Cryoport, Inc. (NASDAQ:CYRX) Q4 2023 Earnings Call Transcript

Cryoport, Inc. (NASDAQ:CYRX) Q4 2023 Earnings Call Transcript March 12, 2024

Cryoport, Inc. misses on earnings expectations. Reported EPS is $-1.31 EPS, expectations were $-0.32. Cryoport, Inc. 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’s Fourth Quarter and Full Year 2023 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 would now like to 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 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. With nothing further, 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 earnings call today. With us this afternoon is 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 fourth quarter and full year 2023 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’ll provide you with a brief update on our business and then we’ll move into answering your questions.

Today, we reported total revenue of $233.3 million for fiscal year 2023, which was within our guidance range. 2023 turned out to be a challenging global operating environment, which impacted revenue across all of our business units. Product revenue was lower than historical levels, even as MVE revenue began to stabilize in the last quarter of the year. At the same time, in 2023, we saw further growth in service revenue as it became a greater part of our business. Our service business is the core driver of our growth, generating over $144 million in revenue, which represents 62% of our total. As part of this growth, we had a year-over-year growth in BioStorage/BioServices revenue of 45% and Commercial Cell & Gene Therapy revenue of 33%. As of December 31, 2023, we supported a record of 675 clinical trials worldwide, a net increase of 21 clinical trials over last year, with 82 of these in Phase 3, as well as 311 in Phase 2.

I think it’s important to point out that our clinical trial portfolio constitutes a significant long-term revenue growth opportunity for Cryoport as most therapies proceed through clinical trials toward commercialization. We currently support 14 commercial therapies, up from 10 the prior year. We expect the number to grow again this year, driven by an anticipated 17 application filings and an anticipated nine new therapy approvals. In fact, we have already had two new therapies approved and one BLA filing this year. So we’re off to a pretty good start. Product revenue in 2023 was lower than historical levels. As reported previously, our MVE Biological Solutions revenue began to stabilize in the latter part of the year. Putting these short-term anomalies in perspective, MVE is a global leader in the manufacture of cryogenic systems.

It is a resilient business and through cost controls, it has been able to maintain strong margins and generate considerable cash flow for our company. We remain confident in MVE and its future. I think the cell and gene therapy industry is still in a nascent stage that will develop in a way that will transform the way we practice medicine for the betterment of mankind. The actions we take daily are to support that vision, not just for the short term, but for the longer term as well. To that end, a few of the actions we took during 2023 to further position ourselves for continued growth and industry leadership included making targeted investments in our business and forming strategic relationships with respected partners. For example, we acquired Bluebird Express, a provider of time-sensitive domestic and international transportation services with the intent to strengthen CRYOPDP’s USA rollout.

We also completed the acquisition of TEC4MED LifeSciences, a technology company that provides next generation communication and condition monitoring technology for the life sciences. It is through tactical investments with strategic impacts such as these that we have over the years expanded our solutions beyond logistics and transformed our company into a robust platform of temperature control, supply chain solutions for the life sciences with a focus on cell and gene therapy. We pay attention to the development of our ecosystem and to that end, we developed additional strategic partnerships in 2023, including forming a new collaboration with Cell and Gene Therapy Catapult network in Stevenage, England, to provide integrated logistic support to its Manufacturing Innovation Center.

Through this partnership, we are establishing our first UK logistic center to support cell and gene therapy clinical trials and future commercial growth throughout Europe. Stevenage is located in the center of the Golden Triangle, arguably the most cell and gene therapy concentrated activity in all of Europe. We also expanded our relationship with NMDP BioTherapies, formerly known as Be the Match therapies, in which it will be leveraging our new IntegriCell platform in support of allogeneic donor recruitment, collection, and cryopreservation. In Asia-Pac, we developed a strategic partnership with Nippon Express, headquartered in Tokyo, which will build onto our growing APAC presence and bolster our temperature control supply chain solutions worldwide.

Our business development activities included welcoming a number of key new clients from which revenue will ramp up over time. For example, Sarepta’s gene therapy, Elevidys, for the treatment of Duchenne Muscular Dystrophy has ramped up treating patients much faster than Wall Street had predicted. And by June of this year, Sarepta may receive a label expansion for Elevidys that removes all the current age restrictions. Other positive cloud developments that have continued into 2024 include the FDA’s commercial approval of Iovance Biotherapy’s Amtagvi therapy for advanced melanoma, the FDA’s commercial approval of CRISPR and Vertex of CASGEVY for the treatment of sickle cell and beta-thalassemia. And the FDA’s acceptance for priority review of Adaptimmune’s biological license application for afami-cel and investigational engineered T-cell therapy for advanced synovial sarcoma.

