Business context and reporting period
Cryo-Cell International, Inc. (NYSE American: CCEL) filed this unaudited Form 10-Q for the quarter and nine months ended August 31, 2022. Its businesses include private cord blood and tissue processing and storage, PrepaCyte CB products, and public cord blood banking. Management reported nearly 225,000 stored specimens. The company is also investing in clinical therapies and a new Durham, North Carolina facility intended to support internal storage, cellular therapy work, and third-party cold-storage services under the ExtraVault name.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $7.68 million | $7.50 million | $22.57 million | $21.57 million |
| Gross profit / margin | $5.33 million / 69.4% | $5.04 million / 67.2% | $15.92 million / 70.5% | $14.88 million / 69.0% |
| Operating income / margin | $0.95 million / 12.4% | $1.60 million / 21.3% | $3.62 million / 16.0% | $4.83 million / 22.4% |
| Net income | $0.47 million | $0.86 million | $1.93 million | $2.72 million |
| EPS, diluted | $0.06 | $0.10 | $0.23 | $0.33 |
| Operating cash flow | Not presented for the quarter | $6.14 million | $6.26 million |
For the nine months, revenue grew 4.7%, while net income declined 28.9%. Processing and storage fees rose 4% year over year, driven by a 6% increase in recurring annual storage revenue, partly offset by fewer new domestic specimens processed. SG&A increased 8% to $10.89 million; research and development rose to $0.31 million from $0.02 million, primarily for development of a manufacturing laboratory. The public banking segment reported an operating loss of $0.91 million for the nine months.
Cash and cash equivalents were $2.92 million at August 31, 2022, down from $8.26 million at November 30, 2021. Investing activities used $17.20 million, including $12.19 million for property and equipment and $5.00 million for the Duke license. Financing activities provided $5.71 million, including $8.96 million of new term-loan proceeds. Total assets were $66.77 million; total liabilities were $69.15 million, leaving a $2.39 million stockholders’ deficit. Current assets of $11.14 million were below current liabilities of $23.62 million.
At August 31, the company reported $8.76 million of net notes payable, including an $8.96 million Susser Bank term loan, net of issuance costs. The Susser facility also includes a revolving line of credit of up to $10 million. On September 2, after the reporting date, the company drew $7.67 million on that line to pay the declared special dividend. The term loan’s variable rate exposure is hedged by a swap fixing the rate at 6.09%; the term loan matures in 2032 and the revolving facility in 2025.
Material changes versus the prior comparable period
- Quarterly revenue increased 2%, but net income fell 45% and operating margin declined from 21.3% to 12.4%. The nine-month operating margin also fell, from 22.4% to 16.0%.
- Lower cost of sales supported improved gross margin, but higher SG&A, depreciation and amortization, R&D, and contingent-consideration expense weighed on operating income.
- The company acquired a 56,000-square-foot Durham facility for $11.2 million in July, funded with $2.24 million cash and an $8.96 million term loan. Property and equipment increased to $15.18 million from $3.23 million at November 30, 2021.
- The board declared a one-time $0.90-per-share dividend, totaling $7.67 million. It was recorded as a payable at August 31 and funded through the revolving credit line after period-end. The dividend and share repurchases contributed to the shift from positive equity to a deficit.
- The prior Texas Capital Bank loan was paid in full on July 1, 2022 and replaced by the Susser Bank facilities.
Outlook, commentary, risks and unusual items
Management anticipates approximately $10 million of discretionary capital expenditures over the next 12 months, including facility build-out, equipment, software, and Duke-related obligations. It expects cash, operating cash flows, and external capital sources to cover known cash needs for at least 12 months; elsewhere, the risk factors state management believes capital is sufficient for 12 to 18 months. Management cautions that weaker-than-expected revenue, higher expenses, or inability to obtain financing could require spending reductions or deferrals.
The company plans to open the Cryo-Cell Institute for Cellular Therapies and begin infusions during the first half of fiscal 2023. ExtraVault and cellular therapy manufacturing are planned growth initiatives, but their profitability and execution are uncertain. A readout from an Emory University Phase 3 osteoarthritis trial involving Duke MSCs was expected in the first quarter of 2023; the company may pursue a registration trial if results support it. The Duke agreement also requires a further $2 million license payment in February 2023, plus royalties and minimum annual royalties that increase over time.
Unusual and judgment-sensitive items include a $0.41 million quarterly increase in the fair value of Cord:Use contingent consideration liability (versus a $0.32 million decrease in the prior-year quarter), and a $0.26 million increase for the nine-month period (versus a $0.60 million decrease). Management notes actual earnout payments may differ materially from estimates. The company reported no current legal proceedings and no material off-balance-sheet arrangements. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Key risks include declining demand for private cord blood storage, competition, consumer sensitivity to economic conditions, regulatory and clinical-trial uncertainty, the ability to manufacture MSCs and obtain FDA approvals, storage-system or information-security failures, and the funding requirements of facility development and Duke-related clinical programs.
Important facts for investors to verify
- Whether operating cash generation and available credit can fund the new facility, Duke obligations, planned clinical work, and other investment needs while cash remains low and working capital is negative.
- The amount drawn and remaining availability under the $10 million revolving facility after the $7.67 million dividend funding, and the related interest and covenant terms.
- Progress, cost, timing, and commercial demand for ExtraVault, the cellular therapy institute, and MSC manufacturing; confirm whether the planned fiscal 2023 milestones were achieved.
- Clinical-trial results and regulatory status, including the Emory osteoarthritis trial and any proposed IND or BLA programs.
- Future storage enrollment and renewal trends, including the reported decline in new domestic specimens processed, and the sustainability of recurring storage-fee growth.
- The assumptions underlying contingent consideration, public cord blood inventory recoverability, deferred tax assets, and the scheduled Duke payments and minimum royalties.