Cryoport, Inc. (NASDAQ:CYRX) Q3 2023 Earnings Call Transcript

Cryoport, Inc. (NASDAQ:CYRX) Q3 2023 Earnings Call Transcript November 9, 2023

Operator: Good afternoon and welcome to Cryoport Third Quarter 2023 Earnings Conference Call. [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 we begin today, 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 events 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. We appreciate you joining our 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 third quarter 2023 and review document to our website. It can be found under Investor Relations in the Events & Presentations section. This document provides a review of our financial and operational performance and general business outlook. If you have not had a chance to read it, I would encourage you can go to the website and download it. I will provide a brief update on the business and then we will move on to answering your questions.

Earlier today, we reported third quarter results that were consistent with our expectations as discussed on our last earnings call, taking into account current and well-known global economic and geopolitical challenges. Having said that, we are continuing to see solid and sustained demand from our key life sciences and cell and gene therapy customers despite the current macroeconomic climate. What I mean by that is, when you take a close look, you will see that our quarterly results contain some very promising growth points, including a notable increase in commercial and cell and gene therapy revenue. In fact, commercial revenue increased 54% on a year-over-year basis and 52% sequentially. At the same time, our bioservices revenue increased 26% year-over-year.

Regarding cell and gene therapy, Cryoport Systems grew 10%, both on a year-over-year basis and a quarter-over-quarter basis. All this growth was driven by the sustainable demand we saw during the quarter and that we are continuing to see from advanced therapy manufacturers. We also continued to increase the number of clinical trials supported. During the quarter, we added a net 27 trials year-over-year, this brings our global clinical programs to a record total of 670, with 81 of these trials being in Phase III, a total of 6 Cryoport-supported BLA, MAAs were filed during the quarter. Looking ahead, during the remainder of 2023, we expect up to an additional 5 anticipated application filings and 1 new therapy approval. We think our MVE Biological Solutions order intake has begun to stabilize.

MVE’s results this quarter were in line with our expectations and our current guidance reflects this. During the quarter, MVE and some 70% of – with some 70% of the world market continues to produce healthy financial metrics. So we remain quite confident about our long-term market outlook and the recovery of our China market as the country, despite its current economic lows, is a hot bed for the life sciences. Alongside our operating results during the third quarter and in the recent weeks, we have continued to execute on our corporate strategy to accelerate our long-term growth through our innovation department – development projects and small strategic and smart strategic acquisitions and partnerships. For example, this includes our collaboration with the Cell and Gene Therapy Catapult, the premier cell and gene therapy manufacturing innovation center in Europe, to provide integrated logistics support for its Stevenage Manufacturing Innovation Centre in the United Kingdom.

Further this partnership from its location on the Catapult site will provide other opportunities within the Stevenage bioscience cluster. This collaboration establishes our UK logistics center, which will – our first UK logistics center, which will further support our European expansion. We recently completed the acquisition of Tec4med Lifesciences, a technology spinoff of the Technical University of Darmstadt, located in Darmstadt, Germany. Tec4med provides next-generation pharmaceutical supply chain visibility by integrating advanced condition monitoring, cloud and artificial intelligence solutions. We are excited about integrating Tec4med’s cutting-edge technology for comprehensive monitoring in real time across all Cryoport companies.

By doing so, we will expand our digital supply chain solutions offerings and be able to provide our life sciences clients with even greater condition monitoring options, logistics management capabilities and customer support. With these latest developments and our leading market positions, we have even greater belief that our long-term growth prospects are solid. There is no other organization in the life sciences with the breadth of capabilities Cryoport has in providing robust dependable end-to-end supply chain solutions. Today, CRYOPDP is the world’s third largest specialty couriers serving the life sciences, covering over 220 countries and territories. MVE Biological Solutions is the world’s largest manufacturer of vacuum-insulated products and cryogenic systems, and is the preferred brand for academic, government and life sciences companies worldwide.

