Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization and significant accounting policies
Business
BioLife Solutions, Inc. (“BioLife”, “us”, “we”, “our”, or the “Company”) is a developer, manufacturer, and supplier of a portfolio of bioproduction tools and services including proprietary biopreservation media, automated thawing devices, cloud-connected shipping containers, and biological and pharmaceutical materials storage. Our CryoStor® freeze media and HypoThermosol® hypothermic storage media are optimized to preserve cells in the regenerative medicine market. These novel biopreservation media products are serum-free and protein-free, fully defined, and are formulated to reduce preservation-induced cell damage and death. Our Sexton cell processing product line includes human platelet lysates (“hPL”) for cell expansion, reducing risk and improving downstream performance over fetal bovine serum, human serum, and other chemically defined media, CellSeal® cryogenic vials that are purpose-built rigid containers used in cell and gene therapy (“CGT”) that can be filled manually or with high throughput systems, CryoCase™ cryo-compatible transparent rigid containers designed for closed-system fill and retrieval, and automated cell processing machines that bring multiple processes traditionally performed by manual techniques under a higher level of control to protect therapies from loss or contamination. Our ThawSTAR® product line is composed of a family of automated thawing devices for frozen cell and gene therapies packaged in cryovials and cryobags. These products help administer temperature-sensitive biologic therapies to patients by standardizing the thawing process and reducing the risks of contamination and overheating, which are inherent with the use of traditional water baths. Our evo® shipping containers provide cloud-connected passive storage and transport containers for temperature-sensitive biologics and pharmaceuticals. Our biological and pharmaceutical materials storage services provide facilities that allow for real-time tracking of biologic materials and vaccines that can be stored at a wide range of temperatures.
On April 17, 2024, the Company sold all of the issued and outstanding shares of common stock of Global Cooling, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Global Cooling”), to GCI Holdings Company, LLC, an Ohio limited liability company (“GCI Holdings”) pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), by and between the Company and GCI Holdings (the “Global Cooling Divestiture”). Upon the execution of the Purchase Agreement, on April 17, 2024, the Global Cooling business is presented in the accompanying unaudited condensed financial statements as a discontinued operation for all periods presented. See Note 3: Discontinued operations for further details regarding the divestiture.
On November 12, 2024, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”), by and among the Company, Subzero Purchaser Corp., a Delaware corporation (“Buyer”), SciSafe, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of the Company (“Seller”), and SciSafe, Inc., a New Jersey corporation and an indirect wholly owned subsidiary of the Company (“SciSafe”), for the sale by Seller of all of the issued and outstanding shares of common stock (the “Shares”) of SciSafe to Buyer. The divestiture of SciSafe was considered a subsequent event to the financial results presented as of September 30, 2024. SciSafe is therefore presented as a part of our continuing operations as of the three and nine months ended September 30, 2024. For additional information on the divestiture of SciSafe, see Note 19: Subsequent events.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates and assumptions by management affect the Company’s net realizable value of inventory, sales tax liabilities, valuation of market-based stock awards, valuations, fair value of marketable debt securities, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, stock-based compensation, contingent consideration from business combinations, and provision for income taxes.
The Company regularly assesses these estimates; however, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
Basis of presentation
The Unaudited Condensed Consolidated Financial Statements and related footnote disclosures as of and for the three and nine months ended September 30, 2024 are unaudited, and are not necessarily indicative of the Company’s operating results for a full year. The Unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial results for the three and nine months ended September 30, 2024 in accordance with U.S. GAAP, however, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the U.S. Securities and Exchange Commission (the “SEC”) rules and regulations relating to interim financial statements. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Audited Consolidated Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024 (the “Annual Report”).
The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries, SAVSU Technologies, Inc. (“SAVSU”), Arctic Solutions, Inc. doing business as Custom Biogenic Systems (“CBS”), SciSafe Holdings, Inc. (“SciSafe”), BioLife Solutions B.V, and Sexton Biotechnologies, Inc. (“Sexton”). All intercompany accounts and transactions have been eliminated in consolidation.
Discontinued operations
On April 17, 2024, the Company sold all of the issued and outstanding shares of common stock of Global Cooling and the accounting requirements for reporting the Global Cooling subsidiary as a discontinued operation were met. Unless otherwise noted, amounts and disclosures throughout these Notes to Unaudited Condensed Consolidated Financial Statements relate to the Company's continuing operations. Refer to Note 3: Discontinued operations for further details.
In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of only normal, recurring adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year.
Foreign currency translation
The Company translates items presented on its Unaudited Condensed Consolidated Financial Statements into U.S. dollars. For the Company’s subsidiaries that operate in a local currency functional environment, all assets and liabilities are translated into U.S. dollars using current exchange rates at the balance sheet date; revenue and expenses are translated using average exchange rates in effect during each period. Resulting translation adjustments are reported as a separate component of Accumulated Other Comprehensive Loss in the Unaudited Condensed Consolidated Statements of Shareholders' Equity.
Segment reporting
The Company views its operations and makes decisions regarding how to allocate resources and manages its business as one reportable segment and one reporting unit. The Company’s Chief Executive Officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
Significant accounting policies
The following describes an update to the Company’s accounting policies for discontinued operations during the three and nine months ended September 30, 2024. For a full discussion of significant accounting policies, refer to the Notes to the Consolidated Financial Statements described in Part II, Item 8 of our Annual Report.
In accordance with ASC 205-20: Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. In
the period in which the component meets held-for-sale or discontinued operations criteria, the major current assets, non-current assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations.
Our operations related to Global Cooling met the definition of a discontinued operation as of April 17, 2024. Accordingly, we retrospectively classified the results of our Global Cooling operations as discontinued operations in the Unaudited Condensed Consolidated Statements of Operations for all periods presented. The results of all discontinued operations, less applicable income taxes, are reported as components of net loss separate from the net loss of continuing operations. Certain assets and liabilities associated with our Global Cooling operations were classified as assets and liabilities of discontinued operations in the Unaudited Condensed Consolidated Balance Sheets for the periods presented. Additionally, the cash flows and comprehensive loss of our Global Cooling operations have not been segregated and are included in the interim Unaudited Condensed Consolidated Statements of Cash Flows and Unaudited Condensed Consolidated Statements of Comprehensive Loss, respectively, for all periods presented. All amounts included in the notes to the unaudited condensed consolidated financial statements relate to continuing operations unless otherwise noted. For additional information, see Note 3: Discontinued operations.
Liquidity and capital resources
On September 30, 2024 and December 31, 2023, we had $39.3 million and $50.2 million in cash, cash equivalents, and available-for-sale securities, respectively, in our continuing operations. Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Quarterly Report on Form 10-Q (this “Form 10-Q”).
Risks and uncertainties
The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management's judgment about the outcome of future events. The global business environment continues to be impacted by cost pressure, the overall effects of economic uncertainty on customers' purchasing patterns, high interest rates, and other factors. It is not possible to accurately predict the future impact of such events and circumstances. Actual results could differ from our estimates.
For additional information, see caption “Risk Factors” identified in Part I, Item 1A of our Annual Report and in Part II, Item 1A of this Form 10-Q.
Concentrations of credit risk and business risk
Significant customers are those that represent more than 10% of the Company’s total revenue or gross accounts receivable balances for the periods and as of each balance sheet date presented.For each significant customer, revenue as a percentage of total revenue and gross accounts receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
Accounts Receivable
Revenue
September 30,
December 31,
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
2024
2023
Customer A
16
%
17
%
*
*
*
*
Customer B
*
*
*
*
11
%
11
%
Customer C
*
*
11
%
*
*
*
*less than 10%
Revenue from foreign customers is denominated in United States dollars or euros.
The following table represents the Company’s products representing more than 10% of the Company’s total revenue:
Three Months Ended September 30,
Nine Months Ended September 30,
Product revenue concentration
2024
2023
2024
2023
CryoStor
52
%
46
%
51
%
53
%
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
Three Months Ended September 30,
Nine Months Ended September 30,
Revenue by customers’ geographic locations(1)
2024
2023
2024
2023
United States(2)
76
%
81
%
77
%
82
%
Europe, Middle East, Africa (EMEA)
19
%
15
%
18
%
14
%
Other
5
%
4
%
5
%
4
%
Total revenue
100
%
100
%
100
%
100
%
(1) As of the year ended December 31, 2023, the Company updated its methodology for determining the country of origin for its sales. Sales are now recorded by shipping country rather than billing country. The Company updated the methodology retrospectively, adjusting the prior year presentation for all regions presented.
(2) The line item presented above previously bifurcated sales between the United States and Canada. Due to the updated methodology for determining the country of origin for sales, it was noted that Canada no longer was a material location to separately disclose. Canada sales have been included within the "Other" line item in the table above and United States sales have been retained as a single line item to more accurately reflect origin of sales for material regions.
