I just listened to the BSEM earnings call. They announced $102.9M for preliminary revenue in Q4. Why still preliminary? Read on. . .
Unfortunately, there was no announcement of an uplisting; however, they are quite confident it will happen (likely soonish).
Apparently, the holdup is a revenue recognition question. The NASDAQ is questioning where BSEM’s payments to Venture Medical (their distributor) should fall on the income statement: before or after revenue is recognized.
BSEM is arguing it is a line item expense for S&M and has made a formal response to NASDAQ in the last few days. If their position does not prevail, BSEM would need to restate revenue–thus the preliminary revenue statement for Q4–and change forward revenue recognition to meet NASDAQ’s preference. Either way, earnings will be unchanged (or virutally unchanged). For reference, Q3 revenue was $82.6M and S&M was $65.2M. The revenue recognition could potentially change those two numbers dramatically.
They also mentioned that the medicare reimbursement will be in place until Jan 1, 2026, which is great news.
Finally, they would not give any formal guidance, but were very bullish about their opportunity for geographic expansion to northeastern and southeastern territories in the U.S.
Overall, a great Q4 and I will continue to hold BSEM in my portfolio.
I agree with you on the fact the earnings call was quite good.
The two biggest issues with BioStem were -
Their LCD coverage (Medicare)
Their nasdaq listing (currently they are on pinksheets - otc)
LCD was extended last friday through all of 2025. (This was expiring in April). So that’s good news as they can again go full steam on sales push for 2025.
And what you explained above is what they commented on about Nasdaq up-listing. The mood was it should happen soon. If SEC doesn’t budge their 95% gross margin is going to come down to about 20% - that will be the big change. And since they have outsourced their commercialization wing - that 20% margins can only go up if they negotiate a better deal with their sales partner. There is a chance they will get into it this year - as their revenue numbers are sure to be over 410 mil. now. (this last part is complete speculation on my behalf).
So what we know is they have 302 mil. revenue, with worst case 20% margin and 10% FCF margin. They did 103 mil. revenue in q4. So 2025 should be 410mil and add to that they usually beat 5% - we are looking at 430 mil 2025 revenue. 430 mil. rev over 302 is about 42% revenue growth. And their market cap currently is 210 mil. So essentially this is trading at 0.5 P/S for a 40%+ grower with 10% FCF margin. Something has to give.
My dilemma is it looks really cheap but they can get down to 20% margin company which I usually avoid. But then again that 20% will come with Nasdaq listing - so what is that worth. Hence, I decided to hold on to my stocks for now. And see how the market reacts to everything first.
Btw, there were three legit analysts on the call today - which has never happened before. That is a sign that it is on watch from big players. The volume on the stock has also been steady going up - which I would guess as institutional buyers getting interested.
It sounds like BioStem is waiting to file their Form-10 depending on the feedback they get from the SEC on how they account for sales and marketing expenses. Since the relationship with Venture is mainly a pass through to end customers the SEC is questioning if this should go into costs of goods sold rather than sales and marketing.
What’s interesting is that with either model, it doesn’t change the underlying business, but moves items around on the income statement. For us investors I believe it would be much better if they are able to get the uplisting through with keeping the sales and marketing expenses in that category. This would mean the revenue number stays where it is, and gross margin remains extraordinarily high. I think this is much more likely to draw other investors in, assuming the uplisting completes.
One analyst described the other scenario as “worst case”. My understanding is those S&M costs would go into costs of goods sold and then count against gross margin since the calculation for gross margin is,
GM = ((Revenue - COGS) / Revenue) * 100
In this case both gross margin and revenue would go down but items such as EBITDA and net income would stay the same. Metrics such as EBITDA margin, net income margin, and operating cash flow would be extraordinarily high as they’d basically have near zero costs besides employee salaries. The issue here is while the metrics are just getting moved around, this set of metrics is much less appealing to the typical growth investor looking for that higher revenue number and high gross margin.
I was thinking it was a possibility the company may be announcing the uplisting on this April 14 date, and it could be why the company sold off a bit. I was not thrilled these results are still technically preliminary because of the Form-10. I also thought it wasn’t a great look for the CFO to not be able to know the gross margin calculations in the “worst case” revenue change scenario; he ended up saying let’s talk offline to the analyst.
Some parts I found encouraging were the GAAP net income went up to 15.5M for the quarter, although it did include some carry forward tax losses. The cash balance went up to 22.8M for the company as well, and it sounds like they have about 50M more of tax loss carry forwards they can use. The clinical trials seem to be progressing well with some potential added TAM for diabetic foot ulcers and venous leg ulcers. The extension of the Local Coverage Determination until at least the end of the year is promising.
It sounds more likely than not they will get up-listed in the near future. At the same time I am a bit nervous that these results are still preliminary for Q4 2024 which is a long time ago now. The explanations they are giving make sense so I’m planning to hold my small position for now and re-evaluate as things develop.
