Cryo-Cell International, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended November 30, 2022; this annual filing reports full-year results, not standalone fourth-quarter results. Comparisons are with fiscal 2021. Cryo-Cell’s core business is family-use umbilical cord blood and tissue processing and storage, alongside public cord blood banking and PrepaCyte CB product sales.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $30.34 million | $28.88 million |
| Gross profit / margin | $21.54 million / 71.0% | $19.90 million / 68.9% |
| Operating income / margin | $4.02 million / 13.3% | $4.02 million / 13.9% |
| Net income / margin | $2.77 million / 9.1% | $2.08 million / 7.2% |
| Operating cash flow | $8.57 million | $7.93 million |
| Cash and cash equivalents at year-end | $1.70 million | $8.26 million |
| Total assets | $64.89 million | $60.66 million |
| Total liabilities | $66.41 million | $56.48 million |
- Processing and storage fees were $29.77 million, up from $28.40 million. Management attributed growth to a 6% increase in recurring annual storage revenue, partly offset by a 6% decrease in new domestic specimens processed.
- Cost of sales declined 2% to $8.79 million. Selling, general and administrative expense rose 7% to $15.58 million; research and development expense increased to $0.38 million from $0.05 million.
- Public cord blood banking generated $0.46 million of revenue but reported a segment operating loss of $1.14 million. PrepaCyte CB generated $0.10 million of revenue and a $0.02 million segment operating loss. Core cord blood and tissue services generated $5.19 million of segment operating profit, down from $6.36 million.
- Cash provided by operations was more than net income, with deferred revenue increasing by $4.95 million. Investing activities used $15.28 million, principally for property and equipment and Duke license payments. Financing activities included a $7.67 million special dividend, share repurchases of $1.82 million, new borrowing and debt repayments.
- Year-end borrowings included an $8.92 million Susser term loan before debt issuance costs and a $2.27 million revolving credit balance. The revolving facility allows up to $10 million and matures in 2025; the term loan matures in 2032. The term loan and revolver had variable rates of 7.11% and 6.98%, respectively, at year-end. The company terminated its interest-rate swap in November and recorded a $0.45 million gain.
- Current assets were $9.61 million against current liabilities of $19.48 million, a $9.87 million working-capital deficit. Current liabilities include $9.59 million of deferred revenue. Stockholders’ equity was negative $1.52 million.
Material changes and developments
- Revenue increased 5% and net income increased 33%, while operating income was essentially unchanged. Operating margin declined; the improvement in net income also reflected lower prior-year public inventory impairment and a $0.45 million swap gain in FY2022.
- The company bought a 56,000-square-foot Durham, North Carolina facility in July 2022 for $11.20 million, using $2.24 million of cash and an $8.96 million term loan. Property and equipment rose to $13.60 million from $3.23 million.
- The company paid a one-time $0.90-per-share special dividend totaling $7.67 million, funded through its revolving credit facility, and repurchased $1.82 million of its shares.
- The public inventory impairment was zero in FY2022, compared with $1.16 million in FY2021. The related contingent-consideration liability rose to $1.16 million from $0.73 million, based on sales forecasts and a Monte Carlo valuation.
Outlook, risks and contingencies
- Management said cash, marketable securities, expected operating cash flows and external capital should fund known needs for at least 12 months; a risk-factor disclosure estimates available capital for 12 to 18 months. The company anticipates approximately $10 million of discretionary capital expenditures over the next 12 months. It may need to reduce or defer spending or obtain additional financing if revenue, expenses or financing conditions are unfavorable.
- Management expects to open the Cryo-Cell Institute for Cellular Therapies and begin infusions in fiscal 2024, later than initially planned because of equipment delivery delays. The company also plans to develop ExtraVault cold-storage services and MSC manufacturing capabilities. No quantified revenue or earnings guidance is provided.
- The Duke license supports planned clinical trials and potential cord blood and cord tissue therapies. FDA approval and commercial success are uncertain. A February 2023 amendment removed a scheduled $2 million license payment, added a $1 million milestone upon FDA approval of the first cord-tissue MSC product for autism, and contemplated research funding payments of 14 monthly installments of $187,407 plus a final $187,400. Minimum royalties and other milestones may also apply.
- The company reported that COVID-19-related changes in consumer buying patterns reduced new-client sales in FY2022 and could continue to affect results. Other material risks include competition, regulatory and clinical-trial uncertainty, dependence on storage systems and key suppliers, cybersecurity, and the possibility of needing more capital.
- A putative class action filed in Florida in January 2023 alleges that advertising misrepresented the value and efficacy of the company’s services and seeks unspecified damages. The company intends to contest the case; it did not estimate legal defense costs and states an unfavorable outcome could be material.
- Wipfli LLP issued an unqualified opinion on the financial statements. The auditor did not attest to internal control over financial reporting; management reported its controls and disclosure procedures were effective.
Important facts for investors to verify
- Reconcile the filing’s differing specimen-count descriptions: nearly 225,000 held by the company in the MD&A versus nearly 500,000 worldwide in combination with global affiliates in the business section.
- Track cash, revolver availability, debt covenant compliance, and funding needs for the Durham facility, clinical trials, and planned clinic and manufacturing operations.
- Monitor new-client processing volumes, recurring storage revenue, customer collections and deferred revenue, including the rising allowance for doubtful accounts.
- Check progress, costs and regulatory milestones for the Duke program, the clinic’s fiscal 2024 target, ExtraVault launch, and any execution of the Duke sponsored research agreement.
- Follow public inventory sales and valuation assumptions, Duke royalty and milestone obligations, and developments in the putative class action.