In the three and nine months ended September 30, 2024, no suppliers accounted for greater than 10% of purchases. In the three and nine months ended September 30, 2023, one supplier accounted for 19% and 16% of purchases, respectively.
As of September 30, 2024, one supplier accounted for 11% of our accounts payable. As of December 31, 2023, one supplier accounted for 11% of our accounts payable.
Recent accounting pronouncements
In March 2024, the SEC adopted final rules on the enhancement and standardization of climate-related disclosures of public companies. The final rules require disclosure of, among other things, material climate-related risks and their impact; activities to mitigate or adapt to material climate-related risks; governance and oversight of climate-related risks; and material Scope 1 and/or Scope 2 greenhouse gas emissions with an accompanying assurance report required following an initial transition period, at a limited assurance level, and then following an additional transition period, at a reasonable assurance level. In addition, the effects of severe weather events and other natural conditions, subject to certain thresholds, and amounts related to carbon offsets and renewable energy credits or certificates are required to be disclosed in the notes to the audited financial statements in certain circumstances.
On April 4, 2024, the SEC voluntarily stayed the implementation of the final rules pending the completion of judicial review of the consolidated challenges to the final rules by the Court of Appeals for the Eighth Circuit. The final rules, as originally issued, would be effective for the Company in various fiscal years, starting with its Annual Report on Form 10-K for fiscal year 2025. Disclosures pursuant to the final rules, as originally issued, would be required prospectively, with information for prior periods required only to the extent it was previously disclosed in an SEC filing. The Company is currently evaluating the impact of the final rules on its Consolidated Financial Statements and disclosures.
2. Correction of immaterial errors
During the three months ended March 31, 2024, we determined that an error existed in our previously issued consolidated financial statements. Specifically, we identified we had not properly accelerated stock compensation expense related to unvested shares of market-based awards of certain employees upon their termination during the fourth quarter of 2023. The error was evaluated under the U.S. Securities and Exchange Commission's ("SEC's") Staff Accounting Bulletin ("SAB")
Topic 1M, "Materiality," and SEC SAB Topic 1N, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements" to determine the materiality of prior period misstatements to the Company’s financial statements. We evaluated the error and concluded that it was not material to the previously issued consolidated financial statements. Although the error was not material to any period, we corrected the accompanying historical consolidated financial statements for the year ended December 31, 2023 to reflect the additional stock compensation expense incurred within each period for comparative purposes.
The following table represents the adjustments to our Consolidated Balance Sheet as of December 31, 2023 in accordance with ASC 250. The adjustments to our Consolidated Statement of Shareholders’ Equity was limited to the adjustments outlined below.
The effect of the adjustments to our Consolidated Balance Sheet as of December 31, 2023 was as follows (in thousands):
December 31, 2023
(In thousands)
As reported
Adjustment
As corrected
Additional paid-in-capital
$
651,305
$
1,575
$
652,880
Accumulated deficit
(313,342)
(1,575)
(314,917)
3. Discontinued operations
On April 17, 2024, the Company entered into the Purchase Agreement by and between the Company and GCI Holdings, which is wholly owned by a former consulting contractor of Global Cooling, for the sale of all of the issued and outstanding shares of common stock of Global Cooling to GCI Holdings. Upon the execution of the Purchase Agreement, the Global Cooling business is presented in the accompanying condensed financial statements as a discontinued operation for all periods presented.
As a condition of the Purchase Agreement, Global Cooling was required to have $7.0 million in cash on its balance sheet, of which, $6.7 million in cash was funded by the Company, and the Company was required to repay approximately $2.6 million of outstanding indebtedness of Global Cooling, and assume certain other liabilities of Global Cooling of $2.6 million. Following the execution of the Purchase Agreement, the divestiture of Global Cooling was consummated on April 17, 2024. The Company recognized a loss on disposal of Global Cooling, calculated as follows:
(In thousands)
Selling price: $1
$
—
Cash to Global Cooling funded by Company
(6,652)
Costs to sell Global Cooling(1)
(582)
Negative selling price
(7,234)
Global Cooling carrying basis as of April 17, 2024, inclusive of assumed liabilities
(3,589)
Assumed liabilities: Accounts payable(2)
2,643
Assumed liabilities: Debt(3)
2,596
Global Cooling carrying basis as of April 17, 2024
1,650
Release of Global Cooling currency translation adjustment
(13)
Net loss on disposal
$
(8,897)
(1) Represents the costs incurred in connection with the divestiture of Global Cooling, including fees to be paid to the broker, attorneys, and other external parties.
(2) As a closing condition, the Company assumed certain accounts payable and accrued expenses from Global Cooling, totaling $0.5 million and $2.1 million, respectively.
(3) As a closing condition, the Company repaid the balance of the Global Cooling Amended Term Notes. For additional information on the terms of the Global Cooling Term Notes, see Note 13: Long-term debt.
In connection with the Company’s entry into the Purchase Agreement, the Company implemented a reduction in force (the “RIF”) related to the business of Global Cooling, which reduced the Company’s workforce by 47 employees (representing
approximately 11% of its full-time employees). The Company’s Board of Directors approved the RIF on March 29, 2024, and all affected employees were informed by April 18, 2024, following the execution of the Purchase Agreement. Additionally, the Company accelerated the unvested shares granted to both the employees impacted by the RIF and Global Cooling employees that remained with Global Cooling upon the closing of the GCI Divestiture. The Company recognized the following charges in connection with the RIF and stock compensation expense acceleration:
(In thousands)
Severance
Stock Compensation
Total
RIF employee costs
$
291
$
1,255
$
1,546
Former Global Cooling employees
—
1,925
1,925
Total employment related divestiture expenditures
$
291
$
3,180
$
3,471
In addition, upon the closing of the Transaction, the Company and Global Cooling entered into a transition services agreement ("TSA"), pursuant to which the Company agreed to provide certain transition services to Global Cooling for up to 90 days following the date of the closing of the Transaction. The TSA has since expired pursuant to its terms on the stated expiration date.
The following table summarizes the major classes of assets and liabilities of discontinued operations, which are summarized separately in the condensed consolidated balance sheets:
April 17,
December 31,
(In thousands)
2024
2023
Cash and cash equivalents
$
275
$
2,090
Accounts receivable, net
2,430
1,728
Inventories
9,152
11,248
Prepaid expenses and other current assets
379
303
Total current assets, discontinued operations
12,236
15,369
Property and equipment, net
153
146
Long-term deposits and other assets
4
4
Total assets, discontinued operations
12,393
15,519
Accounts payable
1,425
3,367
Accrued expenses and other current liabilities
911
1,637
Warranty liability
7,193
7,507
Lease liabilities, operating, current portion
242
263
Lease liabilities, financing, current portion
16
22
Total current liabilities, discontinued operations
9,787
12,796
Lease liabilities, operating, long-term
948
1,016
Lease liabilities, financing, long-term
8
11
Total liabilities, discontinued operations
$
10,743
$
13,823
Global Cooling had no remaining balances as of September 30, 2024.
The key components of loss from discontinued operations were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2024
2023
2024
2023
Revenue
$
—
$
9,755
$
7,157
$
28,546
Cost of revenue
—
10,100
8,389
28,048
Gross profit
—
(345)
(1,232)
498
Operating expenses
—
(5,789)
(9,418)
(16,259)
Asset impairment charges
—
(7,175)
—
(7,175)
Other income (expense), net
—
(19)
(25)
(63)
Loss on disposal
—
—
(8,897)
—
Loss before income taxes
—
(13,328)
(19,572)
(22,999)
Income tax expense
—
—
(10)
(3)
Loss from discontinued operations, net of income taxes
$
—
$
(13,328)
$
(19,582)
$
(23,002)
During the three and nine months ended September 30, 2024, Global Cooling did not incur material depreciation, amortization, capital expenditure, or other noncash related costs. For the three months ended September 30, 2023, Global Cooling incurred depreciation and capital expenditure costs of $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2023, Global Cooling incurred depreciation, amortization, and capital expenditure costs of $0.4 million, $0.1 million, and $0.7 million, respectively.
We do not anticipate incurring any material additional charges in connection with the sale of Global Cooling.
