Cryoport, Inc. (NASDAQ:CYRX) Q1 2024 Earnings Call Transcript

Cryoport, Inc. (NASDAQ:CYRX) Q1 2024 Earnings Call Transcript May 7, 2024

Cryoport, Inc. misses on earnings expectations. Reported EPS is $-0.42625 EPS, expectations were $-0.37. CYRX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to Cryoport Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will start in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead.

Todd Fromer: Thank you, operator. Before I get started with this, I just want to correct the records. This is the Cryoport first quarter earnings conference call. Before we get started, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events, or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management’s beliefs and assumptions and not on the information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.

We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future results or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include but are not limited to those described in Item 1A, risk factors, and elsewhere in our annual report on Form 10-K filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission.

It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Jerrell Shelton: Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining our first quarter earnings call today. With us this afternoon is our Chief Financial Officer, Robert Stefanovich, our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our first quarter 2024 and review document to our website. It can be found under Investor Relations in the News and Events section. This document provides a review of our financial and operational performance and a general business outlook. If you’ve not had a chance to read it, I would encourage you to go to our website and download it. I will provide you with a brief update on our business and then we will take your questions.

For the first quarter 2024, we continued to experience a difficult environment globally. Our quarterly results were disappointing across the board, particularly our life science products. However, as we stated when we initially provided our annual guidance, we anticipate our total revenue will progressively improve throughout the year and we maintain our full year revenue guidance of $242 million to $252 million. I am sure some of you are asking what makes us confident. Well, there are several things. For example, despite the near term challenges, we are still quite positive based on the momentum we see – we’re seeing from our cell and gene therapy clients and from the growth of our BioStorage/BioServices revenue. If you look at our results, you will see that our first quarter commercial therapies grew – rose 9% while BioStorage/BioServices revenue also rose by the same amount.

Both these services areas should continue to be growth drivers for Cryoport in 2024 and beyond. We’re also encouraged by new clients slated in the biopharma market and some positive signs recently in the cryogenic systems market. As I indicated, our life sciences services revenue growth for the first quarter was softer than anticipated, increasing 3% year-over-year. There is, however, a bright spot as the cell and gene therapy market seems to be gaining some momentum again. To date, this three year-to-date – to date this year three new therapies have been approved, three existing commercial therapies were approved to move to an early line of treatment and two therapies were approved to expand their label or geographic territory. By combining the expected revenue ramps of existing and new commercial therapies, we believe we should see revenue acceleration from our cell and gene therapy clients over the remainder of the year.

Currently, we think an additional 16 global regulatory filings will be completed before year end. As of March 31st of this year, Cryoport supported a total of 675 global clinical trials, a net increase of 23 clinical trials over the same time last year. As of the quarter end, 77 of these trials were in Phase 3 along with 312 of them in Phase 2. As we have said before, our clinical trial portfolio represents a substantial long term revenue growth opportunity for Cryoport as more therapies advance through the clinical trials toward commercialization. Our outlook for the rest of the year with commercial therapies look strong, with potentially five additional new therapy approvals and three additional label or geographic expansions. Turning to our life science products.

Similar to last quarter, this business revenue was lower than in prior years. This was due to decreased demand for MVE Biological Solutions’ Cryogenic Systems. This in turn was attributable to a continued slowdown in capital equipment investment that began last year. Although global in nature, as we have reported previously, the most severe pullback in demand continues to be in China. While we expect MVE’s Cryogenic Systems’ sales to be challenged throughout the remainder of this year as biotech funding government budgets and academic budgets are constrained, we expect to see gradual improvement in demand in the ensuing quarters. MVE is a well managed business and we want to remind investors that even in this difficult time it continues to produce free cash flow for our company.

MVE is the leading manufacturer of cryogenic systems worldwide and we’re confident in the long-term prospects of our products business. And when demand normalizes, and we believe it will, we will benefit from our position as the global leader in this space. In summary, and to put it plainly, there is simply no other company with the extensive resources Cryoport has in providing a full array of innovative, reliable, end-to-end supply chain solutions to the life sciences. With advanced services, products and information systems focused on reducing risk and located in 50 locations in 17 countries, Cryoport is well prepared to support the expansion of the life sciences and especially the growing cell and gene therapy market. Based on our clients forecast and fueled by industry indicators for cell and gene therapies and the life sciences, we continue to build out services, products and infrastructure to prepare ourselves to provide comprehensive and dependable supply chain support for these life saving treatments.

However, considering the current macroeconomic challenges and their impact on our financial results, we are implementing a number of initiatives to drive toward positive adjusted EBITDA and cash flow in the near-term. These include improved alignment of our global organization, reduction in our workforce, leveraging lower cost shared services, refining and reprioritizing planned initiatives and delays in capital spending as a result of reprioritization, all of which should positively impact the second half of 2024. We are mindful of our need to maintain a strong balance sheet to support our future growth and we ended the quarter with $448 million of cash balance – $448,500,000 cash balance. This concludes my prepared remarks. Now, we’re going to be happy to take questions from you.

