Cryoport, Inc. — Form 10-Q Summary
Business context and period. Cryoport provides cryogenic logistics, reusable shipping containers and shipment-management technology for life-sciences customers. This unaudited report covers the three and nine months ended December 31, 2015 (the company’s fiscal third quarter and first nine months of fiscal 2016); comparisons are with the periods ended December 31, 2014.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2015 | Comparable prior period |
|---|---|---|---|
| Revenue | $1.46 million | $4.33 million | $0.98 million and $2.74 million; up 49.6% and 58.1%, respectively |
| Gross profit / margin | $384,000 / 26.3% | $1.31 million / 30.2% | $235,000 / 24.1%; $799,000 / 29.2% |
| Operating loss | $2.68 million | $6.12 million | $1.36 million; $3.90 million |
| Net loss | $2.76 million | $7.11 million | $1.41 million; $5.09 million |
| Net loss attributable to common stockholders; loss per share | $3.00 million; $0.42 | $12.27 million; $1.96 | $2.00 million; $0.40 and $8.25 million; $1.65 |
| Operating cash flow | Not presented quarterly | Cash used: $4.34 million | Cash used: $2.84 million |
For the nine-month period, investing activities used $714,000, including $400,000 paid for Cryoportal-related intellectual property and purchases of shippers and monitoring equipment. Financing provided $8.89 million, primarily from equity offerings, partly offset by debt repayments. Cash and cash equivalents were $5.25 million at December 31, 2015, versus $1.41 million at March 31, 2015; working capital was $3.7 million.
Total liabilities were $2.47 million, including $982,000 of current related-party notes payable and accrued interest. The company reported no other notes payable at December 31, after repaying its 7% bridge notes during the period. Stockholders’ equity was $4.99 million, versus a deficit of $416,000 at March 31, 2015.
Material changes and operating developments
- Revenue growth was driven by more customers and strong biopharma activity: biopharma revenue grew 80.0% in the quarter and 91.3% for nine months. The company reported supporting 59 clinical trials, including ten in Phase III, at the nine-month reporting date.
- Reproductive-medicine revenue rose 35.9% in the quarter and 58.4% for nine months. Management said international activity was affected by the closure of reproductive tourism in three countries. Animal-health revenue fell 15.1% in the quarter and 7.6% for nine months, reflecting a temporary production-volume reduction at one customer.
- Gross margin improved year over year, attributed to higher revenue, lower freight costs as a percentage of revenue and lower fixed manufacturing costs. However, operating losses widened: quarterly SG&A rose 89.9%, mainly from equity compensation, sales-force expansion, marketing and public-company costs.
- In July 2015, Cryoport raised approximately $6.8 million gross through a registered common-stock-and-warrant offering. It also raised approximately $4.5 million gross through Class B preferred stock issuance. In January 2016, all outstanding Class A and Class B preferred shares were mandatorily exchanged for 4,977,038 common shares and 4,977,038 warrants. Common shares outstanding were 7,247,466 at December 31 and 12,242,776 as of February 5, 2016.
- The company acquired specified Cryoportal intellectual property for $400,000, entered a new 27,600-square-foot Irvine facility lease expected to begin in February 2016, and extended its FedEx agreement through December 31, 2018. The Zoetis agreement was extended through September 2018.
Outlook, risks and unusual items
- Going concern: Management stated that recurring losses, $4.3 million of operating cash use during the nine months and the need for additional capital raise substantial doubt about the company’s ability to continue as a going concern. Management estimated that cash at December 31 plus service revenue would support planned operations into the second quarter of fiscal 2017, but said additional capital would be needed thereafter. It was pursuing funding alternatives, with no assurance financing would be available on acceptable terms or in time.
- Management also said it was seeking funding to support operations through the end of fiscal 2017 and would pursue operating efficiencies and use third parties to better align costs with shipment volumes. No specific revenue, margin or earnings guidance was provided.
- R&D included a $98,100 write-off of previously capitalized patent costs after abandonment of a shipping-method patent application. The Smart Pak II condition-monitoring system was in beta testing, with launch planned for the first quarter of fiscal 2017.
- Potential dilution is significant: at December 31, approximately 13.9 million common shares were reserved for conversion or exercise of preferred stock, options and warrants. The filing also reported $8.8 million of unrecognized stock-option compensation expense, expected to be recognized over a weighted-average 3.2 years.
- Customer and sector exposure remain relevant: one customer represented 14.5% of nine-month revenue, and one customer represented 10.4% of net receivables at December 31. Management reported no legal matter expected to have a material adverse effect and no material change to the risk factors in its prior annual report.
Important facts for investors to verify
- Whether Cryoport obtained sufficient additional financing after the filing to address the stated going-concern risk and extend its cash runway.
- Whether revenue growth, particularly in biopharma and reproductive medicine, continued and translated into improved gross margins and lower cash burn.
- The actual share and warrant dilution following the January 2016 preferred-stock exchange, including subsequent exercises, grants or financing.
- Whether the new facility, expanded sales activity and planned Smart Pak II launch generated the expected customer adoption and operating returns.
- The duration and impact of the animal-health customer’s production reduction and the reproductive-tourism closures on revenue and customer concentration.