4. Fair value measurement
In accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC Topic 820”), the Company measures its financial instruments at fair value on a recurring basis. The carrying values of certain of our financial instruments including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of their short maturities. The carrying value of our marketable debt securities, which are accounted for as available-for-sale, are classified within either Level 1 or Level 2 in the fair value hierarchy because we use quoted market prices or alternative pricing sources and models utilizing market observable inputs to determine their fair value. The carrying values of our long-term debt, which is classified within Level 2 in the fair value hierarchy, approximates fair value as our borrowings with lenders are at interest rates that approximate market rates for comparable loans. The fair values of investments and contingent consideration classified as Level 3 were derived from management assumptions. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting. ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier value fair hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 – Unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The fair value of the SciSafe contingent consideration liability was valued based on unobservable inputs using a Monte Carlo simulation. These inputs included the estimated amount and timing of projected future revenue, a discount rate of 4.5%, a risk-free rate of approximately 0.2%, asset volatility of 60%, and revenue volatility of 15%. Significant changes in any of those inputs in isolation would result in a significant change in the fair value measurement of the liability. Generally, changes used in the assumptions for projected future revenue and revenue volatility would be accompanied by a directionally similar change in the fair value measurement. Conversely, changes in the discount rate would be accompanied by a directionally opposite change in the related fair value measurement. However, due to the contingent consideration having a maximum payout amount, changes in these assumptions would not affect the fair value of the contingent consideration if they increase (decrease) beyond certain amounts. At the acquisition date, the contingent consideration was determined to have a fair value of $3.7 million. Subsequent to the acquisition date, the SciSafe contingent consideration liability was re-measured to fair value with changes recorded in the Change in fair value of contingent consideration in the Unaudited Condensed Consolidated Statements of Operations.
During the most recent re-measurement of the contingent consideration liability as of December 31, 2023, the Company determined it appropriate to write-off the remaining balance of the SciSafe contingent consideration liability. The target revenue required for earnout was not met during the year ended December 31, 2023 and had been determined to not be probable to achieve in future years. The change in fair value of contingent consideration of $1.6 million and $1.8 millionassociated with the contingent consideration liability was included within the Change in fair value of contingent consideration in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023, respectively.
There were no remeasurements to fair value during the three and nine months ended September 30, 2024 of financial assets and liabilities that are not measured at fair value on a recurring basis.
The following tables set forth the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023, based on the three-tier fair value hierarchy:
(In thousands)
As of September 30, 2024
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Money market accounts
$
13,731
$
-
$
-
$
13,731
Available-for-sale securities:
U.S. government securities
2,679
-
-
2,679
Corporate debt securities
395
8,735
-
9,130
Other debt securities
-
3,286
-
3,286
Total
$
16,805
$
12,021
$
-
$
28,826
As of December 31, 2023
Assets:
Cash equivalents:
Money market accounts
$
25,034
$
-
$
-
$
25,034
Available-for-sale securities:
U.S. government securities
5,170
-
-
5,170
Corporate debt securities
-
9,674
-
9,674
Other debt securities
-
1,992
-
1,992
Total
$
30,204
$
11,666
$
-
$
41,870
There have been no transfers of assets or liabilities between the fair value measurement levels.
The following table presents the changes in fair value of contingent consideration liabilities that are measured using Level 3 inputs for the three and nine months ended September 30, 2023. There was no contingent consideration liability outstanding as of September 30, 2024.
Nine Months Ended September 30,
(In thousands)
2023
Balance at beginning of period
$
4,456
Change in fair value recognized in net loss
(1,778)
Payment of contingent consideration earned
$
(2,263)
Balance at end of period
$
415
5. Investments
Available-for-sale securities
The Company’s portfolio of available-for-sale marketable securities consists of the following:
The Company periodically invests in non-marketable equity securities of private companies without a readily determinable fair value to promote business and strategic objectives. The Company has adopted the measurement alternative whereby equity securities are carried at cost minus impairment, if any, plus or minus changes resulting from observable process changes in orderly transactions for identical or similar transactions of the same issuer. These securities included Series E Preferred Stock in PanTHERA CryoSolutions, Inc. carried at $1.0 million as of September 30, 2024 and December 31, 2023.
The Company also owns securities of Series A-1 and A-2 Preferred Stock in iVexSol, Inc. carried at $4.1 million for the period ending December 31, 2023. During the six months ended June 30, 2024, the Company received communications that triggered a going concern for the investment. As of June 30, 2024, the Company determined that the fair value of its equity interest was less than its carrying amount, and no longer recoverable, triggering an impairment charge of $4.1 million. The carrying value was zero as of September 30, 2024.
6. Inventories
Inventories consist of the following as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
2024
2023
Raw materials
$
12,722
$
16,932
Work in progress
6,647
5,890
Finished goods
12,810
9,386
Total inventories
$
32,179
$
32,208
7. Leases
The Company has various operating lease agreements for office space, warehouses, manufacturing, and production locations as well as vehicles and other equipment. Our real estate leases had original lease terms of three to eleven years and have remaining lease terms of one to eight years. We exclude options that are not reasonably certain to be exercised from our lease terms, ranging from one to five years. Our lease payments consist primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms, with all other lease payments consisting of variable lease costs. For certain leases, we receive incentives from our landlords, such as rent abatements, which effectively reduce the total lease payments owed for these leases. Vehicle and other equipment operating leases had original lease terms of four to five years and have remaining terms between one and five years.
Our financing leases relate to research equipment, machinery, and other equipment.
The table below presents certain information related to the weighted average discount rate and weighted average remaining lease term for the Company’s leases as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
2024
2023
Weighted average discount rate - operating leases
5.8
%
4.4
%
Weighted average discount rate - finance leases
8.4
%
8.3
%
Weighted average remaining lease term in years - operating leases
6.1
6.6
Weighted average remaining lease term in years - finance leases
3.5
4.1
The components of lease expense for the three and nine months ended September 30, 2024 and 2023 were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2024
2023
2024
2023
Operating lease costs
$
1,018
$
810
$
2,639
$
2,460
Financing lease costs
57
-
173
-
Short-term lease costs
452
510
1,263
1,266
Total operating lease costs
1,527
1,320
4,075
3,726
Variable lease costs
446
299
1,166
903
Total lease costs
$
1,973
$
1,619
5,241
4,629
Maturities of our lease liabilities as of September 30, 2024 are as follows:
Assets held for rent consist of the following as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
2024
2023
Shippers placed in service
$
9,862
$
9,866
Fixed assets held for rent
6,538
1,468
Accumulated depreciation
(8,813)
(6,272)
Subtotal
7,587
5,062
Shippers and related components in production
3,235
2,651
Total
$
10,822
$
7,713
Shippers and related components in production include shippers complete and ready to be deployed and placed in service upon a customer order, shippers in the process of being assembled, and components available to build shippers. We recognized $0.8 million and $2.3 million in depreciation expense related to assets held for rent during the three and nine months ended September 30, 2024, respectively, and $0.9 million and $2.8 million during the three and nine months ended September 30, 2023, respectively.
9. Property and equipment
Property and equipment consist of the following as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
2024
2023
Property and equipment
Leasehold improvements
$
5,982
$
5,913
Furniture and computer equipment
769
773
Manufacturing and other equipment
17,084
19,893
Construction in-progress
4,105
3,807
Subtotal
27,940
30,386
Less: Accumulated depreciation
(10,231)
(9,456)
Property and equipment, net
$
17,709
$
20,930
Depreciation expense for property and equipment was $0.6 million and $1.9 million for the three and nine months ended September 30, 2024, respectively, and $1.0 million and $2.9 million during the three and nine months ended September 30, 2023, respectively.
10. Goodwill and intangible assets
Goodwill
Goodwill represents the difference between the purchase price and the estimated fair value of identifiable assets acquired and liabilities assumed. Goodwill acquired in a business combination is determined to have an indefinite useful life and is not amortized but instead is tested for impairment at least annually in accordance with ASC 350.
Intangible assets
Intangible assets, net consisted of the following as of September 30, 2024 and December 31, 2023:
(In thousands, except weighted average useful life)
September 30, 2024
Intangible assets:
Gross Carrying
Value
Accumulated Amortization
Net Carrying
Value
Weighted
Average Useful
Life (in years)
Customer relationships
$
9,936
$
(4,625)
$
5,311
9.9
Tradenames
8,134
(2,543)
5,591
10.5
Technology - acquired
18,372
(10,859)
7,513
3.3
Non-compete agreements
750
(750)
—
0.0
Total intangible assets
$
37,192
$
(18,777)
$
18,415
6.6
(In thousands, except weighted average useful life)
December 31, 2023
Intangible assets:
Gross Carrying
Value
Accumulated Amortization
Net Carrying
Value
Weighted
Average Useful
Life (in years)
Customer relationships
$
9,936
$
(4,217)
$
5,719
10.7
Tradenames
8,134
(2,077)
6,057
11.3
Technology - acquired
18,372
(9,123)
9,249
4.1
Non-compete agreements
750
(626)
124
0.8
Total intangible assets
$
37,192
$
(16,043)
$
21,149
7.3
Amortization expense for definite-lived intangible assets was $0.9 million and $2.7 million for the three and nine months ended September 30, 2024, respectively, and $1.3 million and $4.1 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, the Company expects to record the following amortization expense for definite-lived intangible assets:
11. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
2024
2023
Accrued expenses
$
2,864
$
6,667
Accrued taxes
373
551
Accrued compensation
4,777
2,902
Deferred revenue, current
435
655
Total accrued expenses and other current liabilities
$
8,449
$
10,775
12. Commitments and contingencies
Employment agreements
We have employment agreements with certain key employees. None of these employment agreements is for a definitive period, but rather each will continue indefinitely until terminated in accordance with its terms. The agreements provide for a base annual salary, payable in monthly (or shorter) installments. Under certain conditions and for certain of these officers, we may be required to pay additional amounts upon terminating the employee or upon the employee resigning for good reason.