Operator, please open the lines for questions.

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Q&A Session

Operator: Thank you, ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question comes from Tejas Savant from Morgan Stanley. Your line is now open.

Unidentified Analyst: Good afternoon guys. This is Edmund on for Tejas. Thank you for the time. First question could you guys provide some more color on how things played out at MVE? Where do customers stand today in terms of their need to expand their freezer capacity? And what do order books look like heading into the second half?

Jerrell Shelton: MVE?

Robert Stefanovich: Yes.

Unidentified Analyst: MVE.

Jerrell Shelton: Okay. So can you just repeat that question again, please?

Robert Stefanovich: Just one second.

Jerrell Shelton: Just one second.

Unidentified Analyst: Sorry, Jerry, this is Edmund. But the question was could you provide some more color on how things played out at MVE this quarter? Where do customers stand today in terms of their need to expand their freezer capacity? And what do order books look like heading into the second half of 2024?

Jerrell Shelton: Okay, that’s a good question. And look, MVE tracks its orders and talks with its distributors and its key – its direct customers on a regular basis. There’s simply been some pullback in funding in government and institutions and business, and that seems to be breaking. We seem to be – and we do know that in the last half or the second half of this quarter, we – this year, we will have – it looks like we have orders lined up for large pharma and for mid-sized biorepositories. And we think that there’s some government spending that will be in the last half. So we think we’ll have a progressive improvement in the MVE in the second half of the year.

Unidentified Analyst: Got it.

Jerrell Shelton: The pullback in the MVE, the China – in China – China is continues to be in recession. And we do not expect China to improve for the remainder of this year and probably into the next year. There’s been a reduction in biotech funding and there’s been some breeder programs instituted by the government and all of that’s affected our business. However, we do have initiatives to compete within China on a very effective basis. I want to remind you though, China only accounts for about 5% of our total revenue at this point.

Unidentified Analyst: Got it. That’s very helpful. And then a higher level question. Some of the traditional logistic companies, such as UPS, have recently expressed an interest into expanding into the healthcare vertical. Now, are there any opportunities for a company like Cryoport to work with those providers? Or do they represent more of a medium term competitive threat to the business model?

Jerrell Shelton: Over the recent time, UPS has become more of a competitor, or tried to at least. But we worked with the integrators on a regular basis and we have for twelve years since I took over the company, we’ve had strategic relationships with them, which we’ve talked about on a frequent basis. In some cases, we worked more closely than in others. UPS has been the most aggressive through their purchase of Marken, but they don’t really pose a tremendous threat to us. We still use them as an integrator in many of our services.

Robert Stefanovich: They also use our equipment sets on a regular basis in conjunction with programs that they’re supporting through their healthcare vertical.

Jerrell Shelton: That’s an important point. That’s MVE equipment.

Unidentified Analyst: Got it. And then one housekeeping question for the model. What percentage of the product revenue is from MVE and what percentage from legacy Cryoport Systems?

Jerrell Shelton: Robert?

Robert Stefanovich: It’s really – yes, if you look at the product revenue, it’s really the vast majority. So, in excess of 95% of the revenue is related to MVE cryogenic systems.

Unidentified Analyst: Got it. Super helpful. Thank you for the time.

Jerrell Shelton: Thank you.

Robert Stefanovich: Thank you.

Operator: Your next question comes from Matt Stanton from Jefferies. Your line is now open.

Matt Stanton: Hi, thanks. Appreciate the color on focus near-term on EBITDA and cash flow. It sounds like you have a number of initiatives in motion around that. Just help us quantify what the impact could start to look like to OpEx as we move into the back half of the year. Just trying to get a better understanding of what total cost savings or improvements we could start to bake into the P&L here. Thanks.

Robert Stefanovich: Yes, thanks for the question. Look at the current time, we obviously just provide guidance related to our annual revenue. But with that said, I can provide a little bit of information. Overall, we have been and are taking continuously actions in the review of our initiatives of our CapEx spending, pushing out some of the CapEx spending that is not driving kind of near-term revenue or is not critical to our near-term initiatives. If you look at the overall operating expense, a couple of things. One, we’ve been building out our infrastructure over the last couple of years, as you know, and we’re looking to see leverage of that infrastructure and capabilities that we built out. We expect to have that substantial compete in 2026.

As revenue grows, we’re going to see better operating leverage of the overall infrastructure that we set up. In terms of the specific question in modeling out the second half of the year, I would expect a drop in operating expenses. I can’t tell you exactly the percentage will provide some more clarity there. But certainly we do expect to see an impact in the second half on the operating expenses.