BioLife Solutions (BLFS) 10-Q2024 Q1 Quarterly report

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

As of May 3, 2024, 46,030,886 shares of the registrant’s common stock were outstanding.

BIOLIFE SOLUTIONS, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2024

TABLE OF CONTENTS

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, ultra-low temperature mechanical freezers, cryogenic and controlled rate freezers, 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, 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 cryogenic freezer technology provides for controlled rate freezing and cryogenic storage of biologic materials. Our ultra-low temperature mechanical freezers allow biological materials and vaccines to be stored at temperatures which range from negative 20℃ to negative 86℃. 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.

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.

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, Global Cooling, Inc. doing business as Stirling Ultracold (“Global Cooling” or “GCI”), and Sexton Biotechnologies, Inc. (“Sexton”). All intercompany accounts and transactions have been eliminated in consolidation.

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.

The Company translates items presented on its Unaudited Condensed Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of Operations, Unaudited Condensed Consolidated Statements of Comprehensive Loss, Unaudited Condensed Consolidated Statements of Shareholders’ Equity, and Unaudited Condensed Consolidated Statements of Cash Flows 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.

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.

There have been no significant changes to the accounting policies during the three months ended March 31, 2024, as compared to the significant accounting policies described in our Annual Report.

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.

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:

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:

The following table represents the Company’s total revenue by geographic area (based on the location of the customer):

In the three months ended March 31, 2024, one supplier accounted for 13% of purchases. In the three months ended March 31, 2023, one supplier accounted for 15% of purchases.

As of March 31, 2024, one supplier accounted for 11% of our accounts payable. As of December 31, 2023, one supplier accounted for 12% of our accounts payable.

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.

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):

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.

There were no remeasurements to fair value during the three months ended March 31, 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 March 31, 2024 and December 31, 2023, based on the three-tier fair value hierarchy:

4.    Investments

Available-for-sale securities

The Company’s portfolio of available-for-sale marketable securities consists of the following:

Equity investments

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 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 A-1 and A-2 Preferred Stock in iVexSol, Inc. carried at $4.1 million for the periods ending March 31, 2024 and December 31, 2023, and Series E Preferred Stock in PanTHERA CryoSolutions, Inc. carried at $1.0 million as of March 31, 2024 and December 31, 2023.

5.    Inventories

Inventories consist of the following as of March 31, 2024 and December 31, 2023:

6.    Leases

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 March 31, 2024 and December 31, 2023:

The components of lease expense for the three months ended March 31, 2024 and 2023 were as follows:

Maturities of our lease liabilities as of March 31, 2024 are as follows:

7.     Assets held for rent

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 $0.7 million and $0.8 million in depreciation expense related to assets held for rent during the three months ended March 31, 2024 and 2023, respectively.

8.    Property and equipment

Depreciation expense for property and equipment was $0.7 million and $0.9 million for the three months ended March 31, 2024 and 2023, respectively.

9.    Goodwill and intangible assets

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, net consisted of the following as of March 31, 2024 and December 31, 2023:

Amortization expense for definite-lived intangible assets was $0.9 million and $1.5 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Company expects to record the following amortization expense for definite-lived intangible assets:

10.    Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following as of March 31, 2024 and December 31, 2023:

11.    Warranty reserve liability

The Company reserves estimated exposures on known claims, as well as anticipated claims, for product warranty and rework cost, based on historical product liability claims. Claim costs are deducted from the accrual when paid. Factors that could have an impact on the warranty accrual in any given period include the following: changes in manufacturing quality, changes in product costs, changes in product mix and any significant changes in sales volume.

12.    Commitments and contingencies

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.

From time to time, the Company is subject to various legal proceedings that arise in the ordinary course of business, none of which are currently material to the Company’s business. The Company’s industry is characterized by frequent claims and litigation, including claims regarding intellectual property. As a result, the Company may be subject to various legal proceedings from time to time. The results of any 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. Management is not aware of any significant pending or threatened litigation that is anticipated to result in unfavorable judgments against the Company.

