Cryoport, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; filed November 8, 2018. Cryoport provides temperature-controlled logistics, packaging and monitoring services to the life sciences industry, including biopharmaceutical, reproductive medicine and animal-health customers.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $5.29 million | $3.00 million | $13.94 million | $8.63 million |
| Gross margin | $2.74 million; 51.8% | $1.61 million; 53.5% | $7.42 million; 53.3% | $4.25 million; 49.3% |
| Operating loss | $(2.16) million | $(1.99) million | $(6.42) million | $(5.62) million |
| Net loss | $(2.14) million | $(1.98) million | $(7.30) million | $(5.63) million |
| Basic and diluted loss per share | $(0.07) | $(0.08) | $(0.26) | $(0.25) |
- Q3 revenue rose 76.0% year over year; nine-month revenue rose 61.4%. Biopharmaceutical revenue was the principal growth driver, increasing 90.7% in Q3 and 75.9% for nine months.
- Q3 gross margin declined about 1.7 percentage points, primarily due to start-up costs at new logistics centers in New Jersey and the Netherlands. Nine-month gross margin improved about 4 points, reflecting increased volume, scale and pricing adjustments, partly offset by those centers’ costs.
- Operating expenses increased: nine-month general and administrative expense was up 36.4%, sales and marketing up 43.7%, and engineering and development up 50.5%. Higher staffing, stock compensation, facility and center start-up costs contributed.
- Cash and cash equivalents were $13.85 million and short-term investments $9.88 million at September 30, 2018, totaling approximately $23.73 million. Working capital was $25.2 million. Total liabilities were $2.96 million; the balance sheet reports no debt.
- Nine-month operating cash use was $2.99 million; investing cash use was $11.78 million, including $9.92 million of short-term investment purchases and capital spending. Financing provided $13.60 million, including $4.64 million net from a warrant tender offer, $5.60 million from option and warrant exercises, and $3.35 million net from the ATM program.
- Shares issued and outstanding increased from 25.70 million at December 31, 2017 to 29.21 million at September 30, 2018. Stock-based compensation was $3.99 million for the first nine months.
Changes, outlook and risks
- Management attributed growth to more biopharma customers and clinical-trial activity, plus commercial shipments for Novartis and Kite/Gilead CAR-T therapies. Cryoport supported 295 clinical trials at quarter-end, versus 195 a year earlier; 38 were Phase III trials versus 20. Commercial CAR-T revenue was $555,200 in Q3 and $1.3 million for the nine-month period, as described in the filing.
- Reproductive-medicine revenue grew, while animal-health revenue declined year over year. The filing cites a prior-year laboratory move and a discontinued client trial as factors in the animal-health comparison.
- Management stated that existing cash, investments and projected cash flows were expected to fund 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. No specific revenue, earnings or margin guidance was provided.
- The company began operating logistics centers in Livingston, New Jersey and Hoofddorp, the Netherlands during Q3. Start-up expenses affected costs; execution, utilization and associated spending are relevant to future margins and cash needs.
- The August 2018 ATM agreement permits up to $35 million in common-stock sales; $3.4 million net had been raised by quarter-end. The February warrant repricing generated a one-time $899,400 expense. Both capital-raising activity and outstanding equity awards create potential dilution.
- Key commercial agreements require monitoring: the FedEx agreement was due to expire December 31, 2018, and the Zoetis agreement was extended through March 2019; the company reported discussions to extend both. World Courier collaboration began in 2018. The filing also disclosed an October 2018 Be The Match partnership.
- Customer concentration is notable: one customer accounted for 20.6% of Q3 revenue and 17.2% of nine-month revenue; one customer represented 25.9% of net receivables. The company also cited foreign-exchange exposure and uninsured cash and investment balances. Management reported no material litigation and no material changes to the risk factors in its 2017 Form 10-K.
- Revenue recognition standard Topic 606 was adopted January 1, 2018 with no material effect. Management was evaluating the forthcoming lease-accounting standard. Disclosure controls were assessed as effective; no material internal-control changes were reported.
Investor verification points
- Confirm whether clinical-trial growth and commercial CAR-T shipments translate into durable revenue and improved operating leverage.
- Track gross margins, center utilization and start-up costs as the New Jersey and Netherlands facilities scale.
- Review operating cash burn, receivable collections and management’s stated 12-month liquidity outlook, including any subsequent financing.
- Assess dilution from the ATM program, warrant and option exercises, and unvested stock awards.
- Verify the renewal status and economic terms of the FedEx and Zoetis agreements, and the commercial contribution of newer partnerships.
- Monitor major-customer concentration, accounts-receivable collectability and cash/investment counterparty exposure.