Cryo-Cell International, Inc. — Q2 2020 Form 10-Q
Business context and period. This unaudited quarterly filing covers the three and six months ended May 31, 2020; the fiscal year ends November 30. Cryo-Cell processes and stores cord blood and tissue for family use, sells PrepaCyte CB products, and operates a public cord blood bank. The company reported three segments and trades as CCEL on OTCQB.
Financial performance and position
| Metric | Three months ended May 31, 2020 | Six months ended May 31, 2020 |
|---|---|---|
| Revenue | $7.872 million, down 3.1% year over year | $15.493 million, down 0.8% |
| Operating income | $1.752 million; approximate operating margin 22.3% | $3.001 million; approximate operating margin 19.4% |
| Net income | $953,338; diluted EPS $0.12 | $1.640 million; diluted EPS $0.20 |
| Operating cash flow | Not presented for the quarter | $3.438 million, versus $2.382 million in 2019 |
- Six-month cost of sales fell 2% to $4.984 million; SG&A edged up to $7.429 million. Interest expense declined 12% to $731,000.
- Cash and cash equivalents were $8.420 million at May 31, 2020; marketable securities were $905,000. Cash increased $1.879 million from November 30, 2019.
- Net carrying amount of notes payable was $7.453 million, including $3.1 million current and $4.353 million long-term. The loan matures in July 2021. Six-month repayments were $1.550 million.
- Current assets were $17.280 million and current liabilities $15.099 million, implying working capital of approximately $2.181 million. Total liabilities of $49.823 million exceeded total assets of $44.841 million; stockholders’ deficit was $4.983 million.
- Deferred revenue, reflecting future service obligations, totaled $34.152 million, of which $8.840 million was current. Public-bank inventory was $13.271 million, with approximately 6,000 cord blood units reported in inventory.
Changes versus the prior comparable period
- Six-month net income increased to $1.640 million from $330,000. The comparison benefited from no public-inventory impairment in 2020 versus a $2.333 million charge in 2019; operating income also increased while revenue was nearly flat.
- Processing and storage revenue declined 1% for the first six months. Management attributed this to a 6% decline in new domestic specimens processed, partly offset by 9% growth in recurring annual storage-fee revenue. For Q2, new specimens declined 13%, while recurring storage fees rose 7%.
- Public banking revenue was nearly unchanged for the six months at $368,000, while public-bank segment operating loss was $522,000, versus $2.637 million in 2019. PrepaCyte product revenue rose to $118,000 from $38,000.
- Operating cash flow improved by approximately $1.056 million year over year. The balance sheet also recorded operating lease assets and liabilities following adoption of the lease accounting standard.
Outlook, risks, and unusual items
- Management gave no numerical revenue or earnings guidance. It said cash, marketable securities, and expected operating cash flows should cover known needs for at least 12 months, while warning that weaker revenue or higher expenses could require spending reductions or financing.
- Planned discretionary capital expenditures are approximately $500,000 over the next 12 months, primarily for software enhancements and property and equipment; management expects to fund them from cash and operations.
- Management said COVID-19’s effects on sales, operations, and supply chain could not yet be predicted and could materially adversely affect the business, financial position, results, or cash flows. It cautioned that first-half results may not indicate full-year performance.
- On June 9, 2020, after quarter-end, Cryo-Cell paid Duke University a non-refundable $350,000 fee for a six-month exclusive patent option, creditable against a future license fee. The company said it anticipates opening a clinic related to Duke’s FDA Expanded Access Program.
- Cord:Use earnout consideration is a $3.471 million Level 3 liability based on valuation assumptions; actual payments may differ materially. Cryo-Cell owes Cord:Use 75% of qualifying public-inventory sales above $500,000 annually, subject to the agreement’s terms, and may also issue shares under specified conditions.
- A Florida contract lawsuit remains unresolved; the company says it cannot estimate a possible loss and has accrued nothing. The filing also identifies competition, customer demand, storage-facility failure, international licensee performance, and litigation among risks.
- Management reported disclosure controls as effective, but noted the company is not deemed a timely filer because it has not filed an amended 2015 PrepaCyte acquisition Form 8-K containing required acquired-business financial statements and pro forma information.
Most important facts for investors to verify
- Whether COVID-19 affected new enrollments, specimen processing, collections, and licensee activity after May 31, and whether management’s 12-month liquidity expectation remains valid.
- Progress on the missing amended PrepaCyte acquisition filing and implications of the stated untimely-filer status.
- Collection of the approximately $1.0 million LifeCell royalty receivable and the concentration and aging of receivables; the allowance for doubtful accounts was $2.764 million.
- Public-bank inventory sales, recoverability, segment losses, and the assumptions behind the Cord:Use earnout valuation.
- Debt repayment and refinancing plans ahead of the July 2021 loan maturity, along with the $500,000 planned capital spending and Duke option or any subsequent license commitment.
- Developments in the pending lawsuit and any other contingencies; the filing does not provide a clear estimate of potential loss.