Cryoport, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 9, 2018. Cryoport provides temperature-controlled logistics, packaging, monitoring and related services to the life sciences industry.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $4.63 million | $2.92 million | $8.65 million | $5.63 million |
| Gross margin | $2.50 million; 54.1% | $1.39 million; 47.8% | $4.69 million; 54.2% | $2.65 million; 47.0% |
| Operating loss | $2.47 million | $1.86 million | $4.26 million | $3.63 million |
| Net loss | $2.47 million | $1.86 million | $5.15 million | $3.65 million |
| Basic and diluted loss per share | $0.09 | $0.08 | $0.19 | $0.18 |
- Q2 revenue rose 58.6% year over year; six-month revenue rose 53.7%. Biopharmaceutical revenue was the main driver, increasing 72.6% in Q2 and 67.7% for the first half.
- Q2 operating expenses were $4.97 million, up from $3.26 million. For the first half, they were $8.95 million, up from $6.28 million. Higher staffing, stock-based compensation, new logistics-center start-up costs and commercial investment contributed to the increases.
- Gross margin improved by about six percentage points in Q2 and seven points for the first half. Management attributed the improvement to increased volume, pricing adjustments and lower freight costs as a share of revenue.
- For the first half, operating cash flow was negative $2.33 million, versus negative $1.40 million in 2017. Investing cash outflow was $1.00 million. Financing provided $8.29 million, including $4.64 million net proceeds from the February warrant offer and $3.65 million from option and warrant exercises.
- At June 30, cash and equivalents were $20.01 million, working capital was $21.1 million, total assets were $27.74 million and total liabilities were $3.32 million. The balance sheet reports no debt outstanding.
- Common shares outstanding increased to 28.45 million from 25.70 million at December 31, 2017. Options and warrants, along with the 2018 warrant exercises, are relevant to dilution.
Changes, outlook and risks
- Management reported 258 supported clinical trials, versus 172 a year earlier, including 34 Phase III trials versus 17. The company added approximately 54 biopharma clients in the first half. Management said advancement and commercialization of these trials could support future revenue growth, but provided no quantified revenue or earnings guidance.
- Management believes available cash and projected cash flows will support operating plans for at least the next 12 months. It also cautioned that additional capital may be needed before sustained profitability, and that financing may not be available on acceptable terms.
- The February 2018 warrant exchange and exercise raised $4.7 million gross and resulted in 1,580,388 shares issued. The reduced exercise price generated a one-time $899,400 warrant inducement and repricing expense in the first half.
- Cash increased from $15.04 million at year-end, while accounts receivable rose to $3.62 million from $1.63 million. Management linked the receivables increase to growth and high shipment volumes for two customers with 60-day payment terms. One customer represented 31.7% of net receivables at quarter-end and 21.0% of Q2 revenue.
- Biopharmaceutical and reproductive-medicine revenue grew; first-half animal-health revenue declined 3.0%, primarily due to a temporary pause in a customer trial. Foreign revenue was 10.3% of first-half revenue, down from 12.7% in 2017.
- Approximately $19.8 million of cash exceeded FDIC insurance limits. The company cited foreign-exchange exposure related to European vendors and employees. It reported no material legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls.
- New logistics-center start-up costs and elevated stock-based compensation increased expenses. Stock-based compensation totaled $2.50 million in the first half; $11.2 million of option compensation remained unrecognized, expected over a weighted-average 2.8 years.
- The July 2018 World Courier agreement, for an initial three-year period with an evergreen provision, was described as a subsequent business development. Adoption of the new revenue standard had no material financial effect; management was evaluating the future lease-accounting standard.
Investor verification priorities
- Track whether growth in biopharma clients and clinical trials converts into commercial revenue and whether customer concentration remains manageable.
- Monitor receivables, collection timing and operating cash burn against management’s 12-month liquidity assessment.
- Assess whether gross-margin gains persist as shipment volumes and freight costs change, and whether operating-expense growth moderates.
- Review dilution from share issuance, outstanding options and warrants, and the remaining compensation expense.
- Confirm the financial and operational contribution of new logistics centers and the World Courier relationship; the filing gives no quantified outlook for either.