Cryoport, Inc.: Form 10-Q for the period ended Mar 31, 2024

In this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “Cryoport,” “Company” and similar terms refer to Cryoport, Inc. and its consolidated subsidiaries, unless the context suggest otherwise.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS:

This Quarterly Report contains forward-looking statements that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 and concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. In some cases, you can identify these statements by terminology such as “believes,” “may,” “will,” “expects,” “intends,” “estimates,” “anticipates,” “plans,” “seeks,” “continues,” “predicts,” “potential,” “likely,” or “opportunity”, or similar words which are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Reference is made in particular to forward-looking statements regarding our expectations about future business plans, new products or services, regulatory approvals, strategies, development timelines, prospective financial performance and opportunities, including potential acquisitions; expectations about future benefits of our acquisitions and our ability to successfully integrate those businesses and our plans related thereto; liquidity and capital resources; projected trends in the market in which we operate; our expectations relating to current supply chain impacts; inflationary pressures and the effect of foreign currency fluctuations; anticipated regulatory filings or approvals with respect to the products of our clients; expectations about securing and managing strategic relationships with global couriers or large clinical research organizations; our future capital needs and ability to raise capital on favorable terms or at all; results of our research and development efforts; and approval of our patent applications.

Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this Quarterly Report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this Quarterly Report. You should be aware that these statements are projections or estimates as to future events and are subject to a number of factors that may tend to influence the accuracy of the statements, including, but not limited to, risks and uncertainties associated with the effect of changing economic and geopolitical conditions, supply chain constraints, inflationary pressures, and the effects of foreign currency fluctuations, trends in the products markets, variations in the Company’s cash flow, market acceptance risks, and technical development risks. These forward-looking statements should not be regarded as a representation by the Company or any other person that the events or plans of the Company will be achieved. You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission (“SEC”), including those contained in this Quarterly Report, in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 13, 2024 (the “2023 Annual Report”), and those reports filed after the date of this Quarterly Report. Actual results may differ materially from any forward-looking statement due to, among other things, the factors and risks described in our reports filed with the SEC.

The following management’s discussion and analysis of the Company’s financial condition and results of operations (“MD&A”) should be read in conjunction with the condensed consolidated balance sheet as of March 31, 2024 (unaudited) and the consolidated balance sheet as of December 31, 2023 (audited) and the related unaudited condensed consolidated statements of operations, comprehensive loss, and stockholders equity for the three months ended March 31, 2024 and 2023, and cash flows for the three months ended March 31, 2024 and 2023 and the related notes thereto (see Part I, Item 1. Financial Statements), as well as the audited consolidated financial statements of the Company for years ended December 31, 2023, 2022 and 2021, included in the Company’s 2023 Annual Report.

Overview

Cryoport is a global leader in supply chain solutions for cell and gene therapies that enable manufacturers, contract manufacturers, contract research organizations, developers, and researchers to carry out their respective business. We provide a broad array of supply chain solutions for the life sciences in the industry. Through our platform of critical products and solutions, including advanced temperature-controlled packaging, informatics, specialized bio-logistics services, bio-storage, bioservices, and cryogenic systems, we are “Enabling the Future of MedicineTM”, worldwide, through our innovative systems, complaint procedures, and agile approach to superior supply chain management.

With over 50 strategic international locations in 17 countries, Cryoport’s global platform provides mission-critical solutions to over 3,000 customers working with biopharma/pharma, animal health, and reproductive medicine companies, universities, research institutions, and government agencies. Our platform of solutions and services together with our global team of over 1,100 dedicated colleagues delivers a unique combination of innovative supply chain technologies and services through our industry-leading brands, including Cryoport Systems, MVE Biological Solutions, CRYOPDP, and CRYOGENE.

Cryoport’s advanced temperature-controlled supply chain platform is designed to support the global distribution of high-value commercial biologic and cell-based products and therapies regulated by the United States Food and Drug Administration (FDA), the European Medicines Association (EMA) and other international regulatory bodies. Cryoport’s solutions are also relied upon for the support of pre-clinical, clinical trials, Investigational New Drug Applications (IND), Biologics License Applications (BLA), and New Drug Applications (NDA) with the FDA, as well as global clinical trials initiated in other geographies, where strict regulatory compliance and quality assurance is mandated.