Cryoport Systems supports approximately 70% of all the cell and gene therapy clinical trial market, and as we continue building out our global supply chain solutions, that share continues to grow even in a challenging environment. And Cryogene is one of the industry’s most trusted and specializing in the secure storage of biological specimens and supporting MD Anderson, Baylor, Texas Children, Atara, Lanza, Star and many others. Cryoport is poised to capitalize on the continued growth of the life sciences and especially the cell and gene industry, as more therapies make their way towards commercialization over these coming years. Even with today’s economic and geopolitical environment, the cell and gene therapy industry is expected to grow at a 10-year compounded annual growth rate of approximately 20%.

This concludes our prepared remarks and now that I’d be happy to take your questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Paul Knight from KeyBanc. Your line is now open.

Paul Knight: Hi, Jerry. Congratulations on the quarter. The vertex sickle cell anemia therapy, I think you’ve mentioned that in the past, what level of involvement will you have there, is my first question? And then the second question is, if you look back on the MVE, which had its period of softness, but it seems to be stabilizing. Was it kind of overstock globally and then what portion was just tighter CapEx budgets? Thanks.

Jerrell Shelton: Paul, if I understood that, I’ll take the second question first and then turn the first question to Mark on sickle cell. MVE is in a solid position. I mean it’s hard for us to dissect exactly how much was overstocking and how much exactly what happened in the market except for the conservatism and capital expenditures amongst our customer base. And then, of course, we have to pull back in China, which we think will stabilize. So we think we’re in a stable position going forward on MVE, as order intake is stabilized. It looks like it’s in good order. And hopefully, China has hit its bottom, and we’ll be coming back up. There couldn’t be much further impact on us. Our China revenue in total this year, or this quarter rather, is around 4%. So it’s not going to be any kind of a significant – China effect going forward, from this point forward, and we think it’s stable. So does that answer your question, Paul?

Paul Knight: Yes, very useful. Thanks. I mean, I guess the bottom line is we are getting past it.

Robert Stefanovich: Yes. And maybe let me just add real quick to MVE, because I think sometimes people overlook that in spite of the revenue level right now in Q2 and Q3, if you look at our product revenue for Q3, the product revenue gross margin is at 45% and the MVE business has been very profitable driving good positive adjusted EBITDA and cash flow.

Paul Knight: Okay, good. Yes, thanks.

Jerrell Shelton: And your first question was on sickle cell, Dr. Sawicki will answer that.

Mark Sawicki: Yes, Paul. So we actually had 6 BLA filings, the portfolio of companies that were completed in the quarter, which includes Abeona, ImmunityBio, ROCCAT, the CRISPR Vertex program, as well as the label expansion for BREYANZI, all of which we are playing a role and obviously, if they are approved and the commercial launch activity of it. We can’t disclose exactly what we’re doing due to confidentiality, but we will play a role in all of those products, assuming that they come to fruition. So the story is even broader than just the Vertex – CRISPR Vertex product because we’re seeing an acceleration in the commercial filing and activity space, which we think is going to continue to drive that, that strong performance we had in our commercial revenue for the quarter.

Paul Knight: And is that filing data in the prior press releases, Mark?

Jerrell Shelton: In prior press releases as it relates to?

Thomas Heinzen: The answer. We haven’t disclosed it until this report. It’s on – in the review that we posted on our website.

Paul Knight: Sorry. So sorry for saying some questioning so much front end, but – so we might – we have 6 BLAs in Q3, 5 in Q4. What do you think will end up within a range of this year versus last?

Mark Sawicki: Tom has that data handy, he tracks it really detailed. Tom, you got those stats in front of you?

Thomas Heinzen: Let me make sure I understand your question. Are you asking how many filings for the year or how many potential approvals for the year?

Paul Knight: I think filings is a common terminology, you used, Tom, right. So the 11 we will have here in Q3 and Q4 and then the question really is the number of BLAs and MAAs total this year versus last?

Thomas Heinzen: It is higher. Although it is to be candid lower than what we are forecasting at midyear. A few filings have slipped out into 2024 where we expect 20 filings now that we have visibility on in 2024. So there were about 4 or 5, if I remember correctly, that slipped from 2023 into 2024. The good news is on the approval side for those in 2024, we do have 4 already that have PDUFA dates or FDA dates for decisions in early 2024.

