Cryo-Cell International, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended February 29, 2024; comparisons are with the three months ended February 28, 2023. The company provides private cord blood and cord tissue processing and storage, public cord blood banking, and PrepaCyte CB products. It reported more than 235,000 specimens in storage.
Financial performance and position
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $7.85 million | $7.82 million | Up 0.4% |
| Operating income | $821,223 | $1.68 million | Down 51% |
| Net income | $556,241 | $766,812 | Down 27% |
| Basic and diluted EPS | $0.07 | $0.09 | Down $0.02 |
| Operating cash flow | $(356,865) | $1.64 million | Turned negative |
- Processing and storage revenue rose 3% to $7.81 million, including a 5% increase in recurring annual storage fees; new domestic specimens processed declined by less than 1%. Public banking revenue fell to $43,713 from $230,697, and product revenue fell to $3,000 from $32,200.
- Gross profit was approximately $5.69 million, with a 72.5% gross margin, versus $5.76 million and 73.6%. Operating margin declined to 10.5% from 21.5%; net margin was 7.1% versus 9.8%.
- SG&A increased 12% to $4.34 million, including a $172,000 increase in selling expenses. Research and development expense increased to $502,889 from $78,834, primarily for development of a manufacturing laboratory related to the Duke license.
- Interest expense declined to $256,459 from $466,231. The company capitalized $198,607 of interest related to construction of its North Carolina facility. Other income included a $274,971 gain on marketable securities and a $45,288 swap loss.
- At February 29, cash and cash equivalents were $247,112, marketable securities $732,481, and current assets $9.45 million. Current liabilities were $19.37 million; the current ratio was approximately 0.49. Stockholders’ deficit was $10.34 million.
- Net note payable, including current and long-term portions, was $8.56 million; the revolving credit balance was $1.97 million. The revolver has a stated $10 million commitment and matures July 18, 2025. Reported rates at quarter-end were 6.96% on the revolver and 8.57% on the term loan; a swap is intended to manage term-loan rate exposure.
- Deferred revenue totaled approximately $52.0 million, including $9.39 million current. This represents obligations to provide future services, not conventional funded debt. The company also reported $20.49 million in deferred tax assets.
Material changes and notable items
- Revenue was nearly flat, but operating income and net income declined substantially as SG&A and R&D costs rose. The company attributed lower depreciation and amortization to the $13.11 million impairment of Duke-related assets recorded in Q4 FY2023.
- Operating cash flow shifted from positive to negative, with cash uses including reductions in accounts payable and accrued expenses, partly offset by increased deferred revenue. Cash fell by $158,955 during the quarter.
- Investing cash outflow was $341,049, including $457,722 in property and equipment purchases; marketable-security purchases and sales were $743,811 and $860,484, respectively. Financing provided $538,959, including $950,000 of revolver proceeds; the company also repurchased $170,376 of stock.
- On February 22, 2024, the company formed wholly owned Celle Corp. and transferred the Duke license agreement to it. Other asset and liability transfers and a possible spin-off remain prospective and subject to conditions, including third-party consents.
- After quarter-end, the company repurchased an additional 150,500 shares at an average $6.16 per share. Shares outstanding were 8,104,477 as of April 15, 2024.
Outlook, risks and contingencies
- Management expects cash, marketable securities, future operating cash flows and external capital sources to fund known cash needs for at least 12 months. It anticipates approximately $5 million of discretionary capital expenditures over the next 12 months. The filing says more than $50 million may be needed over five years for planned activities, including clinical trials, clinic start-up, manufacturing capabilities and facility investment. Additional financing may be needed; availability and terms are not assured.
- The company submitted a Phase 3 cerebral palsy trial protocol under a Duke-related IND in February 2024 and requested RMAT designation. The trial is estimated to cost $20 million; the Emmes services agreement totals $6.35 million through April 2028. The company expects to open its cellular-therapy institute and begin infusions during FY2024, subject to regulatory rights and operational readiness.
- Results from a Phase 2/3 knee osteoarthritis study showed no benefit for any tested cell source versus standard care, including Duke MSCs covered by the license. The Duke license assets were fully impaired in FY2023. Further clinical and commercial prospects remain uncertain.
- Risks include execution and funding of clinical programs and facility plans, possible failure to complete a Celle Corp. spin-off, reliance on private cord blood storage revenue, demand and competition, regulation and clinical-trial outcomes, interest rates, collections, specimen-storage continuity, cybersecurity, and the possibility of additional financing or expenditure reductions.
- A customer’s individual arbitration claim alleges misleading advertising. The plaintiff dropped class allegations; Cryo-Cell filed an answer and counterclaim on March 19, 2024. The company intends to contest the matter and says it does not expect a material adverse effect, while acknowledging an unfavorable outcome could be materially adverse. Damages sought are unspecified.
- Disclosure controls were deemed effective, but management reiterated a material weakness in internal control over financial reporting concerning accounting for non-routine transactions. Remediation was underway and continued after the quarter.
Important facts for investors to verify
- Whether operating cash flow and cash balances stabilize, and whether planned spending can be funded without additional debt or equity financing.
- Actual revolver availability, compliance with the leverage and debt-service covenants, and the effect of variable-rate borrowing and the interest-rate swap.
- Progress, regulatory status, timing and total funding requirements for the cerebral palsy trial, the cellular-therapy institute, and the North Carolina facility.
- Whether required consents and transfers are obtained and whether the proposed Celle Corp. spin-off proceeds; assess the funding obligations if it does not.
- Developments in the arbitration and any change in the company’s assessment of potential loss or legal costs.
- Remediation of the material weakness, and the assumptions supporting collection of receivables and realization of deferred tax assets.