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 March 31, 2024 and December 31, 2023.

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 March 31, 2024, our total short-term obligations were $10.0 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 $5.0 million and $5.4 million as of March 31, 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

Global Cooling Term Notes

In May 2021, the Company assumed three term notes in the acquisition of Global Cooling. At the time of acquisition, these notes carried aggregate outstanding principal balances of $4.4 million. These term notes bore interest at a floating rate equal to the 3-month LIBOR rate plus 6.5%. The term notes included financial covenants tied to the performance of Global Cooling.

In October 2021, the Company entered into amended and restated term notes for all three term notes (the “Global Cooling Term Notes”) with two lenders. As amended, the principal amount borrowed pursuant to the Global Cooling Amended Term Notes” consisted of an aggregate $4.6 million, with one lender providing two term notes in the principal amount of $1.4 million per note and a separate lender providing one term note in the principal amount of $1.8 million. The maturity dates for the Global Cooling Amended Term Notes are July 17, 2024, September 7, 2024, and December 18, 2027, respectively. All three Global Cooling Amended Term Notes bear interest at a fixed rate of 4.0%, were interest-only with one balloon principal payment at maturity, and could be pre-paid without penalty at any time. The Company fully extinguished the Global Cooling Amended Term Notes with maturity dates of September 7, 2024 and July 17, 2024 on September 20, 2022 and July 17, 2023, respectively. All financial covenants included in the original term notes previously in effect were removed upon amendment and restatement pursuant to the Global Cooling Amended Term Notes.

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 March 31, 2024, the implied interest rate of the Term Loan is 6.6% and the implied value of the Term Loan is $20.4 million. The Loan Agreement contains customary representations and warranties as well as customary affirmative and negative covenants. As of March 31, 2024, the Company is in compliance with the covenants set forth in the Loan Agreement.

As of March 31, 2024, the Term Loan was secured by substantially all assets of BioLife, SAVSU, CBS, SciSafe, Global Cooling, and Sexton, other than intellectual property, and the Global Cooling Term Amended Notes were secured by substantially all assets of Global Cooling, which security interest was effectively subordinated to the security interest established by the Loan Agreement. Equipment loans are secured by the financed equipment.

In connection with the Global Cooling Divestiture as of April 17, 2024, the Company entered into the Amendment as described above to remove Global Cooling as a party to the Loan Agreement and to release Bank's security interest in the assets of Global Cooling and the shares of capital stock of Global Cooling arising under the Loan Agreement.

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 March 31, 2024 and December 31, 2023, our deferred revenue balance totaled $0.3 million and $0.7 million, respectively. During the three months ended March 31, 2024 and 2023, the Company recognized approximately $0.4 million and $0.2 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 months ended March 31, 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.

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 March 31, 2024. As of March 31, 2024, we did not have rental revenue expected to be recognized.

The following is a summary of service-based vesting stock option activity for the March 31, 2024, and the status of service-based vesting stock options outstanding as of March 31, 2024:

As of March 31, 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 March 31, 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 months ended March 31, 2024. There were no service-based vesting options granted during the three months ended March 31, 2024. The weighted average remaining contractual life of service-based vesting stock options outstanding and exercisable as of March 31, 2024 is 1.8 years. There were no unrecognized compensation costs for service-based vesting stock options as of March 31, 2024.

The following is a summary of service-based vesting restricted stock activity for the three months ended March 31, 2024, and the status of unvested service-based vesting restricted stock outstanding as of March 31, 2024:

The aggregate fair value of the service-based vesting awards granted was $3.2 million during the three months ended March 31, 2024. The aggregate fair value of the service-based vesting awards that vested was $3.7 million during the three months ended March 31, 2024.

We recognized stock compensation expense related to service-based vesting awards of $4.7 million during the three months ended March 31, 2024. As of March 31, 2024, there was $35.4 million in unrecognized compensation costs related to service-based vesting awards. We expect to recognize those costs over 2.6 years.