Paul Knight: Okay, thanks.

Operator: Your next question comes from David Saxon from Needham. Your line is now open.

David Saxon: Great. Good afternoon guys. Thanks for taking my questions and congrats on the quarter. I did want to just ask a follow-up on the NPE order comments. So what exactly are you seeing stabilize? Like are the orders looking to be flat more sequentially? Are you seeing things have improved to be flat on a year-over-year basis? And then is this worldwide, including China or specific to certain regions?

Jerrell Shelton: David thanks for the question. I mean we monitor a lot of metrics at MVE. And what I was referring to is the order intake is stabled out, it’s flattened out and we think that it will continue to be stabilized.

David Saxon: Okay, alright. So I guess, stable flattened out from the second quarter into the third into the fourth. And then I’ll just ask my – okay. Okay. That’s perfect. And then you obviously noted strength in commercial revenue. That was up fairly significantly in Bioservices solutions. And you said in the document that you posted that it’s continued into the fourth quarter. So can you characterize what you’re seeing? Are trends accelerating into the year-end? Are they just kind of stable but continuing to be strong? And then are there any reasons why that wouldn’t continue into at least the first half of next year? Thanks so much.

Jerrell Shelton: Go ahead.

Mark Sawicki: Yes. So I’ll comment on that. On the bioservices side, things are very, very consistent and strong. We obviously opened the two new facilities in Houston and New Jersey last year. We’ve actually onboarded 29 new clients into those facilities over the last 18 months, which is a very, very strong base. And this is in addition to a very, very strong demand for the – from the Cryogene asset as well. So that’s very, very positive. On the commercial side, as Tom had mentioned, filing activity is very strong. we see line of sight on a significant increase in the number of approvals and multiple of these products should be fairly decent volume, which will continue to contribute to, obviously, our contribution from a commercial revenue standpoint into ‘24.

Robert Stefanovich: Yes. Maybe just to add, if you look at the Q3 performance in commercial revenue, we’ll always have some timing where you have a little bit more revenue in one quarter than the other. But we do expect to see growth overall ongoing in commercial revenue. With that in mind that you’ll have some quarters that are higher just because of maybe a greater portion of product-related sales versus service-related sales.

David Saxon: Okay. Great. Thanks so much for taking my questions.

Operator: Your next question comes from John Sourbeer from UBS. Your line is now open.

John Sourbeer: Good evening and congrats on the quarter. Thanks for taking the questions. Just maybe to dive in a little bit more on the commercial revenues. Nice growth in the quarter, up 50% year – over 50% year-over-year. I guess any additional details, I guess, you can provide there on this? Is this additional services you have with some of the previously approved product or is there a ramp from some of the newly approved products here? Just any additional color you could provide on that?

Mark Sawicki: Yes. The bottom line is we saw contributions from all. You’re seeing additional uptake in revenue acceleration out of our portfolio of existing products and, obviously, our support of the Sarepta product has also been a nice contributor to that number for the quarter.

John Sourbeer: Thanks. And then I guess, just any color on CRYOPDP in the quarter and how the rollout is going there in the U.S.?

Jerrell Shelton: The CRYOPDP is doing well. The rollout is, we had to make some adjustments in the U.S., and we’ve made those adjustments, and we see that rollout being a continuous smooth rollout.

John Sourbeer: Thanks. And I guess last one here on my end. Just any additional color you provide on like demand trends across large pharma, maybe emerging biotech. I know the total clinical trials are up year-over-year, but have you noticed any just changes in customer behavior then given some of the funding environment or just broader macro pressures?

Jerrell Shelton: As I said during our last quarter’s call, I think that the development of this industry is similar to biologics. And if you look at biologics in the way it has and butters in the beginning and then leveled out and everyone today would want to be in biologics that’s in the pharmaceutical business. It’s a fantastic business and a larger business. And we’re on the same track. We’re in the beginning phases of the development of this industry. We’re developing solutions to answer questions in this industry, to answer needs in this industry and to help it propel and move forward. And we think we’re on the same track as biologics, if not better than that track.

John Sourbeer: Got it. Thanks for taking the questions.

