Cryoport, Inc. — Q3 2017 Form 10-Q
Business context and period. Cryoport provides cryogenic and temperature-controlled logistics, packaging, monitoring, and related services to life-sciences customers. It reports one operating segment. This filing covers the quarter and nine months ended September 30, 2017; comparative periods are 2016.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $3.00 million | $1.98 million | $8.63 million | $5.45 million |
| Gross margin | 53.5% | 40.3% | 49.3% | 39.6% |
| Operating loss | $1.99 million | $2.16 million | $5.62 million | $6.76 million |
| Net loss | $1.98 million | $2.18 million | $5.63 million | $8.83 million |
| Basic and diluted loss per share | $0.08 | $0.14 | $0.25 | $0.67 |
- Q3 revenue grew 51.9%; biopharmaceutical revenue rose 64.7% to $2.35 million. Management attributed growth primarily to more biopharma customers and shipments. The company added about 20 biopharma clients in Q3 and supported 195 clinical trials during the nine-month period, including 20 Phase III trials.
- Nine-month revenue increased 58.4%, led by biopharmaceutical growth of 75.6%. Reproductive medicine grew 17.5% and animal health grew 24.6%.
- Management attributed improved gross margins to higher volume, pricing adjustments, lower freight costs as a share of revenue, and lower fixed manufacturing costs. Operating expenses rose overall; engineering and development expense increased 66.8% year to date, while sales and marketing expense was nearly flat.
- Nine-month net loss improved year over year partly because 2016 included a $1.93 million warrant repricing expense. The company remained loss-making.
Cash, liquidity, and capital
- Cash and cash equivalents were $15.40 million at September 30, 2017, versus $4.52 million at December 31, 2016. Working capital was $15.4 million.
- For the first nine months, operating cash use was $2.36 million, investing cash use was $1.28 million, and financing provided $14.52 million. Investing primarily funded shippers, monitoring systems, and computer equipment.
- Financing included $11.4 million net proceeds from a March 2017 common-stock offering and $3.8 million from option and warrant exercises, partly offset by $656,000 repayment of related-party notes. The related-party notes were fully repaid in April; no debt was outstanding at September 30.
- Common shares outstanding were 25.22 million at quarter-end and 25.54 million as of October 31. About 10.9 million shares were reserved for future issuance under options and warrants at September 30.
Outlook, developments, and risks
- Management said existing cash and projected cash flows were expected to fund operating and capital needs for at least 12 months, but noted that additional capital may be needed until sustained profitability and may not be available on acceptable terms.
- Management expected growth in clinical-trial activity to support future revenue as trials advance and therapies commercialize. In 2017, Cryoport announced commercial logistics engagements supporting Novartis’s Kymriah and Kite/Gilead’s Yescarta, each initially structured for three years and subject to termination and extension provisions.
- The company launched its C3 solution for 2–8°C shipments in August 2017. It also relies on strategic relationships with FedEx, DHL, and UPS; the FedEx agreement may be terminated for convenience on 180 days’ notice and expires December 31, 2018 unless extended.
- Risks include continued operating losses and potential need for financing, execution and commercialization of customer programs, and regulatory uncertainty affecting international reproductive-medicine revenue. Management reported no material changes to the risk factors in its prior Form 10-K. It reported no legal proceedings and no off-balance-sheet arrangements.
- Commitments include an Irvine facility lease through February 2023 and a consulting agreement with a minimum $25,000 monthly fee through December 2017, subject to renewal terms. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether reported growth in clinical trials and newly announced commercial engagements translates into sustained shipment volumes and revenue.
- Cash burn, capital spending, and the assumptions supporting management’s estimate of at least 12 months of liquidity; additional funding may be required.
- Potential dilution from outstanding options and warrants and subsequent exercises; compare the 10.9 million shares reserved at quarter-end with current share counts.
- Whether improved gross margins persist as shipment volume, freight costs, and service mix change.
- Progress on international markets and the effect of regulatory uncertainty on reproductive-medicine revenue.