Cryoport, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2013; filed February 13, 2014. The company provides frozen and cryogenic shipping logistics, packaging, and shipment-management services to life-sciences customers.
Financial performance and position
| Metric | Three months ended Dec. 31, 2013 | Nine months ended Dec. 31, 2013 |
|---|---|---|
| Revenue | $757,327, up 147% year over year | $1,825,117, up 149% |
| Gross profit (margin) | $167,061 (22%); prior-year gross loss $61,642 | $293,805 (16%); prior-year gross loss $334,804 |
| Operating loss | $1,256,991 | $3,803,813 |
| Net loss | $1,840,331 | $18,123,516 |
| Net loss per share, basic and diluted | $0.03 | $0.40 |
Quarterly revenue growth was attributed to more customers and shipments and expanded services for Zoetis. Gross-margin improvement reflected higher revenue, lower freight costs as a percentage of revenue, and reduced fixed manufacturing costs. Selling, general and administrative expense declined year over year; research and development expense increased modestly.
- Cash flow: Nine-month operating cash use was $3.16 million, investing cash use $139,541, and financing cash provided $2.96 million. Cash declined by $343,134 to $219,970.
- Liquidity: Current assets were $988,383 and current liabilities $1,773,814, resulting in negative working capital of approximately $785,400. The filing identifies substantial doubt about the company’s ability to continue as a going concern.
- Debt: At quarter-end, current convertible debentures and accrued interest, net of discount, were $390,471. Related-party notes and accrued interest totaled approximately $1.37 million, including $96,000 classified as current.
- Equity: Stockholders’ deficit was $1.40 million. Common shares outstanding were 59,246,639 at December 31 and 59,446,639 at February 7, 2014.
Material changes and unusual items
- The company recorded a $13.71 million non-cash debt-conversion expense for the induced conversion of approximately $4.13 million of bridge-note principal and interest into 20.64 million units, each comprising one common share and one warrant. This largely explains the increase in nine-month net loss; the quarterly conversion expense was $552,750.
- Revenue growth and a return to positive gross margin contrast with the prior-year periods, when cost of revenue exceeded revenue.
- Cash from financing included $3.21 million of convertible-debt proceeds. After quarter-end, the company issued an additional $310,000 of 5% bridge notes. Management said available cash, subsequent bridge financing, and expected operating revenue were expected to fund planned operations into fiscal Q4 2014; further capital was required thereafter.
- One customer represented 32% of quarterly and 31% of nine-month revenue. Foreign revenue was approximately 36% and 32% of those respective periods.
Outlook, risks, and contingencies
Management expected continued operating losses and said it was pursuing additional financing and cost reductions. It gave no quantified revenue or profitability guidance and cautioned that financing might not be available on acceptable terms or at all. Customer adoption can take nine months or longer due to qualification and testing requirements. The company also depends on distribution relationships, including non-exclusive FedEx and DHL arrangements; the FedEx agreement runs through December 31, 2015 unless terminated earlier. Zoetis services expanded during 2013, and a Liventa Bioscience agreement was signed in February 2014.
A consulting agreement with KLATU Networks provides for additional compensation of at least $2 million plus twice the defined “cost of work” if Cryoport terminates without cause or liquidates; no such liability was recorded as payable. Management said routine claims and litigation were not expected to materially affect results; the filing reports no legal proceedings. Disclosure controls were considered effective, with no material quarterly change in internal control over financial reporting.
Investor verification priorities
- Verify available liquidity, cash burn, and the amount and terms of financing obtained after quarter-end; management identified a need for additional capital.
- Assess whether revenue growth, particularly from Zoetis and the concentrated customer base, can translate into sustained positive gross margins and lower operating losses.
- Review the dilution and economic cost of bridge-note conversions, warrants, and future equity or debt financing.
- Monitor accounts-receivable growth and collection, given the $418,590 nine-month operating cash-flow use from receivables.
- Evaluate the KLATU termination/liquidation provision and other commitments, as well as customer adoption, supplier, and distribution-partner risks.