Operator: Your next question comes from Jacob Johnson from Stephens. Your line is now open.

Jacob Johnson: Hey, thanks. Good evening. Congrats on the quarter. Thanks for taking the question. Maybe not to belabor the point, but just one more follow-up on the commercial revenue. Really strong growth. Dr. Sawicki, if I heard you correctly, it sounds like Sarepta had some portion of that. At the risk of asking a question you may not want to answer, but any way to tease out how much Sarepta was a contribution of growth this quarter?

Mark Sawicki: Yes. We don’t think to – break it out on a client-specific basis, but it was a meaningful contribution. I’ll leave it at that.

Jacob Johnson: Okay. That’s helpful. And then maybe a bigger picture question just on Integra-Cell, I think that’s a platform you guys have continued to build out over the last year. I’m just kind of curious where that stands on a revenue basis and as we head into next year, what’s the opportunity around that offering?

Jerrell Shelton: I’m going to start and let Dr. Sawicki, then take over. But the Integra-Cell has started during the last year, and it’s progressing. But these are – this is a novel solution for the cell and gene therapy industry, is something that’s needed in the industry. It will have to be not only the plants built out and finished, and Mark can comment on that. But then they will have to be validated and customers will then do their audits. But we have – we already are seeing demand coming in. This is a customer-driven endeavor. So we know it’s going to be successful. Mark?

Mark Sawicki: Yes, just to add on that. So the site in Houston is construction complete, we’re just going through all the validation activities as we speak. If the site in Belgium is nearly construction complete, will be running a couple of months behind the site in Houston. As Jerry mentioned, we’re already seeing very strong interest. We’ve already had a significant number of clients come through the facility even during construction. And we also have a – already have a robust pipeline as it relates to quotes that are evaluating it to be able to step into their clinical and commercial opportunities. So when the facilities come online in we believe that will be a very, very nice and quick uptake with that asset as it comes online.

Jacob Johnson: Got it. I will leave it there. Thanks for answering the questions.

Jerrell Shelton: Thank you, Jacob.

Operator: Your next question comes from Tejas Savant from Morgan Stanley. Your line is now open.

Unidentified Analyst: This is Yuko on for Tejas. Thank you for taking our questions. You talked about MVE demand starting to stabilize in China. Are you seeing effects of anticorruption initiatives still continuing in the region? And what do you think needs…

Jerrell Shelton: I’m sorry, you’re coming through on the phone very weak. I didn’t really get your questions in China.

Unidentified Analyst: Sorry about that, is that a little bit better?

Jerrell Shelton: Yes, that’s better, that’s better. Thank you.

Unidentified Analyst: You talked about MVE demand starting to stabilize in China. Are you seeing effects of anticorruption initiatives still continuing in the region? And what do you think needs to ultimately happen to begin seeing recovery of that market?

Jerrell Shelton: We’re not experts on the internal workings of China and what’s on the administration’s mind. But what we can tell you is that there has been some reserve as a result of the foreign corrupt practices. And so people are lying low. They don’t want to get caught in investigations and that sort of thing. So it is suppressing the market. And hopefully, that will open up very shortly. And President Xi is taking initiatives within the economy to stimulate it. But it’s not – it’s hard to predict exactly when that – when those initiatives will have some impact. We know one thing. We can’t discount China because it is a hot bed of activity for the life sciences and we intend to participate there.

Unidentified Analyst: Great. Thank you for that color. And then a separate follow-up. Could you elaborate more on the Tec4med Lifescience acquisition? How does their condition monitoring with AI differ from capabilities offered by Cryoport? And how do you envision incorporating their condition monitoring capabilities into Cryoport and SmartPack2 condition monitoring system?

Jerrell Shelton: I’ll start, and then I’m going to turn it over to Mark for a further comment. But Tec4med is truly a – our plan to acquisition with true strategic impact. The technologies that’s been developed by Tec4med over the last 8 years of its existence is, is fantastic technology. It’s complementary to much of the technology that we have within Cryoport or have underway at Cryoport, and it is – it will boost it. It will actually boost it. It will have synergistic value. It has a number of features that are going to have significant impact, certainly on Cryoport, and we think on the market in the future. So with that, I’ll turn it over to Mark to make further comments.

