Cryoport, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited results are compared with the corresponding 2019 periods. Cryoport provides temperature-controlled logistics and biostorage services to life-sciences markets.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $11.2 million | $9.6 million | $30.3 million | $24.7 million |
| Gross margin | $6.1 million; 54.2% | $4.6 million; 48.3% | $16.4 million; 54.2% | $12.4 million; 50.3% |
| Operating loss | $10.7 million | $12.4 million | $20.2 million | $16.8 million |
| Net loss | $11.4 million; $0.29 per share | $12.5 million; $0.35 per share | $21.2 million; $0.55 per share | $17.4 million; $0.54 per share |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $(5.2) million | $(2.1) million |
Liquidity and debt at September 30: Cash and cash equivalents were $162.0 million, short-term investments $41.0 million, and working capital $199.5 million. The company had $115.0 million principal amount of 3.00% convertible senior notes due June 2025, carried at $111.2 million net of unamortized costs. The notes are initially convertible at approximately $23.91 per share. Operating and finance lease liabilities totaled approximately $8.7 million.
Cash increased by $114.8 million in the first nine months, primarily reflecting $115.0 million of note proceeds and $8.3 million from option and warrant exercises, partially offset by operating cash use and financing costs. Capital expenditures were $5.1 million. Management said existing cash, investments and projected cash flows were expected to cover operational and capital needs for at least 12 months, while noting additional capital might be needed before sustained profitability.
Changes and operating performance
- Q3 revenue rose 16.6% year over year; nine-month revenue rose 22.8%. Biopharmaceutical and reproductive-medicine activity and growth in bioservices contributed. Q3 reproductive-medicine revenue rebounded as fertility clinics resumed activity; animal-health revenue was broadly flat for the quarter.
- Global Logistics Solutions generated $9.8 million of Q3 revenue, up 16.8%; Global Bioservices generated $1.3 million, up 15.3%. For nine months, those segments recorded $26.4 million and $3.9 million, respectively. Bioservices’ year-to-date comparison also reflects the May 2019 Cryogene acquisition.
- Gross margin improved in both comparisons, which management attributed mainly to higher volume, pricing adjustments, lower freight as a share of revenue and lower fixed manufacturing costs.
- Q3 net loss narrowed, but the nine-month net loss widened. Nine-month operating expenses increased, including general and administrative expense (up 34.1%) and engineering and development expense (up 124.3%). Management cited strategic-initiative consulting and legal costs, hiring and development spending. Interest expense increased following the May 2020 notes issuance.
- Q3 G&A included $5.7 million of consulting and legal services related to strategic initiatives; acquisition-related costs for the MVE and CRYOPDP transactions totaled $5.7 million in the quarter and $7.4 million for the nine months. Comparisons with 2019 are also affected by accelerated stock-based compensation recorded in Q3 2019.
Outlook, transactions and risks
- No specific revenue, earnings or margin guidance is provided. Management said a growing clinical-trial base could support future growth as trials advance and therapies commercialize. At quarter-end, Cryoport supported 517 clinical trials, including 66 Phase III trials, versus 425 and 54, respectively, a year earlier.
- COVID-19 had disrupted clinical trials, reproductive medicine and animal-health activity, and could again affect demand, shipping, suppliers and operations. Cryoport said it remained open as an essential business; the duration and financial effects of the pandemic remained uncertain.
- Post-quarter acquisitions: On October 1, 2020, Cryoport completed the CRYOPDP acquisition for €49 million, subject to adjustments, and the MVE cryobiological-storage acquisition for $320 million, subject to adjustments. Purchase-price allocations were not yet determined. These transactions were completed after the balance-sheet date, so their effects are not reflected in September 30 balances.
- Post-quarter financing: To help finance MVE, Blackstone invested $250 million in 4.0% Series C convertible preferred stock and $25 million in common stock. Net proceeds were reported as $263.6 million after transaction expenses. The preferred stock has a liquidation preference, conversion rights and board-nomination and consent rights; the company expected a one-time, non-cash deemed dividend of approximately $39 million from its beneficial conversion feature.
- Key disclosed risks include integration and execution of the large acquisitions, continued losses and potential financing needs, COVID-19 impacts, customer and revenue concentration, product liability and supply-chain interruptions. One customer represented 31.5% of net accounts receivable at September 30; one bioservices customer represented about 80.9% of that segment’s Q3 revenue.
Important facts for investors to verify
- Post-acquisition cash, debt, preferred-stock obligations, dilution and pro forma leverage after the MVE and CRYOPDP closings.
- Purchase-price allocations, acquisition-related charges, integration costs and whether expected synergies and growth materialize.
- Clinical-trial conversion into commercial shipments and the sustainability of improved gross margins.
- Cash burn, capital requirements and the effects of convertible-note conversion and Series C preferred-stock dividends or conversion.
- Customer concentration, COVID-19-related demand and operational effects, and exposure to product-liability claims.