twelve months from the date of this filing, our liquidity requirements, both globally and domestically, including the following: working capital needs, capital expenditures, contractual obligations, commitments, principal and interest payments on debt, and other liquidity requirements associated with our operations. We have not identified any material liquidity concerns as a result of the COVID-19 pandemic. OnDecember 31, 2022 , we had$64.1 million in cash, cash equivalents, and available-for-sale securities, compared to$69.9 million as ofDecember 31, 2021 . The decrease in cash and cash equivalents is primarily due to significant investments made in available-for-sale securities, increased investment in property, plant, and equipment, decrease in working capital related accounts compared to the prior year, offset by the draw of$20 million during Q3 2022 on a term loan. OnSeptember 20, 2022 , the Company, and certain of its subsidiaries, entered into a term loan agreement, which provided for up to$50 million in aggregate principal to be drawn. The agreement provides for borrowings of up to$30 million upon closing and options to borrow up to$10 million between closing andJune 30, 2023 , up to$10 million upon the achievement of certain revenue milestones, and an additional$10 million upon the Company's request subject to fulfilling certain requirements of the lender. The Company borrowed$20 million upon closing. For additional information on terms, see Note 13: Long-term debt. OnMarch 10, 2023 ,Silicon Valley Bank ("SVB"), the issuer of our term loan, was closed upon the appointment of theFederal Deposit Insurance Corporation ("FDIC") as the receiver of SVB. In addition to the term loan, we have deposit accounts held at SVB captured within our cash, cash equivalents, and available-for-sale securities. However, as ofMarch 13, 2023 , all deposit amounts, regardless of amount in excess ofFDIC -insured limits, were guaranteed to customers, mitigating any liquidity constraints.
On
OnJuly 7, 2020 , the Company closed its public offering of 5,951,250 shares of common stock at the public offering price of$14.50 per share, which includes the shares purchased pursuant to the exercise in full of the underwriters' option to purchase up to an additional 776,250 shares of its common stock. The net proceeds from the public offering to BioLife, after deducting underwriting discounts and commissions and estimated underwriter offering expenses of$6.1 million , were approximately$80.2 million . OnOctober 1, 2020 , we acquired SciSafe for$15.0 million in cash, 611,683 shares of common stock, and up to 626,000 additional shares of common stock as contingent consideration. As ofDecember 31, 2022 and 2021, 116,973 shares and 64,130 shares were earned, respectively. These shares will be issued during the year endedDecember 31, 2023 . Cash flows Year Ended December 31, 2022 vs. 2021 (In thousands) 2022 2021 $ Change % Change Operating activities$ (8,488 ) $ (4,593 ) $ (3,895 ) 85 % Investing activities (58,117 ) (13,192 ) (44,925 ) 341 % Financing activities 16,316 (2,778 ) 19,094 (687 )% Net (decrease) increase in cash and cash equivalents$ (50,289 ) $ (20,563 ) $ (29,726 ) 145 % 32
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Table of Contents Operating activities In the year endedDecember 31, 2022 , our operating activities used cash of$8.5 million reflecting net loss of$139.8 million and non-cash charges totaling$146.2 million primarily related to impairment of intangible assets, depreciation, amortization, changes in fair value of contingent consideration, deferred income tax benefit, stock-based compensation, and non-cash lease charges. An increase in accrued expenses and current liabilities of$5.7 million was primarily driven by a$3.7 million non-income tax liability estimated for sales taxes owed and approximately$1.8 million increase in accrued compensation for increased headcount compared to the prior year. The increase in accrued expenses and current liabilities was offset by a$6.9 million reduction in warranty liability and$1.6 million reduction in accounts payable. In the year endedDecember 31, 2021 , our operating activities used cash of$4.6 million reflecting net loss of$8.9 million and non-cash charges totaling$6.6 million primarily related to depreciation, amortization, changes in the fair value of investments, changes in fair value of contingent consideration, deferred income tax benefit, stock-based compensation, and non-cash lease charges. An increase in accounts receivable of$10.1 million was primarily driven by the 148% year-to-date increase in revenues. The remaining cash provided by operating activities resulted from favorable changes in various other working capital accounts. Investing activities Our investing activities used$58.1 million of cash in the year endedDecember 31, 2022 . We invested$44.6 million in available-for-sale securities in addition to continued investment in capital expenditures and purchases of assets held for rent, using an additional$13.9 million . Our investing activities used$13.2 million of cash in the year endedDecember 31, 2021 . We acquired$1.6 million in cash in the acquisitions of Global Cooling and Sexton. Capital expenditures and purchases of assets held for rent used$14.8 million as we continue to invest in our manufacturing and storage facilities. Financing activities In the year endedDecember 31, 2022 , cash provided by financing activities was$16.3 million . The increase in cash provided by financing activities compared to the prior year is primarily due to drawing$20 million on a term loan obtained onSeptember 20, 2022 , offset by payments on outstanding