Over the last several years, we have grown to become a leader in supporting the clinical trials and commercial launches of cell and gene therapies globally. As of March 31, 2024, we supported 675 clinical trials, of which 77 were in Phase 3, and 14 commercial therapies. We believe regenerative medicine advanced therapies that successfully advance through the clinical trial process and receive commercial approval from the respective regulatory agencies will represent opportunities to become significant revenue drivers for us as the majority of them will require comprehensive temperature-controlled supply chain support and other services at commercial scale. Additionally, we expect that most will select us as their critical supply chain solution partner as a result of our work in connection with their respective clinical trials and our long track record of innovation and market responsiveness.

In addition, Cryoport also supports the animal health market and the human reproductive market on a global basis with its advanced supply chain platform. The animal health market is primarily composed of supporting animal husbandry, and companion and recreation animal health. The human reproductive market is primarily composed of In-Vitro Fertilization (IVF) support for patients and fertility clinics.

Impact of Inflation

Inflation generally impacts us by increasing our costs of labor, material, transportation and pricing from third party manufacturers. While the rates of inflation have not had a material impact on our financial statements in the past, we have seen some impact on gross margins in 2024 and 2023. Based on the current economic outlook, inflationary pressures could affect our financial performance in the future if cost increases cannot be offset by net realized annual price increases and productivity gains.

Results of Operations

Three months ended March 31, 2024 compared to three months ended March 31, 2023:

The following table summarizes certain information derived from our unaudited condensed consolidated statements of operations (in thousands):

Total revenue by category (in thousands):

Revenue. Revenue decreased by $8.2 million, or 13.1%, from $62.8 million to $54.6 million for the three months ended March 31, 2024, as compared to the same period in 2023.

Revenue by type

Life Sciences Services revenue increased by $1.0 million, or 2.6%, from $35.8 million to $36.8 million for the three months ended March 31, 2024, as compared to the same period in 2023. This increase was driven by year-over-year growth in BioStorage/BioServices and Commercial Cell & Gene therapy revenue of 9.2% and 9.1%, respectively, demonstrating strong demand for our services offerings. We also continued to gain clinical trial market share with Cryoport supporting a total of 675 clinical trials globally at March 31, 2024, of which 77 of these clinical trials were in phase 3, representing an overall increase of 23 clinical trials from 652 clinical trials at year end 2023. Our company continues to lead the way in providing advanced temperature-controlled supply chain solutions designed to support the development of cell & gene therapies and our future growth.

Life Sciences Products revenue decreased by $9.2 million, or 34.0%, from $27.0 million to $17.8 million for the three months ended March 31, 2024, as compared to the same period in 2023. This was primarily a result of decreased demand for cryogenic freezer systems that commenced during the second quarter of 2023, particularly in China. Life Sciences Products revenue consists primarily of revenue from our portfolio of cryogenic stainless-steel freezers, aluminum dewars and related ancillary equipment used in the storage and transport of life sciences commodities, which includes the rapidly growing Cell and Gene Therapy market through a global network of distributors and direct client relationships.

Gross margin and cost of revenue. Gross margin for the three months ended March 31, 2024 was 39.9% of total revenue, as compared to 43.1% of total revenue for the three months ended March 31, 2023. Cost of total revenue decreased $2.9 million to $32.8 million for the three months ended March 31, 2024, as compared to $35.7 million in the same period in 2023, as a result of the decrease in revenue over the prior year.

Gross margin for our Life Sciences Services revenue was 41.3%, as compared to 46.8% for the three months ended March 31, 2023. Our cost of revenue is primarily comprised of freight charges, payroll and associated expenses related to our global logistics and supply chain centers, depreciation expenses of our Cryoport Express® Shippers and supplies and consumables used for our solutions.

Gross margin for our Life Sciences Products revenue was 37.0%, as compared to 38.2% for the three months ended March 31, 2023. Life Sciences Products revenue, related cost of revenue and resulting gross margins were primarily driven by our MVE Biological Solutions business. Our cost of products revenue was primarily comprised of materials, direct and indirect labor, inbound freight charges, purchasing and receiving, inspection, and distribution and warehousing of inventory. In addition, shop supplies, facility maintenance costs and depreciation expense for assets used in the manufacturing process were included in cost of products revenues.

Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our services and products, costs required to support our marketing efforts including legal, accounting, patent, and shareholder services, amortization of intangible assets and other administrative functions.

SG&A expenses increased by $5.1 million, or 15.2% as compared to the same period in 2023. This increase was driven by the further buildout of our competencies and infrastructure, both organically and through acquisitions, to support the continuing scaling of our business and demand for Cryoport’s systems and solutions and buildout of new competencies, such as the IntegriCellTM platform, a standardized integrated apheresis collection, cryopreservation and distribution solution for cell therapies for which Cryoport is currently building out two centers of excellence located in Houston, Texas, U.S. and Liège, Belgium which are expected to be fully qualified and operational during the second half of 2024. Wages and associated employee costs increased $3.1 million from $16.1 million in 2023 to $19.2 million in 2024. Facility and other overhead allocations increased $0.8 million, primarily driven by our facility expansions in Houston, Texas and Morris Plains, New Jersey. Depreciation and amortization increased $0.6 million, primarily due to additional fixed assets purchased or acquired in our recent business acquisitions and the launch of Cryoportal® 2 Logistics Management Platform in May 2023, public company-related expenses (including legal, D&O insurance, audit and internal control audit fees) increased $0.5 million and marketing and trade show expense increased $0.4 million. These increases were partially offset by a decrease of $1.1 million for acquisition and integrations costs incurred in 2023 as a result of exploring a strategic business opportunity and acquisitions that did not reoccur in 2024.

Engineering and development expenses. Engineering and development expenses increased by $0.9 million, or 22.6%, for the three months ended March 31, 2024, as compared to the same period in 2023. The increase was primarily due to an increase of $0.6 million in wages and associated employee costs to add software development and engineering resources and $0.4 million consulting costs directed at further enhancing our logistics and supply chain solutions. We continually strive to improve and expand the features of our Cryoport Express®, Cryoport ELITE™ Solutions and portfolio of temperature-controlled services and products. Our primary developments are directed towards facilitating the safe, reliable and efficient transport and storage of life science commodities through innovative and technology-based solutions. This includes significantly enhancing our Cryoportal® Logistics Management Platform and related technology solutions as well as developments to expand our Cryoport Express® and shipper fleet. In addition, engineering and development efforts are also focused on MVE Biological Solutions’ portfolio of advanced cryogenic stainless-steel freezers, aluminum dewars and related ancillary equipment used in the storage and transport of life sciences commodities. We supplement our internal engineering and development resources with subject matter experts and consultants to enhance our capabilities and shorten development cycles.

Investment Income. Investment income increased by $0.1 million for the three months ended March 31, 2024, as compared to the prior year as a result of higher average invested cash balances and higher interest rates on such invested cash balances.

Interest expense. Interest expense decreased by $0.2 million for the three months ended March 31, 2024, as compared to the prior year.

Other income, net. Other income, net decreased by $2.7 million for the three months ended March 31, 2024, as compared to the prior year. This was primarily due to a decrease in the gain on insurance claim of $2.6 million related to the New Prague fire as compared to prior year which was partially offset by an increase of $0.3 million in short-term investment net unrealized gains.

Provision for income taxes. The provision for income taxes decreased by $0.3 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, resulting in effective tax rates of negative 1.2% and negative 9.7%, respectively. The increase in tax expense and effective tax rate for the three months ended March 31, 2024, as compared to the prior year is due to higher taxable foreign earnings. The negative effective tax rate of 1.2% for the three months ended March 31, 2024, differed from the U.S. federal statutory rate of 21% primarily due to changes in the valuation allowance that we maintain against our deferred tax assets, income earned by certain foreign subsidiaries being taxed at different rates than the U.S. federal statuary rate, and excess tax benefits associated with share-based compensation.

Paid-in-kind dividend on Series C convertible preferred stock. The paid-in-kind dividend relates to the private placement of Series C Preferred Stock with Blackstone.

Non-GAAP Financial Measures

We provide adjusted EBITDA and revenue at constant currency, both non-GAAP financial measures, as supplemental measures to U.S. GAAP measures regarding our operating performance. Non-GAAP financial measures are not calculated in accordance with U.S. GAAP, are not based on any comprehensive set of accounting rules or principles and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures, including adjusted EBITDA and revenue at constant currency, should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.

