Cryo-Cell International, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended February 28, 2022. The company provides cord blood and tissue processing and storage, sells PrepaCyte CB products, and operates a public cord blood bank. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $7.26 million | $6.86 million | Up 5.8% |
| Gross profit | $5.16 million | $4.85 million | Up 6.3% |
| Gross margin | 71.0% | 70.7% | Up 0.3 percentage points |
| Operating income | $1.47 million | $1.24 million | Up 19.0% |
| Operating margin | 20.3% | 18.0% | Up 2.3 percentage points |
| Net income | $832,047 | $693,590 | Up 20.0% |
| Net margin | 11.5% | 10.1% | Up 1.4 percentage points |
| Operating cash flow | $1.51 million | $2.66 million | Down 43.4% |
- Processing and storage fees rose 6%, reflecting 6% growth in recurring annual storage revenue and 4% more new domestic specimens processed. Product revenue fell to $18,200 from $38,000; public banking revenue was approximately flat at $82,845.
- Q1 2022 basic and diluted earnings per share were each $0.10, versus $0.09 basic and $0.08 diluted in the prior-year quarter.
- Cash and cash equivalents were $2.14 million at February 28, down from $8.26 million at November 30, 2021. Marketable securities were $472,369, bringing cash and securities to approximately $2.62 million.
- Cash declined by $6.12 million overall: operating cash inflow of $1.51 million was more than offset by $6.05 million investing outflow and $1.57 million financing outflow. Investing included a $5.0 million Duke license payment; financing included $829,000 of share repurchases and $775,000 of note repayments.
- Current assets were $9.72 million and current liabilities $16.39 million, a negative working capital position of approximately $6.67 million. Total assets were $54.81 million, total liabilities $50.56 million, and stockholders’ equity $4.25 million.
- Net note payable was $1.13 million and matures in June 2022. The company also reported $1.93 million current and no long-term Duke license liability at quarter-end. Deferred revenue totaled $41.21 million, including $9.06 million current; these customer prepayments are recognized as services are provided.
Material changes and notable items
- Operating income improved despite cost of sales rising 5%. Selling, general and administrative expense declined 2% to $3.38 million.
- Depreciation and amortization outside cost of sales increased to $278,166 from $21,263, largely due to amortization of the Duke license. Research and development expense increased to $147,220 from $6,190, principally for manufacturing-laboratory development.
- Interest expense increased to $306,095 from $280,219. It includes revenue-sharing charges and accretion of the Duke obligation, in addition to bank-loan interest.
- A $116,433 gain from a reduction in the estimated fair value of Cord:Use contingent consideration benefited Q1 2022 operating income; the comparable period had a $152,394 expense. The estimate uses significant unobservable inputs and actual payments may differ materially.
- The company repurchased 76,428 shares during the quarter for $828,980. It repurchased a further 33,518 shares after quarter-end. Outstanding shares were 8,490,898 at February 28 and 8,460,380 as of April 13, 2022.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expects cash, securities, operating cash flows and external capital to cover known needs for at least 12 months, while warning that weaker sales, higher costs, or unavailable financing could require spending reductions or deferrals.
- The company anticipates approximately $14 million in discretionary capital expenditures over the next 12 months, including equipment, software and Duke-related obligations. It has no line of credit and says additional financing may be needed.
- On March 14, 2022, the company agreed to purchase a 56,000-square-foot Durham facility for $11.2 million, subject to due diligence and closing conditions. Funding is expected from cash, operating cash flow and potentially additional financing. Planned uses include internal storage and the proposed ExtraVault third-party biorepository service.
- On April 4, 2022, the company filed an S-1 for a proposed public offering of up to $20 million, excluding any underwriter option. The registration statement had not been declared effective; completion is not assured.
- The Duke agreement requires a further $2 million license payment in February 2023, royalties on licensed-product sales, minimum annual royalties that rise to $5 million in year six and thereafter, and certain clinical-trial milestone payments. The company paid Duke $5 million during the quarter. Clinical development, regulatory approvals and future commercialization remain uncertain.
- Management describes COVID-19 as a continuing risk to new-client sales and results. Other disclosed risks include competition, demand for private cord blood banking, storage-system failure or specimen loss, clinical-trial and FDA approval risk, financing needs, cybersecurity, and international licensee performance.
- Nasdaq notified the company in January 2022 that its audit committee had only two independent directors, below the required three. The company said it was working to regain compliance within the applicable cure period; failure could risk delisting.
- The company reported no current legal proceedings and no material change in internal control over financial reporting; management said disclosure controls were effective. The filing identifies no off-balance-sheet arrangements material to investors.
- The filing gives differing expected timing for opening the Cryo-Cell Institute and beginning infusions: a financial-statement note refers to Q4 2022, while the MD&A overview refers to Q1 2023.
Key facts investors should verify
- Whether the company can meet near-term liquidity needs given the negative working capital, June 2022 loan maturity, expected $14 million of capital spending and proposed $11.2 million facility purchase.
- Whether the S-1 offering proceeds, if any, are needed to fund the facility, Duke obligations, clinical trials or operations, and the resulting dilution.
- The timing, cost and financing of the Durham facility and whether ExtraVault and the cellular-therapy clinic can generate returns sufficient to justify investment.
- The Duke royalty and minimum-payment schedule, clinical milestones, FDA/IND requirements, and the discrepancy in projected clinic launch timing.
- Progress toward Nasdaq audit committee compliance and any subsequent developments affecting listing status.
- Trends in recurring storage revenue, new enrollments, receivable collectability, and the assumptions supporting public cord blood inventory values and contingent consideration.