debt of$1.7 million and payments on financed insurance premiums of$1.4 million . In the year endedDecember 31, 2021 , cash used by financing activities was$2.8 million . We used$4.2 million to pay off the line of credit assumed in the acquisition of Global Cooling. Other significant cash flows include$1.6 million provided by lenders to finance equipment for our continued expansion,$1.4 million provided by the exercise of stock options, and$1.0 million used to pay financed insurance premiums. Contractual obligations Our cash flows from operations are dependent on a number of factors, including fluctuations in our operating results, accounts receivable collections, inventory management, and the timing of tax and other payments. As a result, the impact of contractual obligations on our liquidity and capital resources in future periods should be analyzed in conjunction with such factors. Despite these uncertainties, we believe that our balances of cash, cash equivalents, available-for-sale securities, and restricted cash in addition to our cash flows from operations are adequate to meet our liquidity requirements in the next 12 months. The following summarizes certain of our contractual obligations as ofDecember 31, 2022 and the effect such obligations are expected to have on our cash flows in the next fiscal year:
Long-term debt, including interest
These amounts represent expected cash payments, including principal and
interest. Debt obligations are described in Note 13 of the Consolidated
Financial Statements. As of
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Table of Contents Lease obligations
We have various operating and financing lease agreements for office space,
warehouses, manufacturing, research equipment, machinery, and production
locations as well as vehicles and other equipment. Lease obligations are
described in Note 6 of the Consolidated Financial Statements. As of
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 ofDecember 31, 2022 , our total obligations were$507,000 , of which$304,000 was short-term. Purchase orders or contracts for the purchase of supplies and other goods and services are not included in the discussion above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current procurement or developmental needs and fulfilled by our vendors within short time horizons. Capital requirements
Our future capital requirements will depend on many factors, including the following:
? the expansion of our cell and gene therapy tools and services business
? the ability to sustain product revenue and profits of our cell and gene
therapy products and services;? The degree to which we implement additional automated production equipment
throughout our facilities;
? our ability to acquire additional cell and gene therapy products and services;
? the scope of and progress made in our research and development activities; and
? the success of any proposed financing efforts. Absent acquisitions of additional products, product candidates, or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 12 months as of the date of this filing. We expect operating expenses in the year endingDecember 31, 2023 to increase as we continue to expand our CGT tools business. We expect to incur continued spending related to the research and development of new technology, expansion of our existing product lines, and expansion of our commercial capabilities for the foreseeable future, with an increased emphasis on the development of new products during the year endedDecember 31, 2023 . Our future capital requirements may include, but are not limited to, purchases of property, plant and equipment, the acquisition of additional cell and gene therapy products and technologies to complement our existing manufacturing capabilities, and continued investment in our intellectual property portfolio. We actively evaluate various strategic transactions on an ongoing basis, including acquiring complementary products, technologies or businesses that would complement our existing portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of equity and convertible debt securities may result in dilution to our stockholders, and those securities may have rights senior to those of our common shares. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to relinquish valuable rights. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, if at all. Impacts of COVID-19
Our domestic and international operations have been and continue to be affected
by the ongoing global pandemic of COVID-19 and the resulting volatility and
uncertainty it has caused in the
During year endedDecember 31, 2021 , we experienced difficulties in obtaining sheet metal and electrical components incorporating semiconductor chips for the manufacture of our ULT freezer products due to the effects of COVID-19. These supply chain disruptions decreased the Company's profitability as a result of increased supplier pricing and production stoppages. During the year endedDecember 31, 2022 , supply chain bottlenecks were mitigated through the diversification of suppliers, resulting in improved pricing from the year endedDecember 31, 2021 . We were still experiencing constraints in supply for semiconductor chips as ofDecember 31, 2022 . Though our costs to obtain semiconductor components normalized throughout the year, we were still experiencing constraints in obtaining electrical component parts. These constraints are expected to improve through diversification of our semiconductor supply chain partnerships. We have sufficient supply for electrical component parts within our operations for the foreseeable future. 34
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