Litigation
From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, as our industry is characterized by frequent claims and litigation, including claims regarding intellectual property. Management does not believe any of the current claims are material to the Company’s business. Future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. The Company carries certain insurance policies that may cover the aforementioned costs. The probability of claims that could result in a loss are evaluated and disclosed, as needed, individually and on a gross basis. Management is not aware of any significant pending or threatened litigation that is anticipated to result in unfavorable judgments against the Company other than those listed below.
Pending litigation claims
Two lawsuits have been filed by previous customers seeking payment for losses allegedly related to commercial freezer products from Global Cooling prior to its divestiture. These lawsuits are in various stages, and we continue to defend vigorously against the claims made in them. An estimate for a reasonably possible loss or range of loss cannot be made, though we expect any potential losses incurred to be covered by insurance.
Indemnification
As permitted under Delaware law and in accordance with the Company’s bylaws, the Company is required to indemnify its officers and directors for certain errors and occurrences while the officer or director is or was serving in such capacity. The Company is also party to indemnification agreements with its directors. The Company believes the fair value of the indemnification rights and agreements is minimal. Accordingly, the Company has not recorded any liabilities for these indemnification rights and agreements as of September 30, 2024 and December 31, 2023.
Purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable pricing provisions and the approximate timing of the transactions. As of September 30, 2024, our total short-term obligations were $4.2 million.
Companies are required to collect and remit sales tax from certain customers if the company is determined to have nexus in a particular state. Upon the determination of nexus, which varies by state, companies are additionally required to maintain detailed record of specific product and customer information within each jurisdiction in which it has established nexus to appropriately determine their sales tax liability, requiring technical knowledge of each jurisdiction’s tax case law. During the year ended December 31, 2023, the Company determined that a sales tax liability related to the periods of 2019 through 2023 was probable and determined an estimated liability. The estimated liability was approximately $3.8 million and $4.8 million as of September 30, 2024 and December 31, 2023, respectively. Due to the variety of jurisdictions in which this estimated liability relates to and our ongoing assessment of sales taxes owed, we cannot predict when final liabilities will be satisfied. We will reevaluate the estimated liability and timing of satisfaction each reporting period.
13. Long-term debt
Term Loan
On September 20, 2022, the Company and certain of its subsidiaries entered into a term loan agreement (the “Loan Agreement”), which provides for a term loan in an aggregate maximum principal amount of up to $60 million in the increments and upon the dates and milestones described below (the “Term Loan”). The Term Loan matures on June 1, 2026. The Loan Agreement permitted the Company to borrow up to $30 million upon the initial closing of the transactions contemplated by the Loan Agreement (the “Term Loan Closing”), and provided options to borrow (i) up to $10 million between the Term Loan Closing and June 30, 2023, (ii) up to $10 million upon the achievement of certain revenue milestones by the Company, and (iii) an additional $10 million at the discretion of the lender. The Company borrowed $20 million at the Term Loan Closing and accounts for the Term Loan at cost. As of December 31, 2023, the Company had not drawn additional funding nor had it met the revenue milestones outlined within the Loan Agreement. The Company had until December 31, 2023 to draw an additional $10 million, subject to approval from the lender, and therefore has no additional opportunities under the Loan Agreement. Payments on the borrowing are interest-only through June 2024, with additional criteria allowing for interest-only payments to continue through June 2025. Tranches borrowed under the Loan Agreement bear interest at the Wall Street Journal prime rate plus 0.5%. However, the interest rate is subject to a ceiling that restricts the interest rate for each tranche from exceeding 1.0% above the overall rate applicable to each tranche at their respective funding dates and has a balloon payment due at the earliest of term loan maturity, repayment of the Term Loan in full, or termination of the Loan Agreement at $1.2 million. As of September 30, 2024, the implied interest rate of the Term Loan is 7.5% and the implied value of the Term Loan is $18.2 million. The Loan Agreement contains customary representations and warranties as well as customary affirmative and negative covenants. As of September 30, 2024, the Company is in compliance with the covenants set forth in the Loan Agreement.
On April 17, 2024, the Company entered into a Consent and Second Amendment to the Term Loan (the “Amendment”) by and among Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“Bank”) and the Company and its subsidiaries. Pursuant to the Amendment and subject to the conditions set forth therein, Bank consented to the transaction and released its security interests in the assets of Global Cooling and the Shares arising under the Loan and Security Agreement, dated September 20, 2022, by and among Bank and Borrower, as amended by that certain Waiver and First Amendment to Loan and Security Agreement, dated February 26, 2024 (the “Loan Agreement”). In addition, effective as of the closing of the transaction, the Amendment amended the Loan Agreement to remove Global Cooling as a party to the Loan Agreement and provide for a non-refundable termination fee in the amount of $500,000 payable by Borrower to Bank in the event that the Loan Agreement is terminated prior to the Term Loan Maturity Date (as defined in the Loan Agreement) for any reason. The Amendment also contains customary representations and warranties of Borrower and provides for a release of Bank by Borrower for any claims existing or arising through the date of the Amendment, including, without limitation, those arising out of or in any manner connected with or related to the Loan Agreement.
On November 11, 2024, the Company entered into a Consent and Third Amendment to Loan and Security Agreement (the “Amendment”) by and among Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“Bank”) and the Company and its subsidiaries. For additional information on the Amendment, see Note 19: Subsequent events.
Long-term debt consisted of the following as of September 30, 2024 and December 31, 2023:
September 30,
December 31,
(In thousands)
Maturity Date
Interest Rate
2024
2023
Global Cooling Amended Term Notes
Various
4.0
%
$
—
$
2,596
Term Loan
Jun-26
7.0
%
17,500
20,000
Insurance premium financing
Jul-25
8.3
%
1,712
1,348
Freezer equipment loan
Dec-25
5.7
%
200
317
Manufacturing equipment loans
Oct-25
5.7
%
97
172
Freezer installation loan
Various
6.3
%
593
807
Other loans
Various
Various
1
2
Total debt, excluding unamortized debt issuance costs
20,103
25,242
Less: unamortized debt issuance costs
(49)
(98)
Total debt
20,054
25,144
Less: current portion of debt
(12,231)
(6,833)
Total long-term debt
$
7,823
$
18,311
As of September 30, 2024, the Term Loan was secured by substantially all assets of BioLife, SAVSU, CBS, SciSafe, and Sexton, other than intellectual property. Equipment loans are secured by the financed equipment.
As of September 30, 2024, the scheduled maturities of loans payable for each of the next five years and thereafter were as follows:
(In thousands)
Amount
2024 (3 months remaining)
$
3,177
2025
11,659
2026
5,218
2027
-
2028
-
Thereafter
-
Total debt
$
20,054
14. Revenue
To determine revenue recognition for contractual arrangements that we determine are within the scope of 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. As of September 30, 2024 and December 31, 2023, our deferred revenue balance totaled $0.4 million and $0.7 million, respectively. During the three and nine months ended September 30, 2024, the Company recognized approximately $0.1 million and $0.6 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the year. During the three and nine months ended
September 30, 2023, the Company had recognized $0.1 million and $0.4 million, respectively, of revenue that was included in the deferred revenue balance at the beginning of the year.
The Company primarily recognizes product revenues, service revenues, and rental revenues. Product revenues are generated from the sale of cell processing tools, freezers, thawing devices, and cold chain products. We recognize product revenue, including shipping and handling charges billed to customers, at a point in time when we transfer control of our products to our customers, which is upon shipment for substantially all transactions. Shipping and handling costs are classified as part of cost of product revenue in the Condensed Consolidated Statements of Operations. Service revenue is generated from the storage of biological and pharmaceutical materials. We recognize service revenue over time as services are performed or ratably over the contract term. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC Topic 606, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of and during the three and nine months ended September 30, 2024.
The Company also generates revenue from the leasing of our property, plant, and equipment, operating right-of-use assets, and evo cold chain systems within its biostorage services product line to customers pursuant to service contracts or rental arrangements entered into with the customer. Revenue from these arrangements is not within the scope of FASB ASC Topic 606 as it is within the scope of FASB ASC Topic 842, Leases. All customers leasing shippers currently do so under annual rental arrangements. We account for these rental transactions as operating leases and record rental revenue on a straight-line basis over the rental term.
The Company enters into various customer service agreements (collectively, “Service Contracts”) with customers to provide biological and pharmaceutical storage services. In certain of these Service Contracts, the property, plant, and equipment or operating right-of-use assets used to store the customer product are used only for the benefit of one customer. This is primarily driven by the customer’s desire to ensure that sufficient storage capacity is available in a specific geographic location for a set period of time. These agreements may include extension and termination clauses. These Service Contracts do not allow for customers to purchase the underlying assets.