My interpretation of the transcript is different. BSEM is arguing that the payment they are giving to their customer Venture Medical is for a service rendered. Where the SEC is saying when you give a discount that you would not charge that as a marketing expense but just lower your revenue, instead of moving it into COGS.
The question that the SEC is asking is around whenever you make payments to a customer, the question becomes, is that a discount, or is it for Bona Fide Services or some distinct services they’re providing?
Depending on what Venture Medical does I could see it being either. It might also be settled somewhere in the middle. But if you want to do a worse case scenario I just took all of the S&M for 2024 and removed it from the 2024 Revenue.
This gives you a revenue of 65.8M with their 13.7M COGS it gives you a Gross Margin of 79%. So their gross margin at a worse case will drop from 95% to 79%. I highly suspect majority of the S&M budget is going to Venture Medical, but I do not think all of it is. Which would probably have the Gross Margin somewhere in the 80%, which is plenty high for most growth investors.
Good callout here, I think you are correct it wouldn’t go to COGS and instead take from revenue, probably keeping a high gross margin.
They mentioned at the beginning there are three potential outcomes, with this number three outcome being the one that would be least favorable.
gross revenue model with adjustments to the timing of revenue recognition based on sell through to end user physicians
hybrid net model where a portion of the bona fide service fees are treated as pass throughs and remain in sales and marketing
fully net model where all the bona fide service fees are netted against revenue which could materially impact reported revenue
Thought to mention in this thread there is a competitor Sanara MedTech that is public on the Nasdaq with symbol SMTI. The products are a bit different as it uses soft tissues, and they have some products that deal with bone fractures. Revenue is 26.3M growing 49% yoy but still not profitable with -0.2M EBITDA and -1.5M net income.
Sanara also has over 3x the employees but a similar market cap. They have some borrowing facilities open because they have yet to get to break even. I’m encouraged this company has a similar market cap to BioStem but BioStem is way more profitable and able to self sustain without any borrowing or dilution.
Biostem presented at the Centri Capital Conference yesterday. There were some encouraging details on their potential Nasdaq uplisting,
“Hopefully we’re near term to getting a Nasdaq listing here pretty soon”
Multiple Form 10 Edits, looking to have the Form 10 go effective near term
“Our Nasdaq application is already approved. We’re just waiting on the Form 10 to go effective”
One comment left to clear on revenue recognition, looking to get pushed through in coming weeks
There was a comment on valuation of the company from the CEO as well, “Huge delta between our commercial efforts and our success financially versus our market cap”
Some additional details from the conference include,
Perinatal tissue used to treat diabetic foot ulcers, pressure ulcers, advanced leg ulcers
CGTP (Current Good Tissue Practice) and AATB accredited with 6k square foot facility
BioRetain proprietary processing methodology, keeps natural elements of perinatal tissue
Properties of BioRetain, maintains anti-inflammatory cytokines, growth factors of PDGF Beta and VEGF, and produces long strands of collagen
Competitor products have broken collagen strands
Gives analogy of Wonder Bread versus whole grain bread, their product is whole grain with nutrition, competitors extract/clean too much to get Wonder Bread
Three patents around placental tissue, two for BioRetain, one around processing method OxoCel
60+ patents in total
Human cellular products serve as a barrier or wound covering naturally
Good tissue products can be commercialized easier than FDA drugs
Vendaje Optic, reduces inflammation in optical space
Majority of commercialization is in the physician office segment
No GPO or hospital agreements yet, working on this
partnership with Venture focused on long term care, nursing and mobile wound care environments
Collecting, c-section has to be planned, mother needs rigorous social and medical history
Won’t take tissue if mother had tattoo in last 1.5 years, or vacation in Zika related country
Recovery of tissue delivered in 24-48 hours, start BioRetain process at facility, product has 4 year shelf life
Expanding facilites in 2025
Venture OneView compelling product for commercialization
Venture provides “bona fide services”, and commercializes for end shipment to users
Clinical studies prove effectiveness of BioRetain, also starts dialogue with commercial payers on how to use the product for acute settings
Paper against leading competitor, reduced number of applications of products and treatment days less than competitor
TAM question, very large market for diabetes and Medicare beneficiaries, growing in both segments
7.2B estimate of TAM, 18% of this is advanced dressings, 62% in wound biologics (65% of this subsegment is amniotic/placental)
Mobile wound care is growing exponentially
Not using the products can lead to amputation which is exponentially more expensive for Medicare trust
Cash 22M, growing today
Looking at other “sites of service” for burns and Ortho
Product is last resorts, 30+ days of standard care, looking at potential M&A to get earlier and have continuum of care
Looking at Medicaid opportunities as well
I am pleased to see that Biostem is continuing to update investors on the potential Nasdaq up-listing. Other details of this business sound promising as well especially on the competitive front where their product has advantages.