As these and other anticipated therapies are introduced into the market and begin to ramp up, our commercial revenue will grow, driving further growth in logistics and bioservice revenue. We continue to set a new standard for the cell and gene therapy industry as evidenced by the launch of innovative and revolutionary products and services, including the Cryoport Elite line of shippers, which include the Cryoport Elite UltraCold -80 shipper. These cutting edge shippers are setting a new bar, exceeding industry standards, temperature, hold times, and providing additional risk mitigation. Our advanced integrated technologies enable data management and transparency verified through our training compliance service platform. With product introductions like these, we continue to expand our end-to-end solutions for the care and transport of cell and gene therapies.

The developments and actions I’ve outlined today are just a few examples of solid foundation Cryoport continues to build to support our long-term growth strategy. Growth in the cell and gene therapy market alone, along with other sectors of the life sciences, paused over the last year or so, but we expect 2024 to show progressive improvement throughout the year. Therefore, we’re providing a full year 2024 revenue guidance in the range of $242 million to $252 million. As we move through 2024, we will continue to focus on leveraging our growth drivers and strengthening our industry leading brands to better serve our clients while capitalizing on the growth of the cell and gene therapy industry as more of these life-saving therapies receive regulatory approval globally.

We believe 2024 will be a year of progressive advancement in our business with stronger overall growth in our service business. That concludes my prepared remarks. Now we’re happy to take your questions. Operator, please open the lines for questions.

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Puneet Souda of Leerink Partners. Your line is already open.

Puneet Souda: [Technical Difficulty]

Todd Fromer: Puneet, you’re not coming through clearly, Puneet. I can’t understand your question.

Puneet Souda: Hopefully, [Technical Difficulty].

Todd Fromer: Operator why don’t you go to the next question? Puneet, why don’t you try to fix your situation and hop back in?

Operator: Puneet, you can try to re-queue. Your next question comes from David Saxon of Needham. Your line is already open.

David Saxon: Great. Hi, guys. Good afternoon. Thanks for taking my questions. Hopefully you can hear me a little better. I wanted to — okay, great. So the comments around MVE stabilizing in the fourth quarter, it sounds like the rest of the portfolio is seeing growth. So I wanted to ask about the cadence of revenue throughout the year. Looking back, you do typically grow sequentially off the fourth quarter. So with kind of what you saw in the fourth quarter, should we think about that trend continuing and seeing growth sequentially in the first quarter? And any reaction to consensus at around $62 million for the first quarter? And then I’ll have a quick follow-up.

Jerrell Shelton: David, as you know, we don’t give quarterly guidance, but I think, you know, the assumption about your trend, I think, is fine. I — what we suggested and I tried to suggest in my comments was, progressive improvement throughout the year. The industry did take a haircut for the past couple of years in terms of funding and in terms of growth and so forth, but we think that’s coming back. We think the funding is off to a good level. As I mentioned, we’ve got a couple of therapies already approved, and we think we’re off to a good start. So we think we’ll be progressively better throughout the year. And we mentioned the services revenue being really the growth driver. So if you look at the ‘23 performance and two of the critical revenue streams that we’ve seen significant growth in both on the commercial revenue side where we’ve seen growth of 33% year-over-year and actually 36% in Q4 or the BioStorage/BioServices revenue where we’ve seen again 45% year-over-year growth.

So those are some of the leading service revenues that we also expect to continue to grow in 2024 as well. And, David, we’ll have progressive improvement in MVE too. I mean, MVE is a great business. It owns — it’s the dominant share of the market, and it is a great business. It’s the number one cryogenic systems manufacturer in the world, and it’s highly lauded, and there is need for biologic storage all around the world. And so that will come back. It just comes back — it’ll come back over time.

David Saxon: Okay, all super helpful. So thank you for that. And then I wanted to ask on the P&L, specifically the gross margin. It was fairly stable through the third quarter and then came down a bit in the fourth. So, what happened during the quarter to cause that sequential contraction? And then for 2024, how should we think about the gross margin for this year? Thanks so much.

