Cryo-Cell International, Inc. — Q2 2024 Form 10-Q
Reporting period: Three and six months ended May 31, 2024; fiscal year ends November 30. Cryo-Cell provides private cord blood and tissue processing and storage, public cord blood banking, and PrepaCyte CB products. Its core private banking business accounted for nearly all reported revenue.
Financial performance
| Metric | Three months ended May 31, 2024 | Three months ended May 31, 2023 | Six months ended May 31, 2024 | Six months ended May 31, 2023 |
|---|---|---|---|---|
| Revenue | $8.04 million | $7.77 million | $15.90 million | $15.60 million |
| Operating income | $1.39 million | $1.03 million | $2.21 million | $2.71 million |
| Net income | $656,000 | $221,000 | $1.21 million | $988,000 |
| Diluted earnings per share | $0.08 | $0.03 | $0.15 | $0.12 |
| Operating margin | 17.3% | 13.2% | 13.9% | 17.4% |
Revenue and margins: Quarterly revenue increased about 3%, supported by a 5% increase in processing and storage fees; management cited higher recurring storage fees and more new domestic specimens processed. For the six-month period, revenue increased about 2%, with processing and storage fees up 4%. Public banking revenue fell to $85,000 from $395,000 for the six months, which the company attributed to variable demand. Quarterly operating income improved, but six-month operating income declined as SG&A and research and development costs rose. Six-month net income increased despite lower operating income, helped by improved other income and lower interest expense.
Cash flow and liquidity: The cash flow statement reports $1.42 million of cash provided by operations for the six months, down from $3.63 million a year earlier. Investing activities used $3.10 million, primarily for $2.21 million of property and equipment and net securities purchases; financing provided $1.74 million, including $3.20 million of new line-of-credit borrowings. Cash was $469,000 and marketable securities were $1.06 million at May 31. Current assets were $10.16 million versus current liabilities of $19.45 million, an approximate current ratio of 0.52 and working capital deficit of $9.29 million; deferred revenue is a substantial component of current and long-term liabilities.
Debt: The company reported a $4.22 million revolving-credit balance and approximately $8.53 million of net term debt, about $12.75 million combined. Both facilities bore interest at 8.57% at May 31. The revolving facility is scheduled to mature July 18, 2025; the term loan matures in 2032. The credit agreement requires leverage and debt-service coverage ratios. Cryo-Cell terminated its interest-rate swap on April 15, 2024, receiving $228,000.
Other balance-sheet items: Total assets were $62.57 million, total liabilities $73.31 million, and stockholders’ deficit $10.74 million. Deferred revenue, representing future storage obligations, totaled $53.50 million, including $9.58 million expected to be recognized within 12 months.
Material changes, outlook and risks
- The company recorded a $308,000 impairment of its Tianhe stock investment in Q2, citing limited activity and no profits. The Duke license assets had been fully impaired in fiscal 2023, resulting in a prior-year charge of $13.11 million; that impairment also reduced current-period amortization expense versus 2023.
- Six-month research and development expense increased to $744,000 from $384,000, including costs related to the Duke IMPACT Study and clinical development. A Phase 3 cerebral palsy trial is being conducted under an agreement with Emmes; its contracted fees total about $6.35 million, while the company currently estimates total trial cost at $20 million. Management expects substantial future spending on trials and manufacturing capabilities.
- The Durham, North Carolina facility received its certificate of occupancy on May 15, 2024. The company has described plans for additional cold-storage services, a cellular-therapy clinic and potential biopharmaceutical manufacturing. Management previously projected opening the clinic and beginning infusions in Q4 fiscal 2024; execution and timing remain uncertain.
- Cryo-Cell formed Celle Corp. to hold the Duke license and other assets, and says it is exploring a possible shareholder spin-off. The filing cautions that the transaction is uncertain and may require third-party consents, including lender consent. Failure to complete a spin-off could leave the company responsible for substantial related funding obligations.
- Management expects cash, securities, future operating cash flows and external capital to cover known cash needs for at least 12 months. It anticipates about $5 million of discretionary capital expenditures over the next 12 months and states that more than $50 million may be needed over five years for planned initiatives. The company says it may need to reduce or defer spending or obtain additional debt or equity financing if revenue or financing expectations are not met.
- A putative class lawsuit over advertising of cord blood storage services is proceeding in arbitration after class allegations were dropped. The company believes the claims are unlikely to prevail but acknowledges an unfavorable outcome could materially affect it; damages sought are unspecified.
- Disclosure controls were reported effective. However, management reiterated that internal control over financial reporting had a material weakness involving accounting for non-routine transactions. Remediation efforts continued during the quarter.
- Other stated risks include demand and competition in cord blood banking, clinical-trial and regulatory uncertainty, storage-system or specimen failures, financing needs, and the possibility that stem-cell technologies or therapies do not achieve commercial acceptance. The filing reports no off-balance-sheet arrangements material to investors.
Important facts for investors to verify
- Whether operating cash generation improves and whether available cash, securities, operating cash flow and financing can support the company’s substantial planned spending; note the filing’s MD&A describes six-month operating cash flow as “used,” while the cash flow statement reports it as provided.
- Progress, cost, regulatory status and expected timing of the cerebral palsy trial, clinic launch and Durham facility plans, including whether the stated Q4 fiscal 2024 timing remains achievable.
- Whether Celle Corp. is spun off, what assets and liabilities will be transferred, and whether required lender and other consents are obtained.
- Compliance with credit-agreement covenants, use of the revolving facility, future interest costs and the refinancing or repayment plan before the revolver’s July 2025 maturity.
- Trends in recurring storage revenue, new specimen enrollments, public-bank sales, receivable collectability and the large deferred-revenue balance.
- Updates on the material weakness and remediation, as well as the arbitration matter and any other contingencies.