The Company has assessed its Service Contracts and concluded that certain of the contracts for the storage of customer products met the criteria to be considered a leasing arrangement (“Embedded Leases”), with the Company as the lessor. The specific Service Contracts that met the criteria were those that provided a single customer with the ability to substantially direct the use of the Company’s property, plant, and equipment or operating right-of-use assets.
Applying the practical expedient from ASC Topic 842, consistent with the previous guidance, the Company will continue to recognize operating right-of-use asset embedded lessor arrangements on its Unaudited Condensed Consolidated Balance Sheets in operating right-of-use assets.
None of the Embedded Leases identified by the Company qualify as a sales-type or direct finance lease. None of the operating leases for which the Company is the lessor include options for the lessee to purchase the underlying asset at the end of the lease term or residual value guarantees, nor are any such operating leases with related parties.
Embedded Leases may contain both lease and non-lease components. We have elected to utilize the practical expedient from ASC Topic 842 to account for lease and non-lease components together as a single combined lease component as the timing and pattern of transfer are the same for the non-lease components and associated lease component and, the lease component, if accounted for separately, would be classified as an operating lease. Non-lease components of the Company’s rental arrangements include reimbursements of lessor costs.
Total bioproduction tools and services revenue for the three and nine months ended September 30, 2024 and 2023 were composed of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands, except percentages)
2024
2023
2024
2023
Product revenue
Cell processing
$
19,030
$
13,338
$
53,154
$
51,004
Biostorage services
$
543
$
365
$
970
$
1,099
Freezer and thaw
3,884
3,434
10,500
11,341
Service revenue
Biostorage services
4,526
4,186
13,708
12,166
Freezer and thaw
134
191
465
407
Rental revenue
Biostorage services
2,454
2,059
6,881
5,975
Total revenue
$
30,571
$
23,573
$
85,678
$
81,992
The following table includes estimated rental revenue expected to be recognized in the future related to Embedded Leases as well as estimated service revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting periods. The Company is electing not to disclose the value of the remaining unsatisfied performance obligation with a duration of one year or less as permitted by the practical expedient in ASU 2014-09, Revenue from Contracts with Customers. The estimated revenue in the following table does not include contracts with the original durations of one year or less, amounts of variable consideration attributable to royalties, or contract renewals that are unexercised as of September 30, 2024. As of September 30, 2024, we did not have service revenue expected to be recognized in greater than one year.
The balances in the table below are partially based on judgments involved in estimating future orders from customers pursuant to their respective contracts:
(In thousands)
2024 (3 months remaining)
2025
2026
Total
Rental revenue
$
812
$
3,249
$
812
$
4,873
15. Stock-based compensation
Service-based vesting stock options
The following is a summary of service-based vesting stock option activity for the September 30, 2024, and the status of service-based vesting stock options outstanding as of September 30, 2024:
Nine Months Ended September 30, 2024
Options
Wtd. Avg. Exercise Price
Outstanding as of beginning of period
217,250
$
2.21
Exercised
(58,750)
2.33
Outstanding as of September 30, 2024
158,500
$
2.16
Stock options exercisable as of September 30, 2024
As of September 30, 2024, there was $3.6 million of aggregate intrinsic value of outstanding and exercisable service-based vesting stock options. Intrinsic value is the total pretax intrinsic value for all “in-the-money” options (i.e., the difference between the Company’s closing stock price on the last trading day of the reporting period and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on September 30, 2024. This amount will change based on the fair market value of the Company’s stock. We did not recognize stock compensation expense related to service-based options during the three and nine months ended September 30, 2024. The intrinsic value of service vesting-based awards exercised was $0.5 million and $1.1 million during the three and nine months ended September 30, 2024, respectively. There were no service-based vesting options granted during the three and nine months ended September 30, 2024. The weighted average remaining contractual life of service-based vesting stock options outstanding and exercisable as of September 30, 2024 is 1.5 years. There were no unrecognized compensation costs for service-based vesting stock options as of September 30, 2024.
Restricted stock
Service-based vesting restricted stock
The following is a summary of service-based vesting restricted stock activity for the nine months ended September 30, 2024, and the status of unvested service-based vesting restricted stock outstanding as of September 30, 2024:
Nine Months Ended September 30, 2024
Shares
Wtd. Avg. Grant Date Fair Value
Outstanding as of beginning of period
2,312,898
$
18.32
Granted
484,886
20.53
Vested
(701,436)
25.83
Forfeited
(116,386)
17.33
Non-vested as of September 30, 2024
1,979,962
$
16.22
The aggregate fair value of the service-based vesting awards granted was $6.7 million and $10.0 millionduring the three and nine months ended September 30, 2024, respectively. The aggregate fair value of the service-based vesting awards that vested was $2.3 million and $8.0 million during the three and nine months ended September 30, 2024, respectively.
We recognized stock compensation expense related to service-based vesting awards of $3.8 million and $11.7 million during the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, there was $26.8 million in unrecognized compensation costs related to service-based vesting awards. We expect to recognize those costs over 2.7 years.
Performance-based restricted stock
On March 8, 2024, the Company granted 109,512 shares of performance-based stock to an executive in the form of restricted stock. The shares granted contain performance conditions based on Company metrics related to future performance. The grant date fair value of this award was $17.36 per share. The fair value of this award is being expensed on a straight-line basis over the requisite service period ending on December 31, 2025.
We recognized stock compensation expense of $0.2 million and $0.7 million related to performance-based restricted stock awards for the three and nine months ended September 30, 2024, respectively. As of September 30, 2024, there was $1.2 million in unrecognized non-cash compensation costs related to performance-based restricted stock awards expected to vest. We expect to recognize those costs over 1.2 years. Non-cash compensation costs are expensed over the period for which performance was measured.
The aggregate fair value of the performance-based awards granted during the three and nine months ended September 30, 2024 was $1.9 million. No performance-based awards vested during the three and nine months ended September 30, 2024.
No performance-based restricted stock awards were granted or vested during the three and nine months ended September 30, 2023.
Market-based restricted stock
The following is a summary of market-based restricted stock activity under our stock option plan for the nine months ended September 30, 2024 and the status of market-based restricted stock outstanding as of September 30, 2024:
Nine Months Ended September 30, 2024
Shares
Wtd. Avg. Grant
Outstanding as of beginning of period
509,166
$
26.50
Granted
299,565
27.12
Vested
(300,529)
27.97
Non-vested as of September 30, 2024
508,202
$
25.70
On February 24, 2022, the Company granted 240,428 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on total shareholder return ("TSR"). The TSR market condition measures the Company’s performance against a peer group. On March 8, 2024, the Company’s Compensation Committee determined the TSR attainment was 125% of the targeted shares and 300,529 shares were granted and immediately vested to the executives of the Company based on our TSR during the period beginning on January 1, 2022 through December 31, 2023 as compared to the TSR of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 63%, 0% dividend yield and a risk-free interest rate of 1.5%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $6.7 million was expensed on a straight-line basis over the grant date to the vesting date of December 31, 2023.
On January 3, 2023, the Company granted 268,738 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our TSR during the period beginning on January 1, 2023 through December 31, 2024 as compared to the TSR of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 78%, 0% dividend yield and a risk-free interest rate of 4.4%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this award of $6.8 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2024, excluding $1.6 million of expense recognized in 2023 to reflect accelerations in the vesting period of certain awards.
On March 8, 2024, the Company granted 239,464 shares of market-based stock to its executives in the form of restricted stock. The shares granted contain a market condition based on TSR. The TSR market condition measures the Company’s performance against a peer group. The market-based restricted stock awards will vest as to between 0% and 200% of the number of restricted shares granted to each recipient based on our TSR during the period beginning on January 1, 2024 through December 31, 2025 as compared to the TSR of 20 of our peers. The fair value of this award was determined using a Monte Carlo simulation with the following assumptions: a historical volatility of 80%, 0% dividend yield and a risk-free interest rate of 4.6%. The historical volatility was based on the most recent 2-year period for the Company and correlated with the components of the peer group. The stock price projection for the Company and the components of the peer group assumes a 0% dividend yield. This is mathematically equivalent to reinvesting dividends in the issuing entity over the performance period. The risk-free interest rate is based on the yield on the U.S. Treasury Strips as of the Measurement Date with a maturity consistent with the 2-year term associated with the market condition of the award. The fair value of this
award of $6.3 million is being expensed on a straight-line basis over the grant date to the vesting date of December 31, 2025.
We recognized stock compensation expense of $1.3 million and $3.7 million related to market-based restricted stock awards for the three and nine months ended September 30, 2024, respectively, and $1.6 million and $4.9 million during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there was $4.4 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.1 years.