Mark Sawicki: Yes. Thanks, Jerry. Jerry is exactly right. It’s a very complementary product to our existing SmartPack2 condition monitoring platform and will provide us more depth with different service levels and competencies from obviously high-end real-time monitoring, as well as all the way down to a disposable data logs or 1-way or uni-directional transit packaging. So it’s a very complementary product for us, the product suite itself will dovetail very nicely into what we’ve built within our existing portfolio of services.

Jerrell Shelton: I’d just add just a couple of things. Just a couple of things on that. Look, you asked about AI. We’ve been using AI for a number of years. AI is an important technology. It’s advancing very quickly. They have that capability. And the other thing is, Tec4med is very communications friendly. It’s enhanced beyond anything on the market today, and we’ll be taking advantage of that. You’ll see it.

Unidentified Analyst: Great. Thank you.

Operator: Your next question comes from Yuan Zhi from B. Riley. Your line is now open.

Yuan Zhi: Thank you for taking our questions. Great to see the strong revenue from commercial cell and gene therapies. So we heard some of the cell and gene therapy manufacturers weakness in 4Q. How do you see this trend so far in this quarter and the next couple of months? And then I have a follow-up question.

Mark Sawicki: I’m sorry, you’ve seen some of the commercial CDMOs doing what?

Thomas Heinzen: Yes. I’ll take it, Mark. You’re right, there were mixed quarters from the commercial – our commercial customers. Some of them had revenue below Street expectations. Others exceeded it by a lot, namely J&J, Legend and Sarepta. It is going to be a mixed bag in Q4 based on what they’re telling the Street. So we can’t really comment more on their forecast.

Yuan Zhi: Got it. And a follow-up question is related to the Tec4med acquisition. Does it mean now Cryoport would expand the capability to provide logistics to pharmaceuticals outside of the cell and gene therapy?

Mark Sawicki: The short answer is yes, it’s complementary to our CRYOPDP logistics offering, and it will provide them additional and enhanced competencies as it relates to data monitoring for areas outside of the cell and gene space.

Yuan Zhi: Got it. Thank you.

Operator: Your next question comes from David Larsen from BTIG. Your line is now open.

David Larsen: Hi. Can you talk about large freezer shipments within MVE? How is that progressing? Has growth picked back up? Or is it steady, stable?

Jerrell Shelton: Yes, David, the orders for freezers are back on trend. And I said on a stabilized basis is on – and there was a clarifying question asked earlier about second, third – first and second quarter. And so orders have stabilized across the board, the patterns are stable.

David Larsen: Okay. And then how many therapies – cell and gene therapy products, would you expect to get approved each year, roughly speaking. I think you were supporting around 15, last quarter. And I mean your commercial revenue, it’s pushing 10% of total revenue, I think. I’m just trying to get a sense for how much of your total revenue you think that could become, like into next year, and the following years, it seems like it’s growing pretty rapidly.

Jerrell Shelton: Alright. I’ll start to answer the question, David. But then Mark and Tom should add their comments as well. Look, the whole – this is no surprise. I mean, commercial therapy is what it’s all about. And we support them in those trials, because in order to get to the commercial – get these therapies to the commercial arena. And as we start to improve – approve 10 therapies per year, it’s certainly, the commercial revenue is going to dwarf depending on the number of patient potential for the indication, but it’s going to dwarf the revenue from clinical trials, and that’s coming. So it’s coming. That’s what we’re building the company for. That’s why we’re investing in the – in all of these initiatives for the future because we have to be there ready to support the industry as it commercializes. Mark, do you want to add to that?

Mark Sawicki: Yes. Yes, the numbers actually we’re currently supporting 12 commercial products, and Jerry is exactly right. Our entire strategy has been to capture the clinical space and retain it during commercialization. Gottlieb said back in 2019 that he anticipated by 2024 to ‘25, 20 commercial approvals a year. And we’re actually starting to see line of sight on that number. And so we’re very excited by that, especially because we’re supporting such a large percentage of the clinical space. We wholeheartedly anticipate and expect to retain the vast majority of those to commercial, and we’re building out our infrastructure to support that scale.

