If you cut through the noise from half a dozen acquisitions and just compare their Q4 report announcing 235 new direct customers to the 213 new direct customers they announced a year ago, you can’t help but think things are heading in the wrong direction (hint: acquisitions accounted for more than half the 2021 gains).
Biopreservation media
2021 :“including 15 now using biopreservation media”
2020: “including 63 using biopreservation media”
ThawSTAR systems
2021: “7 using ThawSTAR® systems”
2020: “29 using ThawSTAR® systems”
Evo Cold Chain
2021: “11 now using evo® cold chain management services”
2020: “43 using evo® cold chain management services”
CBS Cryogenic Freezers
2021: “17 now using CBS cryogenic freezers and accessories”
2020: “73 using CBS freezers and accessories”
Biologic Storage
2021: “14 now using SciSafe® biologic storage services and 12 now using Sexton cell processing products”
2020: “5 using biologic storage services” (SciSafe was acquired in Q4 2020 and Sexton in 2021)
New Trials
2021: “For the fourth quarter of 2021, we processed 17 new U.S. FDA Drug Master File cross-reference requests, indicating the planned use of CryoStor® or HypoThermosol® in pending cell and gene therapy clinical trials.”
2020: “Processed 75 new U.S. FDA Drug Master File cross-reference requests, indicating the planned use of CryoStor® or HypoThermosol® in pending cell and gene therapy clinical trials.”
Stirling ULT freezers
2021: “159 now using Stirling ULT freezers and accessories” (closed on May 3rd, 2021, and expected to contribute $40M in 2021 revenues)
2020: none
So of the 235 new direct customers they announced in Q4, 159 were related to the Stirling ULT freezers, while the other 76 were a better comp for last year’s gains of 213 new direct customers.
The Stirling acquisition brought with it more than just an added $60M or so in annual revenues: it brought some problems. Q3 2021 brought this disclosure:
“The decline in gross margin resulted from charges of $4.3 million, or 13% of total revenue, related to increased warranty expense, supply chain surcharges, and scrap associated with the Stirling ULT freezers.”
The pain continued in Q4 2021:
“The decline in gross margin resulted from a shift in product mix with our acquisition of Global Cooling, Inc., including charges of $6.5 million, or 17% of total revenue, related to an increased warranty accrual estimate, supply chain surcharges and inventory write-offs associated with the Stirling ULT freezers. In addition, we had $1.5 million in one-time and transitory impacts to gross margin across the other product platforms, including channel mix and higher than usual scrap.”
Excluding all that, gross margins were in the 39% range rather than the 15% reported number.
Guidance for 2022 is expected to be up $40M - $50M from 2021, and will include an entire year’s worth of Stirling ULT revenues, which the company expected would generate $40M in 2021 since their May 3rd closing date. Did that happen? Through 3 quarters, Stirling was $27.3M and did $13.3M in Q2 and $14M in Q3. Q4 revenues in the “freezers and thaw systems” platform were only $16.6M, down from $17.6M in Q2 and Q3. So either Stirling was down a bit and missed expectations, or their existing businesses were down after being basically flat year over year. Where else is the growth going to come from?
The COVID conundrum.
During Q4, “COVID-19 related revenue accounted for approximately 15% of total revenue.”
During Q4, “COVID-19 related revenue accounted for approximately 50% of the storage and storage services platform revenue”
During 2021, “COVID-19 related revenue accounted for approximately 15% of total revenue.”
During 2021, “Storage and Storage Services platform revenue was $17.6 million, up $14.0 million, or 389%, over 2020. COVID-19 related revenue accounted for approximately 40% of the storage and storage services platform revenue. Organic growth was 54%.”
During 2021, “Freezers and Thaw Systems platform revenue was $56.6 million, up $43.1 million, or 318%, over 2020. COVID-19 related revenue accounted for approximately 20% of the freezer and thaw systems platform revenue. Organic growth was 30%.”
The COVID scare feels pretty much done. Even the bluest states and countries are opening 100% without any indoor or outdoor mask mandates or further testing requirements for entry. BLFS hit the bid on a variety of businesses basically at the top of the COVID scare. So what are they expecting for 2022?
Not only are they not expecting any retrenchment from the frenzied COVID purchases, they are expecting more of the same. They are expecting 5% growth due to COVID in the freezers platform while otherwise expecting 40% “organic” growth, and 50% COVID growth from the storage platform, or basically all of the “organic” growth there. Reasonable? I think not.
Oh, and you gotta love “organic.” The $74M - $77.5M in expected 2022 freezers platform revenues includes 30% “organic” growth. A full years’ worth of their Stirling ULT acquisition pretty much accounts for all of that “organic growth.”
So their expected freezers platform revenues are basically flattish, storage systems growth is 100% reliant on COVID protocols, while biopreservation media revenues looks to be the lone outperformer of the group. They should have never started the rollup process.