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 several 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 related to performance-based restricted stock awards for the three months ended March 31, 2024. As of March 31, 2024, there was $1.7 million in unrecognized non-cash compensation costs related to performance-based restricted stock awards expected to vest. We expect to recognize those costs over 1.8 years. Non-cash compensation costs are expensed over the period for which performance was measured.

The following is a summary of market-based restricted stock activity under our stock option plan for the three months ended March 31, 2024 and the status of market-based restricted stock outstanding as of March 31, 2024:

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 is being 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 $1.1 million and $1.3 million related to market-based restricted stock awards for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $8.6 million in unrecognized non-cash compensation costs related to market-based restricted stock awards expected to vest. We expect to recognize those costs over 1.5 years.

The aggregate fair value of the market-based awards granted was $6.3 million and $6.5 million during the three months ended March 31, 2024 and 2023, respectively. The aggregate fair value of the market-based awards that vested was $5.1 million and $0.7 million during the three months ended March 31, 2024 and 2023, respectively.

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 months ended March 31, 2024 and 2023, as follows:

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. The income tax expense of $0.1 million for the three months ended March 31, 2024 resulted in an effective income tax rate of negative 1.2%. Included in the $0.1 million was a discrete tax expense of $0.6 million related to a stock compensation shortfall, which was offset by a change in the valuation allowance.

The Company’s U.S. projected effective income tax rate without discrete items was negative 1.8%, which is lower than the U.S. federal statutory rate of 21% primarily due to the increase in the valuation allowance on US 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 both positive and negative evidence when concluding whether it is more likely than not that deferred tax assets are realizable. After reviewing the evidence available, the Company’s management believes there is uncertainty regarding the future realizability of the U.S. net operating loss carryforward and is projecting a full valuation allowance of $54.7 million by year end. If operating results improve and projections indicate future utilization of the tax attributes, all or a portion of the valuation allowance would be released, resulting in a corresponding non-cash income tax benefit.

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:

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:

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 $0.3 million in contributions to this plan for the three months ended for both March 31, 2024 and 2023.

19.    Subsequent events

Stock Purchase Agreement for Global Cooling Divestiture

The Company has evaluated events subsequent to March 31, 2024 through the date of this filing to assess the need for potential recognition or disclosure.

On April 17, 2024, the Company entered into the Purchase Agreement by and between the Company and GCI Holdings, which is wholly owned by an 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 for an aggregate purchase price of $1.00. In addition, at the closing of the GCI Divestiture, Global Cooling was required to have $7.0 million in cash on its balance sheet, of which, $4.9 million in cash 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. Following the execution of the Purchase Agreement, the GCI Divestiture was consummated on April 17, 2024. The Company expects to recognize a loss on the GCI Divestiture, calculated as follows:

The Company’s estimates are subject to a number of assumptions, and actual results may differ.

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. The Company expects to recognize approximately $1.6 million of charges in connection with the RIF, comprised of approximately $1.3 million of stock compensation expense and approximately $0.3 million in cash expenditures, substantially all of which are expected to be related to employee severance costs. The Company expects to recognize most of these expenditures in the second quarter of 2024. The Company’s estimates are subject to a number of assumptions, and actual results may differ. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the RIF. In addition, the Company expects to recognize approximately $4.5 million in stock compensation expense in connection with the acceleration of unvested shares for all former employees of the Company that remained with Global Cooling upon the closing of the GCI Divestiture.

The following table summarizes the additional costs incurred by the Company in connection with closing the GCI Divestiture and expected to be recorded during the second quarter of 2024:

In addition, upon the closing of the Transaction, the Company and Global Cooling entered into a transition services agreement, pursuant to which the Company will provide certain transition services to Global Cooling for up to 90 days following the Closing Date.

Second Amendment to Loan and Security Agreement with Silicon Valley Bank

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 and the broader biopharma market. 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.

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.

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.

Total revenue for three and three months ended March 31, 2024 and 2023 consisted of the following: