Cryoport, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2014. The company provides cryogenic logistics solutions to life-sciences customers, combining reusable shipping containers, logistics services, and its Cryoportal platform.
Financial performance
| Metric | Three months ended Dec. 31, 2014 | Nine months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $975,188, up 28.8% year over year | $2,736,776, up 50.0% |
| Gross margin | $234,537; 24.1% of revenue, versus 22.1% | $798,850; 29.2% of revenue, versus 16.1% |
| Operating loss | $(1,357,247), compared with $(1,256,991) | $(3,900,015), compared with $(3,803,813) |
| Net loss | $(1,407,758), compared with $(1,840,331) | $(5,089,781), compared with $(18,123,516) |
| Net loss attributable to common stockholders; diluted and basic EPS | $(1,995,972); $(0.03) per share | $(8,246,405); $(0.14) per share |
| Operating cash flow | $(2,835,293) for the nine months |
- Revenue growth reflected more customers and shipments, reproductive-medicine growth, and expanded Zoetis services. Reproductive-medicine revenue rose 38% in the quarter to $234,900 and 82% for the nine months to $691,400. Zoetis revenue was $202,100 for the quarter, down 19%, and $685,000 for the nine months, up 21%.
- Management attributed improved gross margins to higher revenue, lower freight costs as a share of revenue, and reduced fixed manufacturing costs. SG&A increased 14.3% for the quarter and 17.6% for the nine months, including sales-force expansion, investor-relations activity, stock compensation, and public-company costs. R&D declined in both comparisons.
- The nine-month net loss improved sharply from 2013, chiefly because the prior-year period included $13.7 million of debt-conversion expense. Operating loss increased year over year. Current-period interest expense included about $826,900 related to the beneficial conversion feature of the 5% bridge notes.
Financial position, financing, and liquidity
- At December 31, 2014, cash and cash equivalents were $773,922. Current assets were $1.37 million and current liabilities $2.98 million, resulting in negative working capital of approximately $1.6 million. Total assets were $1.87 million; stockholders’ deficit was $1.12 million.
- Nine-month cash used in operations was $2.84 million; investing cash use was $67,851; financing provided $3.31 million. Cash increased by $404,341 from March 31, 2014.
- Current liabilities included $343,432 of notes payable and accrued interest and $1.31 million of related-party notes payable and accrued interest. The related-party notes bear 6% interest and have maturities through March 1, 2015. The company also had $615,000 of secured 7% bridge notes issued in December, due July 1, 2015, with an extension option and warrants. The notes are secured by company tangible assets.
- The company raised $3.4 million gross, approximately $2.8 million net, through Class A convertible preferred stock and associated warrants during the first three quarters of fiscal 2015. By January 2015, it had issued $865,000 principal amount of 7% bridge notes; it repaid $113,475 of the original note principal that month. A February 2015 preferred-stock issuance generated $142,350 gross proceeds.
- Preferred stock carries cumulative dividends, a $12-per-share liquidation preference, and conversion rights; it has 30 votes per share versus one vote per common share. Approximately 101.8 million common shares were reserved for future issuance as of December 31, including 67.2 million warrant shares and 13.3 million shares issuable on preferred conversion.
Outlook, risks, and unusual items
- Going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Management expected cash at December 31, subsequent bridge financing, and service revenue to fund planned operations into the fourth quarter of fiscal 2015, but said additional capital would be needed thereafter. No assurance was given that financing would be available on acceptable terms or in time.
- Management planned to pursue additional debt or equity funding, review costs, and use third parties for certain services to align expenses with sales. It cautioned that revenue growth and commercialization may not achieve sustained profitability.
- Customer concentration is material: one customer represented 25.0% of nine-month revenue and 19.3% of receivables at December 31. Customer qualification in regulated life-sciences markets may take three to nine months or longer. FedEx may terminate its agreement for convenience with 180 days’ notice; its agreement expires December 31, 2015.
- A consulting agreement provides that, if the company terminates without cause or liquidates, KLATU may be entitled to additional compensation of at least $2 million plus twice defined “cost of work.” The company said it had no intention of terminating without cause. Its facility lease expires June 30, 2015, and it did not intend to renew.
- Management reported effective disclosure controls as of December 31, 2014, no material changes in internal control, and no legal proceedings. No material changes to the prior annual report’s risk factors were reported.
Investor verification priorities
- Confirm the company’s actual cash runway and whether subsequent financing was sufficient to address the disclosed going-concern uncertainty.
- Track operating cash burn, revenue growth, gross-margin trends, and progress toward sustained profitability.
- Assess preferred-stock and warrant terms, potential dilution, voting control, and the secured bridge notes’ repayment and collateral provisions.
- Monitor customer concentration, especially the largest customer and Zoetis, and the rollout and revenue contribution of FedEx, DHL, and UPS partnerships.
- Review the potential KLATU payment exposure and the company’s facility plans following the lease expiration.