Cryo-Cell International, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended November 30, 2021. This is an annual report, not a standalone fourth-quarter report. The company provides family cord-blood and cord-tissue processing and storage, sells PrepaCyte CB processing products, and operates a public cord-blood banking business.
Financial performance and position
| Metric | FY2021 / November 30, 2021 | FY2020 / November 30, 2020 |
|---|---|---|
| Revenue | $28.885 million | $31.148 million |
| Operating income | $4.003 million; 13.9% margin | $7.662 million; 24.6% margin |
| Net income | $2.084 million; $0.26 basic and $0.25 diluted EPS | $3.625 million; $0.48 basic and $0.45 diluted EPS |
| Operating cash flow | $7.926 million | $8.467 million |
| Cash and cash equivalents | $8.263 million | $10.361 million |
| Note payable | $1.898 million, classified current | $5.941 million total |
| Current assets / current liabilities | $15.783 million / $21.074 million | $18.556 million / $16.415 million |
- Processing and storage fees were $28.397 million, down from $29.547 million. Recurring storage revenue increased 8%, but new domestic cord-blood specimens processed declined 7%.
- Cost of sales fell 7% to $8.990 million, while selling, general and administrative expenses increased 2% to $14.625 million.
- Public inventory impairment was $1.164 million, compared with $1.284 million in FY2020. The contingent-consideration fair-value adjustment was a $0.782 million gain, versus a $1.940 million gain in FY2020.
- Interest expense was $1.379 million, including $1.031 million related to revenue-sharing agreements. The company repaid $4.100 million of note principal during FY2021.
- Deferred revenue totaled $40.633 million, of which $9.359 million was current. This primarily reflects customer payments received for storage services to be provided in the future.
Material changes and unusual items
- Total revenue declined 7% and net income declined approximately 43% year over year. Management attributed lower revenue in part to reduced new-client sales amid COVID-19-related changes in buying patterns, a lower U.S. birth rate, and industry price pressure.
- The company recognized $834,845 of depreciation and amortization outside cost of sales, up from $166,437, including amortization of its Duke license.
- On February 23, 2021, the company entered into an exclusive patent and technology license with Duke University. It capitalized $15.372 million and recorded a corresponding liability; the asset’s net carrying amount was $14.652 million at year-end. The agreement includes a $12 million license fee, sales-based royalties of 7%–12.5%, minimum annual royalties, and potential milestone payments and share issuances. Cryo-Cell issued Duke 409,734 shares for the agreement.
- Cash used in investing activities was $6.951 million, including $5.106 million paid in connection with the Duke agreement and $1.510 million for real estate intended for the company’s cellular-therapy institute. Financing activities used $3.073 million, primarily for debt repayment.
- The company’s equity turned positive, rising from a $2.665 million deficit to $4.184 million, primarily reflecting FY2021 earnings and shares issued to Duke.
Outlook, risks and contingencies
- Management expected approximately $14 million in discretionary capital expenditures over the next 12 months, including software, property and equipment, and Duke-related obligations. It said cash, operating cash flows and potential external financing were expected to fund known needs for at least 12 months, but cautioned that financing might not be available on favorable terms or at all.
- The company projected opening the Cryo-Cell Institute for Cellular Therapies and beginning patient infusions in the fourth quarter of 2022. Its plans to expand into infusion clinics and biopharmaceutical manufacturing depend on execution, clinical development and applicable FDA approvals or authorizations; profitability is uncertain.
- A February 4, 2022 amendment to the Duke agreement, after year-end, changed the minimum-royalty schedule and deferred a $2 million clinical milestone payment until two years after the first patient is treated in a specified Phase III trial.
- Management warned that COVID-19 effects on new-client sales, revenue and cash flows could continue, with recovery timing uncertain. Other stated risks include competition, global expansion and product diversification, regulatory requirements, supplier dependence, and the commercial success and enforceability of intellectual-property and license arrangements.
- Public cord-blood inventory was $10.194 million at year-end and contingent consideration was $727,371. Their valuation depends on uncertain demand and sales forecasts; the auditor identified their valuation as a critical audit matter. The company also reported ongoing revenue-sharing obligations and ordinary-course legal claims, whose outcomes are uncertain.
Important facts for investors to verify
- Whether new-client sales and recurring storage revenue trends improve, and whether COVID-19 and birth-rate effects persist.
- The recoverability and sales pace of public cord-blood inventory, and the assumptions underlying inventory impairment and contingent-consideration estimates.
- The timing, cash cost and financing plan for the Duke installments, minimum royalties, clinical milestones, and the planned institute and infusion services.
- Liquidity needs in light of current liabilities exceeding current assets, planned capital spending, and the note payable classified as current at year-end.
- Potential dilution from Duke’s share milestones and other equity awards; the filing reports 8,557,326 common shares outstanding at November 30, 2021 and 8,502,618 as of February 18, 2022.
Audit: Wipfli LLP issued an unqualified opinion on the consolidated financial statements. The auditor did not provide an attestation on internal control over financial reporting; management concluded that disclosure controls and internal controls were effective.