The aggregate fair value of the market-based awards granted was zero and $6.3 million during the three and nine months ended September 30, 2024, respectively, and zero and $6.5 million during the three and nine months ended September 30, 2023, respectively. The aggregate fair value of the market-based awards that vested was zero and $5.1 million during the three and nine months ended September 30, 2024, respectively, and zero and $0.7 million during the three and nine months ended September 30, 2023, respectively.
Total stock compensation expense
Compensation expense associated with equity-based awards is recognized on a straight-line basis over the requisite service period, with awards generally vesting over a 4-year period, and forfeitures recognized as incurred. We recorded total stock compensation expense for the three and nine months ended September 30, 2024 and 2023, as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2024
2023
2024
2023
Cost of revenue
$
826
$
1,031
$
2,482
$
2,991
General and administrative costs
2,873
3,349
8,648
9,497
Sales and marketing costs
1,001
1,920
2,909
3,575
Research and development costs
624
1,684
1,983
3,652
Total
$
5,324
$
7,984
$
16,022
$
19,715
16. Income taxes
The Company accounts for income taxes under ASC Topic 740 – Income Taxes. Under this standard, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company’s tax provision for interim periods is determined using an estimate of the annual effective income tax rate, adjusted for discrete items, if any, that occur in the relevant period. Income tax expense of $0.1 million for the nine months ended September 30, 2024 resulted in an effective income tax rate of negative 0.7%. Included in the $0.1 million of tax expense was discrete tax expense of $1.2 million related to stock compensation, which was offset by a change in the valuation allowance.
The Company’s projected effective income tax rate for the year ending December 31, 2024 excluding the impact, if any, of discrete items is negative 0.7%, which is lower than the U.S. federal statutory rate of 21% primarily due to the increase in the valuation allowance on deferred tax assets and non-deductible executive compensation offset by state tax benefits and research tax credits.
Realization of deferred tax assets is dependent upon the generation of future taxable income, the timing and amount of which are uncertain. In determining the need for a valuation allowance, the Company’s management evaluates all available positive and negative evidence to determine if it is more likely than not that its deferred tax assets are realizable. As of September 30, 2024, the Company continues to provide a full valuation allowance against its deferred tax assets as the realization of such assets is not considered to be more likely than not at this time. If the Company's conclusion about the realizability of its deferred tax assets and therefore the appropriateness of the valuation allowance changes in a future
period, the Company could record a substantial tax benefit in its Condensed Consolidated Statements of Operations when that occurs.
17. Net loss from continuing operations per common share
The Company considers its unvested restricted shares, which contain non-forfeitable rights to dividends, as participating securities, and includes such participating securities in its computation of earnings per share pursuant to the two-class method. Basic earnings per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per share is calculated using the weighted average number of shares of common stock plus the potentially dilutive effect of common equivalent shares outstanding determined under both the two-class method and the treasury stock method, whichever is more dilutive. In periods when we have a net loss, common stock equivalents are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
The following table presents computations of basic and diluted earnings per share:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands, except share and earnings per share data)
2024
2023
2024
2023
Basic earnings (loss) per common share
Numerator:
Net loss from continuing operations
$
(1,703)
$
(15,804)
$
(13,061)
$
(30,043)
Net loss from continuing operations allocated to common shareholders
(1,703)
(15,804)
(13,061)
(30,043)
Denominator:
Weighted-average common shares issued and outstanding
46,175,345
43,570,438
45,871,715
43,348,412
Basic and diluted loss from continuing operations per common share
$
(0.04)
$
(0.36)
$
(0.28)
$
(0.69)
The following table sets forth the number of weighted-average shares of common stock excluded from the computation of diluted loss per share, as their inclusion would have been anti-dilutive:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Stock options and restricted stock awards
3,939,417
2,636,283
3,774,697
3,007,126
Total
3,939,417
2,636,283
3,774,697
3,007,126
18. Employee benefit plan
The Company sponsors 401(k) defined contribution plan for its employees. This plan provides for pre-tax and post-tax contributions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company matches employee contributions in amounts to be determined at the Company’s sole discretion. The Company made $0.2 million and $0.7 millionin contributions to this plan for the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, the Company made $0.2 million and $0.7 million, respectively, in contributions to this plan.
The Company has evaluated events subsequent to September 30, 2024 through the date of this filing to assess the need for potential recognition or disclosure.
Stock Purchase Agreement for SciSafe Divestiture
On November 12, 2024, the Company entered into a Stock Purchase Agreement, by and among the Company, Subzero Purchaser Corp., a Delaware corporation, SciSafe, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of the Company, and SciSafe, Inc., a New Jersey corporation and an indirect wholly owned subsidiary of the Company, for the sale by Seller of all of the issued and outstanding shares of common stock of SciSafe to Buyer for an aggregate purchase price of $73.0 million (subject to adjustment as set forth in the Purchase Agreement) (the “Transaction”). Following the execution of the Purchase Agreement, the Transaction was consummated on November 12, 2024 (the “Closing Date”). We anticipate the divestiture to qualify and be presented as Discontinued Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.
The Purchase Agreement contains customary representations, warranties, covenants and indemnities of the parties thereto, including customary covenants that prevent the Company from competing with SciSafe, soliciting its employees or interfering with its business relationships for five years after the Closing Date. In connection with the closing of the Transaction, the Company was required to repay approximately $0.9 million of outstanding indebtedness of SciSafe, estimates to incur approximately $1.8 million in fees to be paid for legal and other transaction services, and estimates to incur approximately $0.4 million in severance costs. The Company also paid the former stockholders of SciSafe approximately $3.3 million in cash to waive all rights with respect to certain potential earn-out payments that would have otherwise accelerated and become due in connection with the Transaction pursuant to the purchase agreement by which the Company acquired SciSafe in October 2020. Finally, the Company expects to recognize approximately $4.0 million in stock compensation expense in connection with the acceleration of unvested shares for all former employees of the Company that remained with SciSafe upon the closing of the Transaction.
In addition, upon the closing of the Transaction, the Company and SciSafe entered into a transition services agreement, pursuant to which the Company will provide certain transition services to SciSafe for up to six months following the Closing Date.
The Company expects to recognize a gain on the Transaction of approximately $39.6 million before $11.1 million of goodwill allocation.
The Company’s estimates are subject to a number of assumptions, and actual results may differ.
Consent and Third Amendment to Loan and Security Agreement with Silicon Valley Bank
November 11, 2024, the Company entered into a Consent and Third Amendment to Loan and Security Agreement, by and among Silicon Valley Bank, a division of First-Citizens Bank & Trust Company (“Bank”), the Company, SAVSU Technologies, Inc., a Delaware corporation (“SAVSU”), Arctic Solutions, Inc., a Delaware corporation doing business as Custom Biogenic Systems (“Arctic”), SciSafe Holdings, Inc., a Delaware corporation (“SciSafe Parent”), and Sexton Biotechnologies, Inc., a Delaware corporation (“Sexton,” and together with the Company, SAVSU, Arctic and SciSafe Parent, “Borrower”). Pursuant to the Amendment and subject to the conditions set forth therein, Bank consented to the Transaction as required pursuant to the Loan and Security Agreement, dated September 20, 2022, by and among Bank and Borrower, as amended by that certain Waiver and First Amendment to Loan and Security Agreement, dated February 26, 2024, and that certain Consent and Second Amendment to Loan and Security Agreement, dated April 17, 2024 (the “Loan Agreement”). In addition, effective as of the closing of the Transaction, the Amendment amended the Loan Agreement to provide for a non-refundable termination fee in the amount of $750,000 payable by Borrower to Bank in the event that the Loan Agreement is terminated prior to the Term Loan Maturity Date (as defined in the Loan Agreement) for any reason. The Amendment also made certain other ministerial changes to the Loan Agreement, contains customary representations and warranties of Borrower and provides for a release of Bank by Borrower for any claims existing or arising through the date of the Amendment, including, without limitation, those arising out of or in any manner connected with or related to the Loan Agreement.
As announced during the second quarter of 2023, the Company has continued to actively seek the divestiture of its CBS business and anticipates Discontinued Operations treatment upon the closure of a deal.
Item2.Management’s discussion and analysis of financial condition and results of operations
Forward looking statements
Certain statements contained in this Quarterly Report on Form 10-Q are not historical facts and may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “plans,” “expects,” “believes,” “anticipates,” “designed,” and similar words are intended to identify forward-looking statements. Forward-looking statements are based on our current expectations and beliefs, and involve a number of risks and uncertainties that are difficult to predict and that could cause actual results to differ materially from those stated or implied by the forward-looking statements. A description of certain of these risks, uncertainties and other matters can be found in filings we make with the U.S. Securities and Exchange Commission (the “SEC”), all of which are available at www.sec.gov, including our Annual Report on Form 10-K as of and for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024, (the "Annual Report"). Because forward-looking statements involve risks and uncertainties, actual results and events may differ materially from results and events currently expected by us. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update these forward-looking statements to reflect events or circumstances that occur after the date hereof or to reflect any change in its expectations with regard to these forward-looking statements or the occurrence of unanticipated events.