Thomas Heinzen: I guess a little bit for you. It’s 12 commercial today. Hopefully, two more will get approved before the end of the year, that would bring us to 14. Those two do have PDUFA dates or FDA dates before the end of the year. And then we have six more we’re forecasting to commercialize next year. That would bring us to 20 total, if we’re right. Of those six that we’re forecasting for next year, four already have PDUFA dates in the first – a little over the first 4 months of the year. And hopefully, that number will grow above six, but that’s what we’re seeing today.

David Larsen: How much revenue do you think those six could contribute to the business?

Mark Sawicki: What that anticipated number is, but obviously, we expect the commercial growth number to be disproportionate to our overall growth number over time.

David Larsen: Okay. Great. Thanks very much. Congrats on a very good quarter.

Mark Sawicki: Thank you.

Operator: Your next question comes from Brandon Couillard from Jefferies. Your line is now open.

Brandon Couillard: Thanks for taking my question. Maybe for Robert, circling back to the comment that you guys said, you saw the strong cell and gene therapy demand continue here into 4Q. Is it fair to assume that commercial revenues will be up sequentially in 4Q versus 3Q?

Robert Stefanovich: No, I think the way you have to look at it is really, obviously, longer term, we expect to see very solid growth on the cell and gene therapy side for commercial revenues as we add more commercial new therapies to the portfolio. If you look at the quarter and sequential growth, just because of the early stage of this revenue stream, you will have just timing-wise, different revenue streams. So, we expect to see growth year-over-year, clearly, but sequential growth really depends a little bit on the type of services we provide the type of accessories we provide. So, that may vary between quarter-to-quarter sequentially. But ultimately, again, we look at growth year-over-year ongoing.

Mark Sawicki: Yes, that’s why we always say to you guys, look at commercial on a rolling basis. We recommend looking at a four-quarter rolling average, and that’s where you should see very consistent growth as we look at that because there is some volatility quarter-to-quarter based on the timing of certain products and services that we are doing from a commercial standpoint.

Brandon Couillard: Got it. Appreciate it. And then I guess any more color you guys can add on the 27 new trials, pretty impressive just given kind of all the headlines around there of funding, is a healthy clip for you guys. Is that mostly existing customers building up the portfolio, anything competitive wins? Maybe I haven’t talked about this in a while, but maybe folks shifting from home brew on the earlier stage side, do you guys just kind of talk about who is kind of driving those 27 net new adds for you guys? Thanks.

Mark Sawicki: Yes. So, I can do, Tom, it’s fine. Yes. So, of those, we are still seeing above-average volatility on removals. So, that – we are actually seeing net increases that are higher than that. But with the volatility in the space, we are seeing still a fair deal of trials that are either being completed or terminated or suspended on a quarter-by-quarter basis. And so for Q3, we added 28. We had 26 that wind down, of those 15 were completed, 9 were terminated and 2 were suspended. A fairly large percentage of those, and I don’t have the number in front of me, are our new clients. So, we have been very successful in pulling share on the new client basis, as well as retaining in our existing trial base with our existing clients. Tom, if you want to add anything else?

Thomas Heinzen: No, you covered it, Mark. Thank you.

Brandon Couillard: Okay. Thank you.

Operator: Your next question comes from Richard Baldry from ROTH MKM. Your line is now open.

Richard Baldry: Thanks. You had a state of new product and service sort of upgrades, enhancements and roll outs lately. I felt like a lot of your R&D projects sort of come to fruition, but this quarter, R&D is up about 21% sequentially. Can you talk about sort of where those incremental investments are going? Is this – was there anything one-time in there? Is this sort of a new sustained or extensible level? How do we think about that?

Jerrell Shelton: Robert, do you want to take that?

Robert Stefanovich: Yes, absolutely. Look, if you look at our R&D expenditures, we have a number of initiatives that are ongoing. Some obviously have come to fruition such as the Cryoport Elite Shipper that’s being used for Sarepta and ultimately available to other clients in the cell and gene therapy space. Others are still ongoing. We recently launched the Cryoportal 2. We have some additional activities related to that Cryoportal 2 and logistics management system. We are also working on condition monitoring systems, SkyTrax. So, there are some ongoing investments in R&D activities related to those initiatives that we expect to complete during 2024.

