Cryoport, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2016. The quarter is described as fiscal Q2 2017 under the company’s then-current fiscal calendar. In September 2016, Cryoport changed its fiscal year-end from March 31 to December 31; the next annual report was to cover the transition period April 1–December 31, 2016.
Business context
Cryoport provides cryogenic logistics, shipping containers, shipment monitoring and related services to life-sciences customers, including biopharmaceutical, reproductive-medicine and animal-health markets. It also expanded its offerings during 2016 to include temperature-controlled storage, laboratory relocation and logistics consulting.
Financial results
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue, 2016 | $1.977 million | $3.894 million |
| Revenue, 2015 | $1.437 million | $2.868 million |
| Revenue growth | 37.6% | 35.8% |
| Gross margin | 40.3%, versus 30.4% | 40.5%, versus 32.2% |
| Net loss, 2016 | $2.184 million | $6.119 million |
| Net loss, 2015 | $2.425 million | $4.350 million |
| Basic and diluted loss per share | $(0.14), versus $(0.41) | $(0.42), versus $(1.61) |
| Operating cash used | Not separately presented in the supplied text | $2.984 million, versus $2.942 million |
Biopharmaceutical revenue drove growth, rising 63.5% in the quarter and 61.5% for the six-month period. Reproductive-medicine revenue increased 2.6% and 6.4%, respectively; animal-health revenue declined 10.7% and 13.1%. Management attributed improved gross margin mainly to higher shipment volume, pricing adjustments, lower freight costs as a share of revenue and reduced fixed manufacturing costs.
Operating expenses increased as Cryoport expanded commercial, logistics and development activity. For the six months, general and administrative expense rose 22.3%, sales and marketing 36.4%, and research and development 96.9%. The six-month net loss included a $1.930 million noncash warrant-repricing expense related to the April tender offer. Lower interest expense versus 2015 partly reflected the absence of prior-period debt-discount and beneficial-conversion-feature charges.
Cash, debt and liquidity
- Cash and equivalents were $2.558 million at September 30, 2016, down from $2.793 million at March 31, 2016. Working capital was approximately $2.0 million.
- Six-month investing cash outflow was $266,000, primarily for shippers, monitoring systems and computer equipment. Financing provided $3.016 million, including net proceeds of $2.244 million from the April warrant tender offer and $999,000 from the June rights offering, partly offset by $227,000 of related-party note repayments.
- Related-party notes had $739,000 of principal outstanding at September 30, plus accrued interest; the notes were unsecured, bore 7% interest under amended terms and were due April 1, 2017. The balance sheet classified the notes as current.
- Total liabilities were $2.292 million and stockholders’ equity was $3.698 million at September 30. Common shares outstanding were 15.128 million at quarter-end; 17,599,028 were outstanding as of November 11, 2016.
Outlook, risks and unusual items
- Going concern: Cryoport reported a $119.3 million accumulated deficit, continuing operating losses and $3.0 million of operating cash use for the six months. Management said cash on hand, the subsequent October tender-offer proceeds and service revenue were expected to support planned operations into the second quarter of calendar 2017. Additional capital would be needed thereafter; management stated that these conditions raised substantial doubt about the company’s ability to continue as a going concern and that financing was not assured.
- Commercial outlook: Management cited approximately 100 clinical trials supported, including 14 in Phase III, and said advancing trials and commercialization of resulting therapies could drive future revenue. No quantified revenue or earnings guidance was provided.
- Subsequent financing: On October 28, 2016, after quarter-end, holders exchanged warrants covering 2,470,913 shares and immediately exercised replacement warrants, generating approximately $3.7 million gross proceeds and issuing 2,470,913 common shares plus 617,695 supplemental warrants. A related incentive expense was expected to be recorded in the quarter ending December 31, 2016; its amount was not stated.
- Other risks and commitments: The company depended on additional financing, continued commercialization and customer adoption. One customer represented 13.2% of net receivables at September 30; no customer exceeded 10% of six-month revenue. The company had a long-term facility lease and a consulting agreement requiring a minimum $25,000 monthly service fee. Management reported no material legal proceedings and no material changes to the risk factors in its prior annual report.
- Management concluded that disclosure controls were effective at September 30, 2016. The filing reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway assumptions and the timing, availability and terms of additional financing beyond the second quarter of calendar 2017.
- Whether growth in biopharmaceutical customers and clinical trials converts into recurring, commercial-scale shipments and improved operating performance.
- The impact of the October 2016 financing on share count, warrant dilution and the incentive expense to be recorded in the December 2016 quarter.
- Gross-margin sustainability as shipment volumes grow, and the reasons for continued increases in sales, marketing, administrative and research costs.
- Related-party note repayment requirements and other contractual commitments, including facility and consulting costs.