Cryo-Cell International, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended May 31, 2022. The company provides private cord blood and tissue processing and storage, PrepaCyte CB products, and public cord blood banking. Figures below are unaudited; comparisons are with the corresponding 2021 periods unless noted.
Financial performance
| Metric | Three months ended May 31 | Six months ended May 31 |
|---|---|---|
| Revenue | $7.63 million, up 6% | $14.89 million, up 6% |
| Operating income | $1.19 million, down from $2.00 million | $2.66 million, down from $3.23 million |
| Net income | $0.63 million, down from $1.17 million | $1.47 million, down from $1.86 million |
| Basic / diluted EPS | $0.08 / $0.07; prior year $0.15 / $0.14 | $0.17 / $0.17; prior year $0.24 / $0.23 |
| Operating cash flow | Not separately presented for the quarter | $3.45 million, versus $4.20 million |
- Processing and storage fees—the core revenue source—rose 4% in the quarter and 5% for six months. Management attributed the increase mainly to higher recurring annual storage fees; new domestic cord blood specimens processed declined 9% in the quarter and slightly for the six-month period.
- Estimated gross margin was 71.2% for the quarter and 71.1% for six months, compared with 69.2% and 69.9%. Operating margin fell to 15.6% and 17.9%, respectively, from 27.7% and 23.0%; net margin fell to 8.3% and 9.9%, from 16.2% and 13.3%.
- Quarterly SG&A increased 24% to $3.91 million; six-month SG&A increased 11% to $7.29 million. Six-month research and development expense rose to $228,116 from $9,427, mainly for development of a manufacturing laboratory related to the Duke license.
- At May 31, cash and equivalents were $2.80 million, marketable securities $63,125, and current assets $10.31 million against current liabilities of $15.71 million (current ratio approximately 0.66). Cash was $8.26 million at November 30, 2021. Six-month cash decreased $5.46 million.
- Six-month investing outflows were $5.97 million, including $5.00 million paid under the Duke agreement and $955,000 for property and equipment. Financing outflows were $2.94 million, including $1.55 million of loan repayments and $1.43 million of share repurchases.
- Total liabilities were $50.99 million and stockholders’ equity $4.41 million at May 31. Deferred revenue totaled $42.66 million, reflecting customer and licensee advance payments for services still to be provided. The balance sheet reported $358,000 of net note payable at period-end.
Changes, outlook, and risks
- Revenue grew, but operating and net income declined, chiefly amid higher SG&A and R&D spending and a smaller favorable fair-value adjustment to contingent consideration than in the prior-year periods. Public banking revenue increased, but that segment remained loss-making; its six-month operating loss was $593,000.
- Subsequent to quarter-end, the company paid the Texas Capital Bank term loan in full on July 1, 2022 and said it expected to enter a new credit facility in July. Financing was not assured. The filing states cash, future operating cash flow, and external capital under consideration are expected to cover known needs for at least 12 months; elsewhere it cites a 12-to-18-month capital expectation.
- Management anticipated approximately $14 million of discretionary capital expenditures over the next 12 months, including software, equipment, and Duke agreement obligations. A $2 million Duke license fee is due February 2023; minimum annual royalties rise to $5 million from Year 6 under the amended agreement. The company cautioned that additional financing may not be available on acceptable terms, or at all.
- The company had contracted to purchase a 56,000-square-foot Durham, North Carolina facility for $11.2 million, subject to due diligence and closing conditions. It planned to use the facility for storage capacity and potentially ExtraVault biorepository services and cellular-therapy operations. A previously purchased Durham medical condominium was contracted for sale for $1.85 million; closing was expected in Q3 FY2022.
- Management projected opening the Cryo-Cell Institute for Cellular Therapies and beginning autologous cord blood infusions in the first half of FY2023. The company intended to pursue clinical trials and potential FDA approvals; results, timing, approval, and commercial viability remain uncertain. An Emory Phase 3 osteoarthritis trial readout was expected in summer 2022.
- COVID-19 may continue to affect new-client sales and results; management said the timing and pace of recovery could not be predicted. Other disclosed risks include competition, specimen-storage or information-system failures, regulatory and clinical-trial uncertainty, and the ability to fund expansion.
- The filing reported no current legal proceedings and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective. The company disclosed it was not then meeting Nasdaq’s requirement for three independent audit committee members and was working to cure the deficiency within Nasdaq’s stated period.
Important facts for investors to verify
- Whether the expected new credit facility was completed, on what terms, and how liquidity and funding capacity evolved after the July 2022 debt repayment.
- Whether the Durham facility purchase and prior-property sale closed, and the resulting total project cost, financing, and capital commitments.
- Actual spending and payment obligations under the Duke license, including royalties, clinical-trial milestones, and progress toward FDA submissions and approvals.
- Whether recurring storage-fee growth can offset the decline in new domestic specimens and the increased SG&A and development spending.
- Progress on Nasdaq audit committee compliance and any subsequent changes to listing status.