Jerrell Shelton: And in addition, Rich, we have the global supply chain network, which continues to progress nicely, but it certainly is not to its full maturation. And so all-in-all, it’s progressing the way we expected, but it is robust.

Mark Sawicki: Yes. We are actually seeing a very nice monetization of the services that have launched. I mean you guys have seen the two new facilities, the one in New Jersey and the one down in Houston, Texas. Those facilities are now averaging 1.5 audits a week. We put 29 new bioservices clients in those facilities over the last year, I mean so it’s substantial. And that’s monetization of those investments.

Richard Baldry: And there is a lot of talk about the private equity and VC pulling back on their portfolios. Can you maybe talk broadly about the acquisition environment? Are you seeing more opportunities? Do you think valuations are finally coming into better zones for you to go after?

Jerrell Shelton: So no, Rich, we actually don’t look at it that way. We look at things that fit in our strategy and fit to where we are going, and we don’t see any big change in that area.

Richard Baldry: Okay. And lastly, looking at the balance sheet, you took out some of the convertibles early and how to gain on that and did buybacks at the same time. How do you think about the capital structure as it sits today? Was it just opportunistic on the convert side, do you think that’s strategic, you want to keep that up, if at all possible? How – what level of cash would you be comfortable with aside from doing the buybacks?

Jerrell Shelton: Rich, in today’s environment, it’s a question that we constantly are asking ourselves, and we are constantly monitoring. But we have the geopolitical situation. We have an industry that’s developing very rapidly. We have a lot of things are going on. There is a lot of dynamics. We do have acquisition opportunities that come up occasionally. We want to be prepared with – to move on those when they do come up. So, managing the cash and managing the buybacks is an artful thing, and it’s one that we do look at on a constant basis, but we are measured in that. And we do – we are open and we are very open to all the information that comes in and we make our decision. So, there is not much else I can say about that, except we are constantly looking at it.

Robert Stefanovich: Yes. Maybe I can just add some data points to it. If you look at – you are absolutely right, we did buy equity in the past, and in this just recent third quarter, we did repurchase some of the convertibles, that’s some of the 2026 convertible debt. So, we have actually a gain of about $6.2 million in the income statement on gross gain from that repurchase, really, buying the converts at about $0.80 on the $1. So, we are monitoring that. And with the repurchase program, we still have about $36 million remaining to deploy under that program. And so we have some of the ability to repurchase additional convertible debt or equity if we think the timing is right and it’s warranted.

Richard Baldry: Great. Thanks.

Operator: Next question comes from Puneet Souda from Leerink Partners. Your line is now open.

Puneet Souda: Yes. Hi guys. Thanks for taking the questions. So, first one on – I am wondering if you are getting any feedback from some of the commercial providers, I mean you said commercial therapies capacity, we are hearing sporadically and with different drugs that the supply is constrained on the cell therapy side. I am sure you have seen that, too. So, just sort of trying to get a sense of, is that gating some of the growth in the near-term? And how do you see – what are you hearing from – on your end?

Mark Sawicki: Yes. I actually think we are getting over the hump on that, to be honest, Puneet. I mean the nature of conversation is shifting from manufacturing capacity now to patient accessibility. And that’s one of the reasons that we look upstream at the IntegriCell platform that we are building out, is to really drive that patient accessibility and help facilitate scalability as it relates to ensuring that the patients that want the therapy, can get the therapy. So, I think that’s going to become a smaller issue. A lot of the contract manufacturers now don’t have – we don’t have these 2-year and 3-year backlogs on product requirements or manufacturing backlog. So, I think the manufacturing capacity issues, we have largely caught up to it, I think.

Puneet Souda: Okay. And then on CRYOPDP and MVE, obviously, a large portion of your revenue is still – so just wondering if you can provide some guidepost as you are thinking about sort of 2024 in those businesses? Anything you could provide would be helpful. Thank you.