Adjusted EBITDA

Adjusted EBITDA is defined as net loss adjusted for interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, acquisition and integration costs, investment income, unrealized gain or loss on investments, foreign currency gain or loss, gain on insurance claim, changes in fair value of contingent consideration and charges or gains resulting from non-recurring events.

Management believes adjusted EBITDA provides a useful measure of our operating results, a meaningful comparison with historical results and with the results of other companies, and insight into our ongoing operating performance. Further, management and our board of directors utilize adjusted EBITDA to gain a better understanding of our comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Adjusted EBITDA is also a significant performance measure used by us in connection with our incentive compensation programs. Management believes adjusted EBITDA, when read in conjunction with our U.S. GAAP financials, is useful to investors because it provides a basis for meaningful period-to-period comparisons of our ongoing operating results, including results of operations, against investor and analyst financial models, identifying trends in our underlying business and performing related trend analyses, and it provides a better understanding of how management plans and measures our underlying business.

A reconciliation of adjusted EBITDA to net loss, the most directly comparable U.S. GAAP financial measure, is presented below.

Adjusted EBITDA Reconciliation

(Unaudited, in thousands)

Revenue at Constant Currency

We believe that revenue growth is a key indicator of how our Company is progressing from period to period and we believe that the non-GAAP financial measure “revenue at constant currency” is useful to investors in analyzing the underlying trends in revenue. Under U.S. GAAP, revenue received in local (non-U.S. dollar) currency is translated into U.S. dollars at the average exchange rate for the period presented. As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and liabilities, which in turn may adversely affect results of operations and cash flows and the comparability of period-to-period results of operations. When we use the term “constant currency,” it means that we have translated local currency revenue for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenue into U.S. dollars that we used to translate local currency revenue for the comparable reporting period of the prior year.

Recent fluctuations in foreign currency exchange rates, including the increased strength of the U.S. dollar against the Euro, British Pound, Chinese Yuan, and Indian Rupee has adversely impacted our results of operations and cash flow from our operations in EMEA and APAC. For the three months ended March 31, 2024, our revenue would have remained unchanged in constant currency.

However, we also believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated could constitute a significant element of our revenue and could significantly impact our performance. We therefore limit our use of constant currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U.S. dollars. We do not evaluate our results and performance without considering both period-over-period changes in non-GAAP constant currency revenue on the one hand and changes in revenue prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering revenue on constant currency period-over-period changes only in addition to, and not as a substitute for, or superior to, changes in revenue prepared in accordance with U.S. GAAP.

Cryoport, Inc. and Subsidiaries

Revenue by Market at Constant Currency

(Unaudited, in thousands)

Liquidity and Capital Resources

As of March 31, 2024, the Company had cash and cash equivalents of $49.7 million, $398.9 million in short-term investments and had working capital of $476.7 million. We expect to continue to incur significant expenses in the foreseeable future and to incur operating losses in the near term while we make investments in new supply chain initiatives, geographic expansion and technology to support our anticipated growth. Historically, we have financed our operations primarily through sales of equity securities and debt instruments.

The Company’s management recognizes that the Company may need to obtain additional capital to fund its operations and potential acquisitions until sustained profitable operations are achieved. Additional funding plans may include obtaining additional capital through equity and/or debt funding sources. No assurance can be given that additional capital, if needed, will be available when required or upon terms acceptable to the Company. The Company’s management believes that, based on its current plans and assumptions, the current cash and cash equivalents on hand, short-term investments, together with projected cash flows, will satisfy our operational and capital requirements for at least the next twelve months.

Cash flows Summary

(in thousands)

Operating activities

For the three months ended March 31, 2024, our cash used in operating activities of $3.3 million reflects the net loss of $18.9 million offset by non-cash expenses of $13.7 million primarily comprised of $7.5 million of depreciation and amortization, $5.5 million of stock-based compensation, $1.4 million of non-cash operating lease expense, which was partially offset by a gain on available-for-sale investments of $2.4 million. Also contributing to the cash impact of our net operating loss, excluding non-cash items was a decrease in operating lease liabilities of $1.3 million, an increase in prepaid expenses and other current assets of $1.2 million and a decrease in net deferred tax liability of $0.6 million, which were partially offset by an increase in accrued compensation and related expenses of $2.7 million, a decrease in inventories of $1.1 million, an increase in deferred revenue of $0.5 million, and a decrease in accounts receivable of $0.4 million.