Overview
Management’s discussion and analysis provides additional insight into the Company and is provided as a supplement to, and should be read in conjunction with, our Annual Report.
We are a life sciences company that develops, manufactures and supplies bioproduction tools and services which are designed to improve quality and de-risk biologic manufacturing, storage, distribution, and transportation in the cell and gene therapy industry. 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.
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.
On April 17, 2024, the Company sold all of the issued and outstanding shares of common stock of Global Cooling, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Global Cooling”), to GCI Holdings Company, LLC, an Ohio limited liability company (“GCI Holdings”), pursuant to a Stock Purchase Agreement, by and between the Company and GCI Holdings (the “Global Cooling Divestiture”). Upon the execution of the Purchase Agreement, the Global Cooling business is presented in the accompanying condensed financial statements as a discontinued operation for all periods presented. See Note 3: Discontinued operations, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.for further details regarding the divestiture.
On November 12, 2024, the Company the Company entered into a Stock Purchase Agreement, by and among the Company, Subzero Purchaser Corp., a Delaware corporation, SciSafe, Inc., a Delaware corporation and an indirect, wholly owned subsidiary of the Company, and SciSafe, Inc., a New Jersey corporation and an indirect wholly owned subsidiary of the Company, for the sale by Seller of all of the issued and outstanding shares of common stock of SciSafe to Buyer. The divestiture of SciSafe was considered a subsequent event to the financial results presented as of September 30, 2024. SciSafe is therefore presented as a part of our continuing operations as of the three and nine months ended September 30, 2024. For additional information on the divestiture of SciSafe, see Note 19: Subsequent events, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Our bioproduction tools and services are composed of two revenue lines that contain seven main offerings:
•Cell processing
◦Biopreservation media
◦Human platelet lysate media (“hPL”), cryogenic vials, and automated cell-processing fill machines
•Biostorage services
◦Biological and pharmaceutical material storage
◦Cloud connected “smart” shipping containers
◦Automated thawing devices
Critical accounting policies and estimates
A “critical accounting policy” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a description of our critical accounting policies that affect our more significant judgments and estimates used in the preparation of our Unaudited Condensed Consolidated Financial Statements, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and our significant accounting policies in Note 1 to the Consolidated Financial Statements included in our Annual Report and Part I, Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Results of operations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements and the related footnotes thereto.
Revenues
Total revenue for three and nine months ended September 30, 2024 and 2023 consisted of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands, except percentages)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Product revenue
Cell processing
$
19,030
$
13,338
$
5,692
43
%
$
53,154
$
51,004
$
2,150
4
%
Biostorage services
543
365
$
178
49
%
970
1,099
$
(129)
(12)
%
Freezer and thaw
3,884
3,434
$
450
13
%
10,500
11,341
$
(841)
(7)
%
Service revenue
Biostorage services
4,526
4,186
$
340
8
%
13,708
12,166
$
1,542
13
%
Freezer and thaw
134
191
$
(57)
(30)
%
465
407
$
58
14
%
Rental revenue
Biostorage services
2,454
2,059
$
395
19
%
6,881
5,975
$
906
15
%
Total revenue
$
30,571
$
23,573
$
6,998
30
%
$
85,678
$
81,992
$
3,686
4
%
Product revenue
Product revenue was $23.5 million for the three months ended September 30, 2024, representing an increase of $6.3 million, or 37%, compared with the same period in 2023 and was $64.6 million for the nine months ended September 30, 2024, representing an increase of $1.2 million, or 2%, compared with the same period in 2023. The increase in product revenues for the three and nine months ended September 30, 2024 is largely driven by an increase in customer demand for our cell processing products compared to the prior year. During the third and fourth quarters of 2023, we experienced a decrease in our revenues from our customers destocking inventory levels in addition to decreases in broader biotech funding that we did not experience during the current period.
Product revenue from our cell processing products increased by $5.7 million and $2.2 million, or by 43% and 4%, during the three and nine months ended September 30, 2024, respectively, compared with the same period in 2023. The increase in revenue from cell processing products is driven by an overall market improvement compared to the prior year when our customers reduced safety stock levels in addition to the broader biotech industry experiencing decreases in funding.
Product revenue: Biostorage services
Product revenue from our biostorage services increased by $0.2 million, or 49%, and decreased $0.1 million, or or 12%, in the three and nine months ended September 30, 2024, respectively, compared with the same period in 2023. The increase in the three months ended September 30, 2024 is primarily due to new customer acquisitions and increased demand from existing customers. The decrease in the nine month period relates to lower volumes of consumable products sold from our evo product line.
Product revenue: Freezer and thaw
Product revenue from our freezer and thaw products increased by $0.5 million, or 13%, during the three months ended September 30, 2024 and decreased by $0.8 million, or 7%, in the nine months ended September 30, 2024, compared with the same period in 2023. The increase in the three months ended period was primarily driven by an increase in customer demand for our ThawSTAR product line compared to the prior year. The decrease in the nine months ended can be attributed to lower overall sales of our freezer products in the first half of 2024 compared to the prior year.
Service revenue
Service revenue was $4.7 million and $14.2 million for the three and nine months ended September 30, 2024, respectively, representing an increase of $0.3 million and $1.6 million, or 6% and 13%, compared with the same period in 2023. The increase in the three and nine month periods relates primarily to the expansion of service revenue generated by SciSafe storage services.
Rental revenue
Rental revenue was $2.5 million and $6.9 million for the three and nine months ended September 30, 2024, respectively, representing an increase of $0.4 million, or 19%, and $0.9 million, or 15%, compared with the same periods in 2023. The increase is associated with an increased demand from existing customers.
Costs and operating expenses
Total costs and operating expenses for three and nine months ended September 30, 2024 and 2023 were composed of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands, except percentages)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Cost of product, rental, and service revenue
$
14,276
$
11,578
$
2,698
23
%
$
40,278
$
44,989
$
(4,711)
(10)
%
General and administrative
11,351
10,813
$
538
5
%
33,953
37,568
$
(3,615)
(10)
%
Sales and marketing
3,543
4,876
$
(1,333)
(27)
%
10,401
12,731
$
(2,330)
(18)
%
Research and development
2,050
3,739
$
(1,689)
(45)
%
6,827
10,772
$
(3,945)
(37)
%
Asset impairment charges
—
8,310
$
(8,310)
(100)
%
—
8,310
$
(8,310)
(100)
%
Intangible asset amortization
910
1,312
$
(402)
(31)
%
2,734
4,135
$
(1,401)
(34)
%
Change in fair value of contingent consideration
—
(1,580)
$
1,580
NM
—
(1,778)
$
1,778
NM
Total operating expenses
$
32,130
$
39,048
$
(6,918)
(18)
%
$
94,193
$
116,727
$
(22,534)
(19)
%
Cost of product, rental, and service revenue
Cost of revenue increased $2.7 million, or 23%, for the three months ended September 30, 2024 and decreased $4.7 million, or 10%, for the nine months ended September 30, 2024, compared to the same periods in 2023. The increase during the three months ended September 30, 2024 is due primarily to increases in sales across multiple product lines
compared to the same period in the prior year. The decrease in cost of revenue during the nine months ended September 30, 2024 can be attributed to decreases in personnel expenses, a more favorable product mix, and increased operational efficiencies.
Cost of revenue inclusive of intangible amortization related to acquired technology was 49% as a percentage of revenue for both the three and nine months ended September 30, 2024, compared to 52% and 58% as a percentage of revenue for the three and nine months ended September 30, 2023, respectively. The decrease in cost of revenue inclusive of intangible amortization related to acquired technology as a percentage of sales for the three and nine months ended September 30, 2024 is a result of increased utilization at our biorepository facilities, operational efficiencies, and a more favorable product mix in our biopreservation media product line, in addition to decreases in personnel expenses, including stock-based compensation expenses.
General and administrative expenses
General and administrative (“G&A”) expense consists primarily of personnel-related expenses, stock-based compensation, professional fees, such as accounting and consulting fees, and corporate insurance.
G&A expenses for the three months ended September 30, 2024 increased $0.5 million, or 5%, and decreased $3.6 million, or 10%, during the nine months ended September 30, 2024. The increase for the three months ended September 30, 2024 consists primarily of an increase in lease expenses and legal fees compared to the same period in the prior year. The decrease in G&A expenses during the nine months ended September 30, 2024 is primarily due to decreases in consultation service fees, a decrease in severance expenses, and a decrease in headcount resulting in decreased salary and stock-based compensation.
Sales and marketing expenses
Sales and marketing expense (“S&M”) consists primarily of personnel-related costs, stock-based compensation, consulting, advertising, and travel expense.
S&M expense for the three and nine months ended September 30, 2024 decreased $1.3 million and $2.3 million, or 27% and 18%, respectively, compared with the same periods in 2023. The decrease is primarily due to a decrease in headcount compared to the prior year.
