Cryo-Cell International, Inc. — Q3 2023 Form 10-Q
Reporting period: Fiscal third quarter and nine months ended August 31, 2023. Financial statements are unaudited. Cryo-Cell provides private cord blood and cord tissue processing and storage, public cord blood banking, and PrepaCyte CB products; it is also developing cellular therapy and biopharmaceutical activities under its Duke license.
Key financial results
| Metric | Three months ended Aug. 31, 2023 | Three months ended Aug. 31, 2022 | Nine months ended Aug. 31, 2023 | Nine months ended Aug. 31, 2022 |
|---|---|---|---|---|
| Revenue | $7.87 million | $7.68 million | $23.47 million | $22.57 million |
| Gross profit / margin | $5.71 million / 72.6% | $5.33 million / 69.4% | $17.10 million / 72.9% | $15.92 million / 70.5% |
| Operating income / margin | $1.16 million / 14.8% | $0.95 million / 12.4% | $3.87 million / 16.5% | $3.62 million / 16.0% |
| Net income / diluted EPS | $0.68 million / $0.08 | $0.47 million / $0.06 | $1.67 million / $0.20 | $1.93 million / $0.23 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $5.58 million | $6.14 million |
Balance sheet and liquidity at Aug. 31, 2023: Cash and cash equivalents were $0.58 million and marketable securities $0.62 million, together $1.21 million. Current assets were $9.94 million versus current liabilities of $18.56 million, a working capital deficit of approximately $8.63 million. Total assets were $69.80 million and total liabilities $69.81 million; stockholders’ deficit was approximately $16,000.
Debt and cash flows: Net term debt was $8.63 million and the revolving credit balance was $2.72 million, for approximately $11.35 million combined. The revolving facility has a $10 million limit and matures July 2025; the term loan matures in 2032. Reported Aug. 31 rates were 8.56% on the revolver and 6.96% on the term loan; a swap fixes the term-loan rate at 6.96%. Nine-month investing cash outflow was $6.16 million, including $5.12 million of property and equipment purchases and $0.53 million paid under the Duke license arrangement. Financing cash outflow was $0.53 million. Cash declined $1.12 million from November 30, 2022.
Changes versus comparable periods
- Third-quarter revenue increased 2%; nine-month revenue increased 4%. Management attributed growth chiefly to higher recurring annual storage fees, up 5%, partly offset by fewer new domestic cord blood specimens processed.
- Quarterly net income rose to $0.68 million from $0.47 million, while nine-month net income fell to $1.67 million from $1.93 million. Nine-month interest expense increased to $1.41 million from $0.95 million, and SG&A rose 8% to $11.72 million.
- Quarterly cost of sales decreased 8%, supporting higher gross margin. Nine-month public banking revenue increased to $0.40 million from $0.34 million, but quarterly public banking revenue fell sharply to $4,383 from $137,825; the filing attributes public-banking variation to customer demand volatility.
- Cash from operations was lower year over year, while investing outflows were substantially below 2022, when the company purchased its North Carolina facility and made a $5 million Duke-related payment.
Outlook, commentary, and risks
- No formal revenue or earnings guidance is provided. Management anticipates approximately $10 million of discretionary capital expenditures over the next 12 months for facility build-out, equipment, Duke obligations, software, and clinical-trial expenses. It says available cash, securities, operating cash flow, and external capital sources are expected to fund known needs for at least 12 months; the risk discussion says the company believes it has sufficient capital for 12 to 18 months.
- The company estimates that more than $50 million may be needed over five years for facility development, clinical trials, the planned infusion clinic, and biopharmaceutical manufacturing. Funding may include cash flows, the revolver, additional debt, or equity sales. Lower-than-expected revenue, higher expenses, or inability to secure financing could require spending reductions or delays.
- Equipment delivery delays pushed the planned Cryo-Cell Institute for Cellular Therapies opening and patient infusions to fiscal 2024, subject to applicable FDA rights and approvals. The Duke IMPACT Study reached its targeted enrollment of 137 patients; the company expects the completed study draft by September 30, 2024 under its agreement.
- The Duke license entails royalties and escalating minimum annual royalties, reaching $5 million in year six and each subsequent year under the amended schedule. Clinical, regulatory, manufacturing, and commercial success—and the ability to fund these commitments—remain uncertain.
- A putative Florida class action alleges that advertising overstated the value and efficacy of cord blood storage services and seeks unspecified damages. On October 10, 2023, the court granted Cryo-Cell’s motion to compel arbitration and stayed the case. The company disputes the claims but notes an adverse outcome could be material.
- Other stated risks include consumer demand and competition, regulatory and clinical-trial uncertainty, technology or therapeutic changes, specimen-storage failure, cybersecurity incidents, international-licensee performance, and the need for additional capital. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether recurring storage-fee growth can offset the continued decline in new domestic specimen processing and the volatility of public-bank sales.
- Cash generation, available revolver capacity, covenant compliance, and the financing plan for projected capital needs—especially the stated five-year funding requirement.
- Facility build-out and fiscal 2024 clinic milestones, FDA/IND permissions, Duke study results, and the timing and cost of future clinical trials and minimum royalties.
- Impact of rising interest expense and the company’s debt service requirements; verify how the interest-rate swap affects actual borrowing costs.
- Progress and potential exposure in the arbitration-stayed class action, along with the valuation and eventual cash payments associated with Cord:Use contingent consideration.