Investing activities

Net cash provided by investing activities of $6.4 million during the three months ended March 31, 2024 was primarily due to the maturity of short-term investments of $25.3 million, which was partially offset by purchases of short-term investments of $14.0 million and facility expansions (including leasehold improvements, furniture and equipment) and additional purchases of Cryoport Express® Shippers, Smart Pak IITM Condition Monitoring Systems, freezers and computer equipment for $4.0 million.

Financing activities

Net cash provided by financing activities totaled $0.5 million during the three months ended March 31, 2024, primarily due to proceeds of $0.6 million from the exercise of stock options.

Repurchase Program

On March 11, 2022, the Company announced that its board of directors authorized the Repurchase Program through December 31, 2025, authorizing the repurchase of common stock and/or convertible senior notes in the amount of up to $100.0 million from time to time on the open market or otherwise, in such quantities, at such prices, and in such manner as determined by the Company’s management at its discretion. The size and timing of any repurchase will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal requirements. There were no shares repurchased during the three months ended March 31, 2024 and 2023.

In September 2023, the Company repurchased $31.3 million in aggregate principal amount of the 2026 Senior Notes for a repurchase price of $25.0 million in cash. Following these repurchases, approximately $371.2 million principal amount of the 2026 Senior Notes remain outstanding.

As of March 31, 2024, the Company had $37.1 million of remaining repurchase authorization under the Repurchase Program through December 31, 2025.

We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and changes in the market values of our investments.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our debt, which pays interest at a fixed rate, will generally fluctuate with movements of interest rates, increasing when interest rates are declining and declining when interest rates are increasing. We invest our excess cash in high investment grade money market funds and investment grade short to intermediate-term fixed income securities. Fixed income securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses if forced to sell securities that have declined in market value due to changes in interest rates. As of March 31, 2024, the estimated fair value of the Convertible Senior Notes was $325.4 million. For additional information about the Convertible Senior Notes, see Note 11 in our accompanying consolidated financial statements.

Foreign Exchange Risk

We operate in the United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations. Net sales and related expenses generated from our international business are primarily denominated in the functional currencies of the corresponding subsidiaries and primarily include Euros, British Pounds, Chinese Yuan, and Indian Rupee. The results of operations of, and certain of our intercompany balances associated with, our internationally focused business are exposed to foreign exchange rate fluctuations. Upon consolidation, as foreign exchange rates vary, revenue and other operating results may differ materially from expectations and we may record material gain or losses on the remeasurement of intercompany balances. For example, for the three months ended March 31, 2024, revenue from our international business, which accounted for 39% of our consolidated revenue, decreased by less than $0.1 million in comparison with the same period in the prior year as a result of fluctuations in foreign exchange rates. The impact of fluctuations in foreign exchange rates is derived by applying the average currency rates for the same period of the prior year to the current period revenue.

We have foreign exchange risk related to foreign-denominated cash and cash equivalents. Based on the foreign-denominated cash balance of as of March 31, 2024, of $31.5 million, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in declines of $1.6 million, $3.2 million, and $6.3 million, respectively, recorded in “Accumulated other comprehensive income (loss)”, a separate component of stockholders’ equity.

We have foreign exchange risk related to our long and short-term foreign-denominated intercompany loan balances. Based on the long-term intercompany loan balances as of March 31, 2024, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $4.3 million, $8.6 million, and $17.3 million, respectively, reported as accumulated other comprehensive income (loss). Based on the short-term intercompany loan balances as of March 31, 2024, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $3.2 million, $6.3 million, and $12.6 million, respectively, reported as “Other income (expense), net”.

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors described in Part I, Item 1A, Risk Factors, in the 2023 Annual Report, which could materially and adversely affect our business, financial condition and results of operations. These risk factors do not identify all of the risks that we face. Our business, financial condition and results of operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial.