Cryo-Cell International, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended August 31, 2013. Unaudited consolidated results. The company provides cellular processing and cryogenic storage, principally umbilical cord blood storage, and earns revenue from processing and storage fees and international licensee royalties.
Key financial metrics
| Metric | Three months ended Aug. 31, 2013 | Nine months ended Aug. 31, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $4.830 million | $14.288 million | $4.542 million; $13.146 million |
| Operating income (loss) | $583,000 | $1.234 million | $38,000; $(1.163) million |
| Net income (loss) | $194,000 | $195,000 | $(547,000); $(5.454) million |
| Basic and diluted EPS | $0.02 | $0.02 | $(0.05); $(0.48) |
| Operating margin | 12.1% | 8.6% | 0.8%; (8.9%) |
| Operating cash flow | Not provided for the quarter | $844,000 | $40,000 |
Revenue for the quarter rose 6% year over year; nine-month revenue rose 9%. Nine-month processing and storage revenue increased 10%, with specimens processed up 13% and recurring annual storage fees up 4%. Licensee income declined to $976,000 from $1.017 million.
For the nine months, cost of sales rose 13% to $4.015 million and was 28% of revenue, versus 27% in 2012. Selling, general and administrative expense fell 19% to $8.489 million. Interest expense increased to $828,000 from $782,000, primarily reflecting revenue-sharing agreement obligations. The company recorded a $379,000 write-off of abandoned patents and trademarks in the nine-month period.
Liquidity, balance sheet and cash flows
- At August 31, cash and cash equivalents were $3.728 million, up from $2.677 million at November 30, 2012. Restricted cash was $1.421 million, down from $2.577 million.
- Current assets were $9.249 million and current liabilities $9.684 million, a working-capital deficit of approximately $435,000. Deferred revenue totaled $15.255 million, including current and long-term balances.
- Total assets were $11.365 million. Stockholders’ deficit was $9.119 million. The company reported no long-term indebtedness, but had a $2.3 million long-term liability related to revenue-sharing agreements.
- Nine-month cash from operations was $844,000. Investing activities provided $864,000, primarily reflecting a $1.156 million decrease in restricted cash, partly offset by capital spending. Financing used $657,000, primarily for share repurchases.
- The company repurchased 302,391 shares during the nine months for approximately $672,000. It had repurchased 1,094,765 shares under its plan through August 31, at an average $2.17 per share.
Changes, outlook and risks
- The improvement in nine-month net results versus 2012 reflected higher revenue and lower SG&A, as well as the absence of 2012 items: approximately $1.596 million gain from extinguishing revenue-sharing obligations and a $1.7 million deferred-tax valuation-allowance charge. 2012 also included approximately $700,000 of accelerated Co-CEO stock-option expense.
- Management anticipated approximately $750,000 of discretionary capital expenditures over the next 12 months, mainly for software enhancements and property and equipment. It believed cash, marketable securities and expected operating cash flows would cover known needs for at least 12 months, while cautioning that weaker revenue or higher costs could require spending reductions or financing.
- A lease termination incurred a $150,000 fee, net of rent payments, and was expected to yield approximately $130,000 net savings over 18 months.
- The Ecuador affiliate was temporarily closed by the local regulator; the company recorded an allowance against a $150,000 receivable. The company also disclosed that it could not estimate the potential loss in a separate lawsuit scheduled for trial in January 2014.
- A former CEO’s arbitration resulted in an interim award of $1.081 million. The company paid an initial $1.066 million in July and reported $487,000 of accrued claim and legal fees at August 31; certain legal fees and expenses were reimbursed in September and October.
- Principal disclosed risks include regulation of stem-cell storage, competition (including public cord-blood banks), lower customer demand or storage renewals, international licensee performance and collections, facility or information-system failures, litigation, and the commercial acceptance of new services.
No specific revenue or earnings guidance was provided. Management noted that interim results are not necessarily indicative of full-year results.
Investor verification priorities
- Track whether revenue growth in processing and storage continues, and whether customer specimen volumes and recurring storage fees support margins.
- Assess the collectability of international receivables, especially the Ecuador balance, and the status of the Ecuador affiliate and other licensee relationships.
- Review operating cash generation and the distinction between unrestricted and restricted cash; confirm whether planned capital expenditures remain within management’s estimate.
- Monitor revenue-sharing obligations and associated interest expense, along with the company’s share-repurchase pace and remaining authorization.
- Follow the unresolved lawsuit and the final costs and payments related to the former CEO arbitration.
- Verify that the reported improvement in earnings is supported by ongoing operations rather than prior-year unusual items and expense reductions.