Research and development expenses
Research and development (“R&D”) expense consists primarily of personnel-related costs, consulting, research supplies, and milestone expenses related to third party research agreements.
R&D expense for the three and nine months ended September 30, 2024 decreased $1.7 million and $3.9 million, or 45% and 37%, respectively, compared with the same periods in 2023. The decrease is primarily due to a decrease in headcount compared to the prior year, and lower research milestone payments in relation to our investment in PanTHERA.
Intangible asset amortization expense
Intangible asset amortization expense consists of charges related to the amortization of intangible assets associated with the acquisitions of Astero, SAVSU, CBS, SciSafe, and Sexton in which we acquired definite-lived intangible assets. Decreases in our intangible asset amortization expenses for the three and nine months ended September 30, 2024 can be attributed to the write-off of intangible assets related to CBS during the third quarter of 2023.
Change in fair value of contingent consideration
Change in fair value of contingent consideration consists of changes in estimated fair value of our potential earnouts related to our SciSafe acquisition. The benefit recognized in the three and nine months ended September 30, 2023 relates primarily to changes in our estimated probability of achieving earnout targets set forth within the purchase agreements.
Total other income and expenses for the three and nine months ended September 30, 2024 and 2023 were composed of the following:
Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands, except percentages)
2024
2023
$ Change
% Change
2024
2023
$ Change
% Change
Change in fair value of equity investments
$
—
$
—
$
—
NM
$
(4,074)
$
—
$
(4,074)
NM
Gain on settlement of Global Cooling escrow
$
—
$
—
$
—
NM
$
—
$
5,115
$
(5,115)
NM
Interest expense, net
$
(267)
$
(449)
$
182
41
%
$
(796)
$
(1,216)
$
420
35
%
Other income
95
235
$
(140)
(60)
%
417
1,002
$
(585)
(58)
%
Total other (expense) income, net
$
(172)
$
(214)
$
42
20
%
$
(4,453)
$
4,901
$
(9,354)
(191)
%
Change in fair value of equity investments. Reflects the change in fair value of our equity investments. During the second quarter of 2024, the Company determined that the fair value of its equity interest in iVexSol was less than its carrying amount, and no longer recoverable. The equity investment was fully impaired as a result of the analysis. For further details, see Note 5: Investments in Part I, Item 1 of this Form 10-Q.
Gain on settlement of Global Cooling escrow. Reflects the non-cash gain associated with our settlement of the GCI General Escrow during the second quarter of 2023 upon indemnification of shares within the escrow.
Interest expense, net
Interest expense, net incurred during the three and nine months ended September 30, 2024 related primarily to the Term Loan (as defined in Note 13: Long-term debt, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q) obtained in September 2022, financed insurance premiums, and indirect tax liabilities. We also earn interest on cash held in our money market account. Decreases in interest expense, net during the three and nine months ended September 30, 2024 can be attributed to the increases in interest income from our available-for-sale securities compared to the same period in 2023.
Liquidity and capital resources
On September 30, 2024 and December 31, 2023, we had $39.3 million and $50.2 million in cash, cash equivalents, and available-for-sale securities, respectively, in our continuing operations.
On April 17, 2024, the Company consummated the Global Cooling Divestiture. The Company provided $6.7 million in cash funding to effectuate the transaction and paid $0.6 million to the brokers, attorneys, and other external parties. In addition, the Company recognized $6.1 million in cash expenditures from operations during the three months ended September 30, 2024 to meet certain post-closing requirements, costs to sell Global Cooling, the assumption of certain liabilities and debt, and severance expenses related to the RIF implemented on the business of Global Cooling, which reduced the Company’s workforce by 47 employees. For additional information on the details of the Transaction and its related costs, see Item I, Note 3: Discontinued operations to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
On November 12, 2024, the Company consummated the SciSafe Divestiture. In connection with the closing of the Transaction, the Company was required to repay approximately $0.9 million of outstanding indebtedness of SciSafe, estimates to incur approximately $1.8 million in fees to be paid for legal and other transaction services, and estimates to incur approximately $0.4 million in severance costs. The Company also paid the former stockholders of SciSafe approximately $3.3 million in cash to waive all rights with respect to certain potential earn-out payments and expects to recognize approximately $4.0 million in stock compensation expense in connection with the acceleration of unvested shares for all former employees of the Company that remained with SciSafe upon the closing of the Transaction. For
additional information on the divestiture of SciSafe, see Note 19: Subsequent events, to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Based on our current expectations with respect to our future revenue and expenses, we believe that our current level of cash, cash equivalents, and other liquid assets will be sufficient to meet our liquidity needs for at least the next twelve months from the date of the filing of this Quarterly Report on Form 10-Q. However, the Company may choose to raise additional capital through a debt or equity financing for strategic purposes. Additional capital, if required, may not be available on reasonable terms, if at all.
Cash flows
Nine Months Ended September 30,
(In thousands, except percentages)
2024
2023
$ Change
Operating activities
$
6,786
$
(14,809)
$
21,595
Investing activities
(15,337)
13,880
$
(29,217)
Financing activities
(2,697)
$
750
$
(3,447)
Net decrease in cash and cash equivalents
$
(11,248)
$
(179)
$
(11,069)
Net cash provided by (used in) operating activities
Net cash provided by operating activities was $6.8 million during the nine months ended September 30, 2024 compared to $14.8 million used in operating activities during the nine months ended September 30, 2023. The increase in cash provided by operating activities was primarily due to a decrease in operating losses compared to the prior year in addition to the timing of collection and disbursement of working capital related items in accounts receivable, inventories, prepaid expenses, and accrued expenses.
Net cash (used in) provided by investing activities
Net cash used by investing activities totaled $15.3 million during the nine months ended September 30, 2024 compared to $13.9 million provided by investing activities for the nine months ended September 30, 2023. The increase in cash used by investing activities was primarily driven by the $13.0 million in payments made on the divestiture of Global Cooling in addition to a decrease of $20.5 million in purchases, proceeds, and maturities of our investments in available-for-sale marketable securities compared to the prior year. This was offset by a decrease of $4.4 million in capital expenditures compared to the prior year.
Net cash (used in) provided by financing activities
Net cash used by financing activities totaled $2.7 million during the nine months ended September 30, 2024, compared to $0.8 million provided by financing activities during the nine months ended September 30, 2023. The increase in cash used by financing activities was primarily the result of increases in payments on the Company's Term Loan compared to the prior year.
Contractual obligations
Our material cash requirements include contractual and other obligations which we previously disclosed within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report. Other than the contractual obligation listed below, there have been no significant changes to these obligations in the three months ended September 30, 2024.
Purchase obligations
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable pricing provisions and the approximate timing of the transactions. As of September 30, 2024, our total short-term obligations were $4.2 million.
Item3.Quantitative and qualitative disclosures about market risk
Interest rate risk
Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. Our long-term debt primarily bears interest at a fixed rate, with a variable component subject to an interest rate ceiling. Fluctuations in interest rates therefore do not materially impact our consolidated financial statements from long-term debt. For additional information, see Note 13, Long-term debt to the Unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Foreign currency exchange risk
For a discussion of market risks related to foreign currency exchange rates, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report. During the nine months ended September 30, 2024, there were no material changes or developments that would materially alter the market risk assessment of our exposures to foreign currency exchange rates performed as of December 31, 2023.
Item4.Controls and procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were not effective, due to the material weaknesses in our internal control over financial reporting. As previously reported, we identified material weaknesses in our internal control over financial reporting as of December 31, 2023 with regard to (i) inappropriately designed entity-level controls impacting the control environment, risk assessment procedures, and monitoring activities to prevent or detect material misstatements to the consolidated financial statements attributed to an insufficient number of qualified resources and inadequate oversight and accountability over the performance of controls, ineffective identification and assessment or risks impacting internal control over financial reporting, and ineffective monitoring controls; (ii) information system logical access within certain key financial systems; (iii) ineffective accounting procedures and related controls over certain financial statement areas; (iv) inadequate risk assessment, accounting policies, procedures and related controls performed over the procure to pay and revenue recognition processes in the consolidated financial statements in accordance with the applicable financial reporting requirements.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Control
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Remediation
We are continuing to implement remediation plans outlined in our Part II, Item 9A of Annual Report. We also may implement additional changes to our internal control over financial reporting as may be appropriate in the course of remediating the material weaknesses. Management, with the oversight of the Audit Committee of the Board, will continue
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Item 1A. RISK FACTORS
During the nine months ended September 30, 2024, there were no material changes to the risk factors described in Part I, Item 1A of our Annual Report.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
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The information in Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act (including this Quarterly Report on Form 10-Q), unless the Company specifically incorporates the foregoing information into those documents by reference.
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In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIOLIFE SOLUTIONS, INC.
Date: November 12, 2024
/s/ Troy Wichterman
Troy Wichterman
Chief Financial Officer
(Duly authorized officer and principal financial and accounting officer)
