Cryo-Cell International, Inc. — Q1 FY2023 Form 10-Q
Business and period. The filing covers the three months ended February 28, 2023. Cryo-Cell provides private cord blood and tissue processing and storage, sells PrepaCyte CB processing products, and operates a public cord blood bank. Its planned expansion includes clinical services and biopharmaceutical manufacturing tied to its Duke University license.
Financial performance and position
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $7.824 million | $7.259 million | +7.8% |
| Operating income | $1.683 million | $1.470 million | +14.5% |
| Net income | $0.767 million | $0.832 million | -7.8% |
| Basic and diluted EPS | $0.09 | $0.10 | Lower |
| Net cash from operating activities | $1.644 million | $1.507 million | +9.1% |
- Gross margin was approximately 73.6%, compared with 71.0%; operating margin was approximately 21.5%, compared with 20.3%. Net margin declined to approximately 9.8% from 11.5%.
- Processing and storage fees, the core revenue stream, rose 5.6% to $7.562 million. Management cited 6% growth in recurring annual storage fee revenue, partly offset by a 7% decrease in new domestic cord blood specimens processed. Public banking revenue increased to $231,000 from $83,000; PrepaCyte revenue was $32,000.
- SG&A increased 15% to $3.879 million, including a $281,000 year-over-year increase in stock compensation. Interest expense rose to $466,000 from $306,000. Income tax expense was $448,000 versus $324,000.
- Cash and cash equivalents were $1.373 million at February 28, 2023; marketable securities were $840,000. Cash declined $331,000 during the quarter. Investing used $1.202 million and financing used $773,000, including $243,000 of share repurchases and $500,000 of line-of-credit repayment.
- Current assets were $10.637 million versus current liabilities of $18.912 million, a working-capital deficit of approximately $8.275 million. Total liabilities were $66.822 million against assets of $66.134 million, leaving stockholders’ deficit of $688,000.
- Debt included $8.706 million of net notes payable and $1.773 million drawn on the revolving credit line, or approximately $10.479 million combined. The line has a $10 million limit; reported rates at quarter-end were 7.79% on the revolving line and 7.81% on the term note.
- Deferred revenue totaled $46.500 million, including $9.253 million classified as current. This represents advance customer payments for services to be provided over time, not conventional borrowing.
Changes, outlook and key risks
- Revenue and operating income improved year over year, but net income and EPS declined as higher interest and tax expense, among other items, more than offset operating growth. Public cord blood banking remained loss-making at the segment level, with an operating loss of $133,000.
- Management anticipates approximately $10 million of discretionary capital expenditures over the next 12 months, including facility build-out, equipment, Duke-related obligations and software. It expects cash, marketable securities, operating cash flow, the revolving facility and potentially additional financing to cover needs for at least 12 months; the risk factors section says management believes funding is sufficient for at least 12 to 18 months. The company cautions that weaker revenue, higher expenses or unavailable financing could require it to reduce or defer spending.
- Due to equipment delivery delays, the Cryo-Cell Institute for Cellular Therapies is projected to open and begin infusing patients in fiscal 2024. Clinical development and future manufacturing require substantial funding, and clinical results and FDA approvals are uncertain. The filing provides no specific revenue or earnings guidance.
- Under a February 2023 Duke amendment, the $2 million license payment due in February was allocated to the Duke IMPACT Study. A subsequent research agreement provides for 14 monthly payments of $187,407 beginning in March 2023 and a final $187,400 payment upon delivery of a draft publication, expected no later than September 30, 2024. The company also faces potential royalties and milestone obligations under the license.
- After quarter-end, on March 27, 2023, Cryo-Cell entered an interest-rate swap under which it pays a fixed 6.96% rate on the term-loan notional amount and receives monthly SOFR plus 3.25%.
- A putative class action filed in January 2023 alleges the company’s advertising misrepresents the value and efficacy of its services and seeks unspecified damages. The company says it intends to contest the case and does not expect a material adverse effect, while acknowledging an unfavorable outcome could materially affect the business and financial results.
- Other material risks include consumer demand and competition, regulatory and clinical-trial uncertainty, dependence on storage-system reliability, cybersecurity and data-security incidents, and the need for additional capital. Management reported disclosure controls were effective and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether recurring storage revenue and new customer enrollments sustain growth, given the decline in new domestic specimens processed.
- Cash needs and financing capacity relative to the working-capital deficit, approximately $10.5 million of debt and planned $10 million of capital expenditures.
- Actual timing, cost and funding of the Durham facility, clinic launch, Duke study and related clinical or manufacturing programs.
- Developments in the advertising class action, Duke payment and royalty obligations, and exposure to variable interest rates and covenant requirements.