CryoPort, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended June 30, 2011, CryoPort’s fiscal first quarter of fiscal 2012; comparable results are for the three months ended June 30, 2010. The company develops reusable cryogenic shipping containers and related shipping, tracking and monitoring services for temperature-sensitive materials. Its commercial strategy centers on per-use shipper leasing and value-added services. FedEx launched a shipping solution using CryoPort’s shipper in January 2011; DHL’s portal integration was completed in the prior fiscal year.
Financial performance and position
- Revenue: $123,751, down 18% from $151,460. Management attributed the decline mainly to reduced shipments by a customer whose product no longer required cryogenic shipping, despite a 65% increase in active customers.
- Gross results: Gross loss was $230,529 versus $243,075; cost of revenue was $354,280, or 286% of revenue. Management cited fixed manufacturing costs and underutilization.
- Operating expenses and loss: SG&A rose to $1,628,322 from $943,265, primarily reflecting eight new employees, mostly in sales and marketing, recruiting and promotional consulting. R&D was $101,230 versus $122,121. Operating loss was $1,960,081 versus $1,308,461; net loss was $2,053,854 versus $1,328,804. Basic and diluted loss per share was $0.07 versus $0.16, while weighted-average shares increased to 27.69 million from 8.15 million.
- Cash flow: Operating cash use was $1,546,627, investing cash use $69,814 and financing cash use $605,398. Cash and cash equivalents decreased $2,221,839 to $7,056,604. Financing cash use included $576,628 of convertible-debt repayments and $130,770 of deferred financing costs, partly offset by $132,000 from warrant exercises.
- Liquidity: Working capital was $4,473,202, down from $6,759,755 at March 31, 2011. Current assets were $7,656,734 and current liabilities $3,183,532.
- Debt and liabilities: Total liabilities were $4,595,538. Convertible debentures had $2,030,568 principal outstanding, presented net of discount at $1,894,872; the filing says monthly principal or additional interest payments of $200,000 began March 2011, with a balloon payment due August 1, 2012. Related-party notes had $819,500 principal plus $688,506 accrued interest. The secured line of credit balance, including accrued interest, was $90,375.
- Other balance-sheet items: Total assets were $8,681,449 and stockholders’ equity $4,085,911, versus $11,031,467 and $5,948,409, respectively, at March 31, 2011. Accumulated deficit was $54,149,941.
Material changes, outlook and risks
- Dollar net loss increased by $725,050 year over year, largely alongside higher SG&A; the smaller loss per share reflects the substantially higher weighted-average share count.
- Management said future capital needs depend on commercialization success, customer adoption and the ability to establish additional collaborative arrangements. The filing provides no quantified revenue, profitability or cash-flow guidance.
- Management reported the company had incurred losses since inception. Cash balances included $6,546,340 above FDIC insurance limits at June 30, 2011, creating bank concentration exposure.
- One customer represented 21% of quarterly revenue in 2011; in 2010, two customers represented 13% and 63%. The customer mix therefore remains a material revenue-concentration risk.
- A KLATU consulting agreement could require termination or liquidation payments of at least $2 million plus two times defined “cost of work.” Management said it had no intention of terminating without cause. The company also disclosed broad indemnities, including to FedEx; no liability was recorded for these indemnities.
- Management cited competition, economic conditions, funding needs and execution of its operating plan as risks. It reported disclosure controls were effective as of June 30, 2011, subject to inherent limitations of internal controls. No legal proceedings were reported.
- After quarter-end, the company issued 233,809 shares upon warrant exercises in July for gross proceeds of $180,033. The filing states that no other subsequent events requiring recognition or disclosure were identified.
Important facts for investors to verify
- Whether active-customer growth translates into recurring revenue and improved shipper utilization, gross margins and cash generation.
- The timing and amounts of remaining convertible-debt payments, including the August 2012 balloon, and the company’s ability to fund operations and obligations.
- The current revenue contribution and commercial traction from FedEx and DHL relationships, and the extent of customer concentration.
- The potential financial exposure under the KLATU agreement and the scope of contractual indemnities.
- The effects of additional warrant exercises, stock-option grants and other equity issuance on dilution and cash proceeds.