Cryoport, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2014; filed November 12, 2014. Cryoport provides cryogenic shipping and logistics solutions to life-sciences customers.
Financial performance
| Metric | Three months ended September 30, 2014 | Six months ended September 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $825,000 | $1,761,588 | $579,827 quarter; $1,067,790 six months |
| Gross margin | $224,958; 27.3% | $564,313; 32.0% | $72,102; 12.4% quarter; $126,744; 11.9% six months |
| Operating loss | $(1,375,029) | $(2,542,768) | $(1,286,747) quarter; $(2,546,822) six months |
| Net loss | $(1,384,759) | $(3,682,023) | $(14,959,648) quarter; $(16,283,185) six months |
| Net loss attributable to common stockholders | $(3,183,660), or $(0.05) per share | $(6,250,433), or $(0.10) per share | $(14,959,648), or $(0.38) per share quarter; $(16,283,185), or $(0.42) per share six months |
Six-month operating cash use was $1.775 million, investing cash use $67,851, and financing cash provided $1.576 million. Cash fell from $369,581 at March 31 to $103,343 at September 30. The company reported negative working capital of approximately $1.9 million. Total assets were $1.205 million and total liabilities $2.579 million. Current related-party notes payable were $1.326 million; the balance sheet showed no convertible debentures outstanding at September 30, following conversions and repayment.
Changes versus prior year
- Revenue rose 42.3% in the quarter and 65.0% for six months. Management attributed growth to expanded Zoetis services, higher reproductive-medicine revenue, more customers, and increased shipment frequency.
- Zoetis revenue was $198,200 for the quarter, up 18%, and $482,900 for six months, up 53%. Reproductive-medicine revenue reached $215,300 for the quarter, up 80%, and $428,200 for six months, approximately double the prior-year period.
- Gross margin improved substantially, primarily from increased revenue, lower freight costs as a percentage of revenue, and reduced fixed manufacturing costs. SG&A increased 21.8% for the quarter and 19.3% for six months, including sales-force recruiting, investor-relations, legal, and banking costs. R&D declined 24.6% and 20.2%, respectively.
- Prior-year comparisons include a $13.161 million debt-conversion expense in 2013, making reported net-loss improvement much larger than the change in operating performance alone. Six-month 2014 interest expense included approximately $1.1 million of debt-discount and deferred-financing-cost amortization, including an $826,900 beneficial-conversion-feature charge.
Capital, outlook, and risks
- Going concern: The company has incurred recurring losses and had a $92.0 million accumulated deficit. Management stated that substantial doubt exists about its ability to continue as a going concern. It estimated available cash, subsequent financing, and service revenue would fund planned operations into the third quarter of fiscal 2015, while seeking additional capital and cost reductions; management also described efforts to secure operating capital through fiscal year-end. No assurance was given that financing would be available on acceptable terms or at all.
- Financing and dilution: Through September 30, the preferred-stock offering generated $2.1 million gross proceeds, approximately $1.7 million net, and included warrants. October financing added $560,000 gross proceeds, approximately $487,200 net. Preferred shares carry cumulative dividends, a $12-per-share liquidation preference, 30 votes per share, and conversion into 30 common shares; the filing reported approximately 87.2 million common shares reserved for future issuance from preferred conversion, options, and warrants.
- Commercial developments: In June 2014, Cryoport entered a distribution agreement with DHL. After quarter-end, it entered an agreement with UPS, adding its third major global-integrator partner. The filing describes these as distribution and market-reach opportunities, not quantified revenue commitments. FedEx’s agreement runs through December 2015 but may be terminated for convenience on 180 days’ notice.
- Concentration and execution: One customer accounted for 27.4% of six-month revenue and 30.6% of net receivables. Customer qualification can take three to nine months or longer. Success depends on customer adoption, sales growth, execution of partnerships, and access to further capital.
- Contingencies and controls: Management reported no material legal proceedings and no material changes in risk factors from the prior annual report. It reported disclosure controls effective at a reasonable-assurance level and no material quarterly changes in internal control over financial reporting. A consulting agreement could require at least $2 million plus two times defined costs if Cryoport terminates without cause or liquidates; management said it had no intention of terminating without cause.
Key facts for investors to verify
- Cash runway, subsequent financing proceeds, and the amount and terms of any additional capital needed to continue operations.
- Preferred-stock conversion, voting, dividend, and liquidation terms, together with the potential dilution from warrants, options, and other reserved shares.
- Revenue growth, gross-margin durability, and customer concentration—particularly the contribution and ongoing terms of the Zoetis relationship.
- Whether DHL and UPS distribution arrangements produce material customer adoption and revenue; the filing provides no quantified outlook or revenue guidance.
- Related-party debt maturities and the potential exposure under the KLATU consulting agreement.