Cryoport, Inc. — Form 10-Q Summary
Business context and period: Cryoport provides cryogenic shipping and cold-chain logistics services to life sciences and healthcare customers, using reusable liquid-nitrogen shippers and its Cryoportal logistics platform. This report covers the three months ended June 30, 2014, the first quarter of fiscal 2015, compared with the three months ended June 30, 2013. The interim results are unaudited.
Financial results and liquidity
| Metric | Q1 FY2015 | Q1 FY2014 | Change / context |
|---|---|---|---|
| Revenue | $936,588 | $487,963 | Up 91.9% |
| Gross profit / margin | $339,355 / 36.2% | $54,642 / 11.2% | Margin improved 25.0 percentage points |
| Operating expenses | $1,507,094 | $1,314,717 | Up 14.6% |
| Operating loss | $(1,167,739) | $(1,260,075) | Loss narrowed |
| Interest expense | $(1,128,878) | $(82,219) | Includes substantial noncash debt discount and financing-cost amortization |
| Net loss | $(2,297,264) | $(1,323,537) | Loss widened 73.6% |
| Net loss attributable to common stockholders | $(3,066,773), or $(0.05) per share | $(1,323,537), or $(0.03) per share | Includes $741,786 preferred-stock beneficial conversion charge and $27,723 cumulative preferred dividends |
| Cash used in operations | $(917,049) | $(1,170,991) | Operating cash use decreased |
At June 30, 2014, cash and cash equivalents were $170,505, down from $369,581 at March 31, 2014. Current assets were $783,392 and current liabilities were $2,383,337, leaving negative working capital of approximately $1.6 million. Total assets were $1,324,903; stockholders’ deficit was $1,058,434.
Financing activities provided $717,973 in the quarter, including $780,342 net proceeds from preferred-stock issuance, partly offset by debt repayments. The $1.793 million original principal amount of 5% bridge notes was largely converted into preferred-stock units; $50,000 of principal was repaid, and the balance sheet reported no convertible debentures payable at quarter-end. Related-party notes payable had a $531,500 principal balance, with $1,342,334 reported as the current portion of related-party notes payable. The filing does not clearly reconcile that current balance-sheet amount with the disclosed principal balance.
Material changes and management commentary
- Revenue growth was attributed primarily to expanded logistics services for Zoetis, increased reproductive medicine/in-vitro fertilization activity, and growth in customer count and shipment frequency. Zoetis revenue was $284,700, up 92.7%; reproductive medicine/IVF revenue was $212,900, up 129%.
- Gross margin improved as revenue increased, freight costs declined as a percentage of revenue, and fixed manufacturing costs decreased. SG&A rose 16.8%, primarily due to recruiting, investor-relations, legal, and banking costs; R&D declined 14.5%.
- Foreign-customer revenue was approximately $183,500, or 19.6% of revenue, versus $57,200, or 11.7%, a year earlier. One customer accounted for 30.4% of quarterly revenue and 39.4% of net receivables at quarter-end.
- Cryoport added DHL as a distribution partner in June 2014, alongside FedEx. It also cited customer and market expansion through agreements including Zoetis and Liventa. Adoption may require customer qualification processes lasting nine months or longer.
Outlook, risks, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expected quarter-end cash, subsequent preferred-stock proceeds, and service revenue to fund planned operations into the second quarter of fiscal 2015, but said additional capital would be required thereafter. Management was seeking financing and cost reductions; there is no assurance financing will be available on acceptable terms or that commercialization will achieve sustained profitability.
- Preferred financing and dilution: Through June 30, the company received $1.0 million gross (approximately $770,700 net) from preferred-stock investors and converted $1,767,000 of bridge-note principal and accrued interest into preferred units. Preferred shares carry cumulative dividends of $0.96 annually per share, a $12-per-share liquidation preference, 30 votes per share, and convert into 30 common shares after September 1, 2014. Related warrants generally carry a $0.50 exercise price. The company reported approximately 75.6 million common shares reserved for options and warrants, excluding 7.5 million shares issuable upon preferred conversion.
- On July 16, 2014, Cryoport raised a further $303,600 gross (approximately $264,100 net) through preferred-stock issuance and warrants. These proceeds were intended for working capital.
- Interest expense included approximately $826,900 from a beneficial conversion feature triggered by the preferred offering, as well as amortization of debt discounts and financing costs. The preferred-stock beneficial conversion charge and warrant fair value are being accreted through September 1, 2014.
- A consulting agreement with KLATU Networks provides that, if Cryoport terminates without cause or liquidates, KLATU may be entitled to additional compensation of at least $2 million plus twice the defined “cost of work”; management said it had no intention of terminating without cause. The company reported no legal proceedings and no material changes to the risk factors in its prior annual report.
- Management reported disclosure controls effective as of June 30, 2014 and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current cash runway and progress in securing funding beyond management’s stated near-term runway; verify subsequent financing and cash burn.
- Whether revenue growth and gross-margin gains persist, particularly given dependence on major customers and the customer concentration in revenue and receivables.
- The full potential dilution and voting impact of preferred shares, warrants, options, and other reserved common shares, including terms and exercise/conversion dates.
- The composition and maturity of related-party debt, including the difference between disclosed principal and the current balance-sheet amount.
- The potential amount and triggering conditions of the KLATU Networks contingent compensation obligation.