Jerrell Shelton: Yes. Robert, do you want to take that?

Robert Stefanovich: Yes. Look, just in terms of the ‘24 outlook, we will provide guidance and a more detailed review of the ‘24 outlook at our year-end earnings call. Look, we have talked about the CRYOPDP business. They have expanded their geographic platform. They have been very strong in Asia-Pac and Europe. We fell a little bit short on the U.S. side in terms of driving the revenue synergies between Cryoport Systems CRYOPDP. That is advancing, and we have taken steps to really enhance that. And you will hear more about that over the next weeks and months. So, that’s how far we can go at this point in time, but we will certainly provide a little bit more of a detailed outlook for ‘24 at our year-end earnings call.

Puneet Souda: Okay. And then if I could ask about, there is – some companies are seeing more expansion in EU versus U.S. in terms of therapies. I am just wondering if you are seeing any logistical challenges with all the – obviously, the war in Europe and then now the Israel-Gaza situation. So, just wondering if you are seeing any disruptions in logistics on that front?

Jerrell Shelton: Nothing of significance, right now, we have had disruptions in the past. We have got – but they are reminder and there is nothing of any significance whatsoever at this point.

Puneet Souda: Got it. Okay. Thanks guys.

Operator: Your next question comes from David Larsen from BTIG. Your line is now open.

David Larsen: Hi. One more, it looks like your SG&A costs came in maybe up 20% year-over-year. All the companies that I cover have talked about sort of paying aggressive attention to their cost structure. Do you have any thoughts there, Robert or Jerry? I mean it just seems to me like there is a lot of EBITDA potential in the business as it stands now. Just any thoughts around cost containment efforts that I think a lot of folks have been sort of seeing recently. Thanks very much.

Jerrell Shelton: Yes. I will begin and then Robert can conclude on that question, David. But you are right, there is a lot of EBITDA potential in the SG&A. And that SG&A is inflated because of the number of projects that we have going on. These are all customer-driven, market-driven projects with great potential. And – but they do have an impact as they are under development on the SG&A, but the potential is enormous. Robert?

Robert Stefanovich: Yes. I will say I may start – maybe first with some of the earlier investments we have made that we talked about. Some of those investments are starting to pay-off now. We talked about the biostorage, bioservices revenue that grew 26%, and then also, obviously, building our core solutions in terms of the revenue growth on the commercial side. Noteworthy there is the initiative that we have related to our Cryoport Elite Shipper, supporting Sarepta’s commercial launch. So, these are initiatives that you have seen over the last years in terms of building out some of these competencies. And then we talked about building out the overall global infrastructure. And really, if you look at the market that we are in and the expected growth that we are seeing, just based on discussions with the clients that we are currently serving in clinical trials and commercial launches, we do know that this will ultimately drive significant revenue.

And you are absolutely right. As you see that revenue grow and as you see us leveraging the assets and the capabilities, specifically in the cell and gene therapy space, you will see that EBITDA margin grow with that as well. So, we are very mindful of cash. We are very mindful of spending and ensuring that we have the right ROIs. And it’s on our mind and certainly on the investors’ minds as you stated. But at the same time, we see a significant opportunity for us, really, to further bolster our leadership position and to capture more wallet share from these customers that are poised to grow quite significantly over the next years.

David Larsen: Thanks very much.

Operator: There are no further questions at this time. Jerry, please proceed with the closing remarks.

Jerrell Shelton: First of all, I want to thank all of you for joining the call today and the robust question-and-answer period. There were good questions and gave us a chance to talk about some very important things. In closing, our third quarter results were in line with our expectations, showing some growth aspects, particularly in commercial revenue. At the same time, Cryoport has continued to execute on its corporate strategy, increasing its market presence and capabilities through meaningful partnerships and acquisitions. By continuing to execute on this strategy, we believe Cryoport will emerge as an even stronger company that is well positioned to achieve long-term profitable growth. We thank you for joining us today. We appreciate your continuing support and interest in our company, and we look forward to updating you on our progress again for the fourth quarter very soon. So, have a good evening. Thank you very much.

Operator: Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect.