Cryoport, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 9, 2019. Cryoport provides temperature-controlled logistics and related services to life sciences markets, including biopharmaceuticals, reproductive medicine, and animal health.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $6.65 million | $4.02 million; up 65.4% |
| Gross profit / margin | $3.45 million / 51.9% | $2.18 million / 54.3% |
| Operating loss | $2.14 million | $1.80 million |
| Net loss | $2.39 million; $0.08 per share | $2.68 million; $0.10 per share |
| Cash used in operations | $0.19 million | $1.06 million |
| Cash and cash equivalents | $32.77 million | $37.33 million at Dec. 31, 2018 |
| Short-term investments | $14.50 million | $9.93 million at Dec. 31, 2018 |
| Working capital | $47.9 million | — |
| Convertible note, net carrying value | $14.71 million | $14.71 million at Dec. 31, 2018 |
Cash, cash equivalents, and short-term investments totaled $47.27 million at quarter-end, approximately unchanged from year-end. Investing activities used $5.65 million, primarily reflecting $5.01 million of investment purchases and $1.12 million of property and equipment purchases. Financing activities provided $1.29 million, mainly from option and warrant exercises. Total liabilities were $20.89 million at March 31, including $2.01 million of operating lease liabilities.
Changes and business drivers
- Biopharmaceutical revenue rose 71.8% to $5.64 million; reproductive medicine revenue increased 56.3% to $0.78 million. Animal health revenue fell 4.5% to $0.23 million.
- Management attributed growth chiefly to increased commercial shipments for Novartis and Kite/Gilead therapies, additional biopharma customers, and more supported clinical trials. Commercial revenue increased to $1.4 million from $0.29 million.
- The company added approximately 22 biopharma clients and 26 net clinical trials in the quarter. It supported 383 trials at March 31, versus 261 a year earlier, including 49 Phase III trials versus 38.
- Gross margin declined 2.4 percentage points, which management attributed primarily to operating costs at logistics centers opened in New Jersey and the Netherlands in 2018.
- Operating expenses increased: general and administrative by 30.4%, sales and marketing by 52.0%, and engineering and development by 48.5%, reflecting staffing, compensation, facilities, and other growth-related costs.
- Net loss narrowed year over year, partly because Q1 2018 included $0.90 million of warrant repricing expense. Q1 2019 included $0.34 million of interest expense on the convertible note.
Outlook, risks, and unusual items
- Management said existing cash, investments, and projected cash flows were expected to meet operating and capital needs for at least 12 months. It also noted that additional equity or debt financing may be needed before sustained profitability, with no assurance funding will be available on acceptable terms.
- The $15 million senior unsecured convertible note matures in December 2023 and bears interest at the greater of three-month LIBOR or 2%, plus 6%. Conversion is generally at $13.11 per share, subject to adjustments. The note contains covenants, including a minimum unrestricted-cash requirement; the filing text does not provide a clear value for that threshold.
- Two customers represented 24.7% and 10.6% of Q1 revenue. Two customers represented 31.2% and 22.9% of net receivables at quarter-end.
- The Zoetis agreement had been extended through March 2019, and Cryoport said it was discussing a further extension and amendment.
- Adoption of ASC 842 lease accounting added $1.8 million of operating lease right-of-use assets and $2.1 million of lease liabilities at transition; management said adoption did not materially affect results or cash flows.
- Management reported no material change to the risk factors in the 2018 Form 10-K, no legal proceedings, and effective disclosure controls. The filing cautions that interim results are not necessarily indicative of full-year results and provides no specific full-year financial guidance.
Investor facts to verify
- Whether commercial demand for Novartis and Kite/Gilead therapies and the clinical-trial pipeline continue to translate into revenue growth.
- Whether new logistics-center costs stabilize and gross margin recovers as shipment volumes grow.
- Cash runway assumptions, the note’s minimum-cash covenant, and any need or terms for additional financing.
- Customer concentration, receivable collection, and the outcome of discussions to extend the Zoetis agreement.
- Potential share dilution: 7.53 million shares were reserved for options and warrants, plus 1.37 million shares reserved for note conversion at quarter-end.