Cryoport, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars; financial statement figures are converted to millions where shown.
Business context and reporting period
Cryoport provides temperature-controlled logistics, packaging, storage, cryogenic equipment and related services to biopharma/pharma, animal health and reproductive medicine customers. It reported one operating segment. At quarter-end, it supported 643 clinical trials and nine commercial therapies. During 2022, it acquired Cell&Co, Polar Expres and Cell Matters, expanding its biostorage, logistics and cryoprocessing capabilities.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $60.5m (+6.7%) | $56.7m | $176.9m (+6.5%) | $166.2m |
| Service revenue | $33.3m (+7.8%) | $30.9m | $100.8m (+15.4%) | $87.3m |
| Product revenue | $27.2m (+5.3%) | $25.8m | $76.1m (-3.4%) | $78.8m |
| Gross margin | $26.4m; 43.7% | $23.5m; 41.5% | $77.6m; 43.9% | $73.5m; 44.2% |
| Operating loss | $(7.8)m | $(4.6)m | $(20.9)m | $(9.5)m |
| Net loss | $(5.3)m | $(6.5)m | $(27.9)m | $(15.4)m |
| Net loss attributable to common stockholders | $(7.3)m | $(8.5)m | $(33.9)m | $(21.6)m |
| Adjusted EBITDA (non-GAAP) | $4.7m | $6.0m | $13.0m | $19.1m |
Service growth and improved Q3 gross margin were offset by higher operating expenses, particularly SG&A, which rose 26.5% in the quarter and 24.9% year to date as the company expanded staffing and infrastructure. Nine-month product revenue and product margins were affected by the New Prague fire and supply-chain costs. Operating losses widened in both comparison periods; Q3 net loss narrowed, aided by other income and higher investment income. Nine-month results included $12.6m of unrealized losses on equity investments in earnings. The company also reported $25.9m of unrealized losses on available-for-sale debt securities in other comprehensive loss.
Cash flow and balance sheet: Operating activities used $5.5m in the first nine months of 2022, versus $5.5m provided in 2021. Investing activities used $66.8m and financing activities used $33.9m. Cash and cash equivalents were $30.7m, short-term investments $498.8m, and working capital $568.4m at September 30, 2022. Cash plus short-term investments totaled $529.5m, compared with $628.8m at year-end 2021.
Convertible senior notes had $416.8m of principal outstanding ($406.1m net carrying value): $402.5m of 0.75% notes due 2026 and $14.3m of 3.0% notes due 2025. Notes payable were $1.4m. Management stated existing cash, investments and projected cash flows were expected to cover operational and capital needs for at least 12 months, while noting additional capital might be needed before sustained profitability and may not be available on acceptable terms.
Material changes versus the prior comparable period
- Quarterly revenue grew across services and products; year-to-date growth came from services, while product revenue fell 3.4%.
- Q3 gross margin increased 2.2 percentage points year over year, but nine-month gross margin declined 0.3 percentage points. The filing attributes year-to-date pressure primarily to supply-chain costs.
- Operating losses and adjusted EBITDA performance weakened year to date as SG&A increased and other expenses rose. Nine-month net loss increased by $12.5m.
- Foreign exchange reduced reported revenue by approximately $2.6m in Q3 and $5.4m year to date, on the company’s constant-currency calculation.
- The January 2022 New Prague manufacturing fire caused an estimated $9.4m revenue impact, primarily in Q1. Production resumed in February and ramped up toward the end of Q1.
- The company repurchased 1.34m shares for $33.3m during the first nine months under a $100m authorization; no shares were repurchased in Q3.
Outlook, commentary and risks
Management anticipated up to seven additional BLA or MAA filings and two new therapy approvals during the remainder of 2022, and forecast 26 combined filings in 2023. These are operational expectations, not financial revenue or earnings guidance. Management expects clinical trials advancing to commercialization to create future revenue opportunities, but the timing and scale are uncertain. Two Cryoport ELITE products were planned for launch in 2023.
Management cited customer demand for logistics and biostorage services, while noting macroeconomic caution affecting customer capital spending, COVID-related disruption in China, the Russia-Ukraine conflict’s effects on CRYOPDP volumes, inflation and supply-chain constraints. The business is exposed to foreign-currency movements; foreign-currency translation adjustments reduced equity by $15.8m in the first nine months. Cybersecurity and data-protection incidents are risks, and the company stated it does not have cybersecurity insurance.
Insurance related to the New Prague fire: $9.4m had been received by September 30, with a further $3.0m received October 4. A $3.0m insurance receivable was recorded at quarter-end; the company recognized $4.8m of gains related to the claim. Contingent consideration for acquisitions rose to $4.1m from $0.7m at year-end, with future cash payments dependent on earn-out terms. No material legal proceeding was identified, no debt events of default were reported, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether service growth, trial activity and commercial therapy launches translate into durable revenue and improved operating profitability.
- Whether elevated SG&A, acquisition integration costs and new-facility expenses moderate, and how product margins respond to supply-chain costs and customer purchasing patterns.
- Cash consumption and liquidity needs, including investment portfolio market-value changes, capital expenditures, acquisitions and the company’s ability to reach sustained profitability.
- Conversion, maturity and repurchase terms for the $416.8m of convertible note principal, alongside the preferred stock’s paid-in-kind dividends and potential dilution.
- Completion of fire-related insurance recovery and the operational and financial effects of currency movements, geopolitical disruption, cyber risks and acquisition earn-outs.