Cryoport, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2012. The interim financial statements are unaudited. Cryoport provides frozen cold-chain logistics for life-science and biotech customers through its shipper, logistics-management platform, and related services.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2012 | Nine months ended Dec. 31, 2012 |
|---|---|---|
| Revenue | $307,153 | $732,049 |
| Gross loss (gross margin) | $61,642 (negative 20%) | $334,804 (negative 46%) |
| Operating loss | $1,549,003 | $4,643,379 |
| Net loss | $1,567,011; $0.04 per share | $4,665,522; $0.12 per share |
- Revenue increased 113% for the quarter and 93% for the nine-month period versus 2011, primarily because more customers used Cryoport’s services. Revenue remained below cost of revenues, which management attributed to fixed manufacturing costs and underutilized capacity.
- For the nine months, operating cash use was $3,678,188, investing cash use was $71,165, and financing cash use was $283,075. Cash declined $4,032,428, from $4,617,535 at March 31 to $585,107 at December 31.
- At December 31, current assets were $898,733 and current liabilities were $952,178, resulting in negative working capital of $53,445. Total assets were $1,737,102; total liabilities were $2,287,828; stockholders’ deficit was $550,726.
- Related-party notes had $675,500 principal and $756,150 accrued interest outstanding. Convertible debentures were repaid during the quarter ended June 2012; no convertible debentures remained at December 31.
Changes versus the prior comparable period
- Nine-month revenue rose from $378,718 to $732,049, while gross loss narrowed from $683,814 to $334,804. Quarterly gross loss narrowed from $200,448 to $61,642.
- Nine-month net loss improved from $6,163,529 to $4,665,522. Selling, general and administrative expense declined by $929,558 for the nine months, reflecting lower headcount and the prior CEO’s departure, partly offset by approximately $180,000 in severance. Research and development expense also declined.
- Nine-month interest expense fell to $48,255 from $320,042, mainly reflecting lower debt-discount amortization and convertible-debt interest after the debentures were repaid. Cash used in operations decreased from $4,673,462 to $3,678,188.
- Weighted-average shares outstanding increased to 37,760,628 for the nine-month period from 27,969,167 in 2011. The filing reports 37,760,628 shares issued and outstanding at December 31, 2012.
Outlook, developments, and risks
- Going concern: Management stated that substantial doubt exists about Cryoport’s ability to continue as a going concern. It expected December 31 cash and forecast sales to fund planned operations into the fourth quarter of fiscal 2013, but said additional capital would be required thereafter. There is no assurance financing will be available on acceptable terms or in time.
- Subsequent financing: By February 11, 2013, the company had issued unsecured convertible promissory notes totaling $698,000. They accrue interest at 15% through January 31, 2013 and 5% from February 1 until payment, and mature December 31, 2013. Holders may convert if the company issues preferred stock, at the preferred-stock issuance price.
- Commercial developments: Cryoport renewed its non-exclusive FedEx arrangement under an agreement effective January 1, 2013 and expiring December 31, 2015, unless earlier terminated. In December 2012 it also agreed to manage frozen shipments for Pfizer’s animal-health business, Zoetis. The company continued its DHL relationship.
- Management cited long customer qualification cycles—typically nine to eighteen months or longer—as a commercialization challenge. It planned continued cost containment and consideration of third-party service providers to better align costs with sales volumes.
- A consulting agreement with KLATU Networks provides for additional compensation of at least $2 million plus twice the defined “cost of work” if Cryoport terminates without cause or liquidates. Management said it had no intention of terminating without cause.
- Management reported no material legal matters, no material changes in internal control during the quarter, and effective disclosure controls as of December 31, 2012. The filing provides no specific revenue or profit guidance.
Important facts for investors to verify
- Whether the subsequent $698,000 note financing and any further funding are sufficient to meet operating needs beyond the stated runway, and the full dilution and repayment implications of the notes.
- Whether customer growth and the FedEx, Zoetis, and DHL relationships translate into recurring revenue and improved gross margins, given continuing losses from fixed costs and underutilized capacity.
- The company’s cash use, working-capital position, and ability to execute additional cost reductions without impairing sales growth or operations.
- The terms and potential financial impact of related-party debt and the KLATU termination or liquidation provision.
- The scale and vesting of equity awards: the new CEO received options for 1,650,000 shares, and 5,294,657 options and warrants were outstanding at December 31, 2012.