Cryoport, Inc. — Form 10-Q Summary
Business context and reporting period. This filing covers the fiscal second quarter and six months ended September 30, 2012. Cryoport provides frozen cold-chain logistics services for life-science customers, using reusable cryogenic shippers and its Cryoportal logistics platform. The company expanded its offerings to include customer-staged, customer-managed, integrated-logistics, and distribution-partner solutions.
Financial performance and liquidity
- Revenue: Second-quarter revenue was $233,597, up 111% from $110,713 a year earlier. Six-month revenue was $424,896, up 81% from $234,464. Management attributed growth primarily to more customers using its services.
- Gross profit and margins: The company recorded gross losses of $110,843 for the quarter and $273,162 for the six months, compared with $252,837 and $483,366, respectively, in the prior-year periods. Gross margin remained negative—approximately -47% for the quarter and -64% for the six months—because cost of revenue exceeded revenue, which management attributed to fixed manufacturing costs and underutilized facilities.
- Operating expenses and losses: Six-month operating expenses declined to $2.82 million from $3.42 million. The six-month operating loss was $3.09 million, versus $3.90 million. Net loss was $1.55 million for the quarter ($0.04 per share) and $3.10 million for the six months ($0.08 per share), compared with $2.03 million ($0.07 per share) and $4.08 million ($0.15 per share), respectively. Lower expenses and interest costs contributed to the improvement.
- Cash flow: Six-month operating cash use was $2.66 million, compared with $3.19 million a year earlier. Investing cash use was $46,779 and financing cash use was $245,253. Cash and cash equivalents fell to $1.67 million from $4.62 million at March 31, 2012.
- Liquidity and debt: Working capital was $1.22 million, down from $4.02 million at March 31. Total liabilities were $2.06 million. Related-party notes and accrued interest totaled approximately $1.45 million; the notes carry 6% interest and are unsecured. The October 2007 convertible debentures were repaid during the quarter ended June 2012.
- Other metrics: Total assets were $2.84 million and stockholders’ equity was $776,493 at September 30. The company had 37,760,628 common shares outstanding. Six-month foreign sales were approximately $179,000, or 42% of revenue.
Material changes and management outlook
- Compared with the prior-year quarter, revenue more than doubled and gross loss narrowed, while quarterly SG&A declined to $1.34 million from $1.56 million. For the six months, SG&A decreased by $582,171; management cited lower headcount and the CEO’s departure, partly offset by about $180,000 in severance.
- Management said it expected cash on hand and forecast sales to fund planned operations into the fourth quarter of fiscal 2013. It expects additional capital will be needed thereafter and is exploring funding alternatives, including equity and/or debt. The filing provides no formal revenue or earnings guidance and gives no assurance financing will be available on acceptable terms or in time.
- The company stated that recurring losses and operating cash use raise substantial doubt about its ability to continue as a going concern. Management is pursuing cost containment and additional capitalization; it also said near-term revenue would not cover funding requirements.
- Management described customer adoption as a lengthy process—typically six to eighteen months or longer—because life-science customers may require audits, vendor qualification, and test shipments. The company was working with FedEx to improve sales execution and had developed a FedEx-branded portal; it also maintained a DHL shipping arrangement. The filing does not quantify resulting or expected partner sales.
- Subsequent to quarter-end, Jerrell W. Shelton was appointed President and CEO effective November 5, 2012.
Risks, contingencies, and unusual items
- A consulting and engineering agreement with KLATU Networks provides that, if Cryoport terminates without cause or liquidates, KLATU may be entitled to additional compensation of at least $2 million plus twice the defined “cost of work.” The company said it had no intention of terminating without cause; the potential amount is not presented as a recorded liability.
- The company has broad indemnification obligations, including intellectual-property indemnification to FedEx, with no stated maximum potential payment. No liability was recorded for these guarantees and indemnities based on historical experience.
- Derivative warrant liabilities were $3,510 at September 30, down from $37,334 at March 31. The six-month $33,824 fair-value gain was non-cash and depended on Level 3 valuation inputs.
- Supply disruption is a risk: the company said available components could cover a maximum production disruption of four to six weeks, and some components have relatively few alternate sources.
- The filing reports no material legal proceedings and no material changes in internal control over financial reporting during the quarter. Management concluded disclosure controls were effective at the reasonable-assurance level.
Most important facts for investors to verify
- Whether Cryoport secures financing before its stated cash runway ends, and the terms, dilution, and timing of any financing.
- Whether revenue growth converts into positive gross margins despite fixed costs and facility underutilization.
- Customer adoption, repeat usage, and measurable sales contribution from FedEx, DHL, and the expanded service offerings.
- The status and potential financial exposure of the KLATU agreement and other indemnification commitments.
- Cash burn, available liquidity, related-party debt and accrued interest, and any changes in the going-concern assessment.