Jerrell Shelton: Yeah, again, on gross margin, you’re right. You look at overall gross margins, we landed Q4 at 42.6% versus a 43.8%. And we’ve seen services revenue being relatively flat year-over-year and then seen a little bit more of a dip on the product side. In some instances you’ll have in Q4 kind of additional kind of cost increase to the amount of initial true ups. So I would expect some of that to alleviate going forward in Q1 and beyond. But I would expect for modeling purposes more of a stabilization of gross margin, again, also with increase in our business, increasing progressively throughout the year.

David Saxon: Great. Thank you so much.

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

Tejas Savant: Hey guys. Good evening. Jerry, one for you on the guide. Just curious about what exactly are you baking in for the biopharma funding recovery? Are you essentially assuming current demand conditions continue through the rest of the year or are you baking in something like a recovery in the back half beyond just easier comps? And then similar sort of question on the China situation as well. I mean, clearly it was a weak geography for you in ‘23, as it was for a lot of other life science companies. Are you baking in some sort of a recovery there in MVE into the guide in the back half?

Jerrell Shelton: Tejas, in terms of the overall funding for biopharma, for biotech, and especially for cell and gene therapy, we think that will be improving on a progressive basis throughout the year. All this is not withstanding any geopolitical unrest or geopolitical tilting or anything, but we think given the situation that we have right now, it’ll be progressing on a progressive basis. As regard to China, China’s in a depression — in a recession, and it could be a depression, but I think it’s in a recession right now, and it’s going to remain in a recession for a while. We don’t depend on China for a lot of our volume, I mean, it’s less than 4% of our total revenue. It is a more significant part of MVE’s revenue. But we’re taking action at MVE to do a couple of things.

One, we will be manufacturing freezers domestically in China. That will take about a year to implement, but we will be manufacturing them in China, meaning to meet President Xi’s 2025 initiative of Make in China, Buy in China. We’re happy to do that. That plant has produced freezers in the past and we have the capacity to ramp up freezer manufacturing in China. So we think that will help alleviate part of the situation. But China, the pressure on China is going to continue for a while. We don’t see China recovering this year for sure.

Mark Sawicki: Hey Jerry, I just have one thing on the on the BioServices or the biopharma funding situation. So I just want to make sure everybody’s aware. Obviously, the improvement in funding for the biopharma space is a long-term benefit for us because it recapitalizes a lot of the portfolio and allows them to reinitiate clinical programs. But that’s not an instantaneous benefit. The benefit is really focused around what Jerry had mentioned in his opening comments is all of the new and the approval activity. We see upwards of another nine therapies that may be approved this year. And so that’s where you’re going to start to see that significant improvement and contribution later in the year, as well as the diversification of revenue into the BioServices space as we had already mentioned as well as that commercial revenue piece.

Tejas Savant: Got it. That’s super helpful. And then just speeding back to layers at MVE a little bit, Jerry. Can you share some color on what the order book sort of looks like, how month over month things have trended there? You’ve consistently talked of margins holding up really well in that business, even with the top line headwinds. Do you envision a situation where you need to perhaps like lean in on that pricing lever a little bit more in ‘24 to help nudge, high end freezer sales and then any color on that $50 million non-cash impairment on MVE in the quarter? Thanks.

Jerrell Shelton: Well, yeah, I’ll ask the first part and Robert can answer the latter question. We don’t actually comment on details on any of our business units, so I don’t really want to comment on those. I can tell you that the margin has to do with superlative management. Our management team at MVE does an incredible job of managing manufacturing operations and the cost to be in line more with revenue. And so in terms of leaning on a price lever, we are always looking at our pricing. We annually, we look at our pricing and we look at it more frequently if we have need to. But I don’t think we’ll be leaning on that lever in any disproportionate way. MVE is a healthy business. It’s doing well even under these conditions. It continues to generate cash flow.

It’s a strong business. And it is the dominant player in cryogenic systems manufacturer, controlling some 65%, 70% of the market. And so we’re very confident in MVE. I’m not concerned. We’re in this business for the long term. We’re not in it for the short term. Now, Robert can comment on your question regarding goodwill impairment.

Robert Stefanovich: Yeah, absolutely. Obviously, this is your standard accounting approach. So when you look at the non-cash impairment charge and the reduction in goodwill related to MVE Biological Solutions, the acquisition that we completed in Q4 of 2020, this is really based on the drop in revenue that we’ve seen in Q2 of ‘23, which continued kind of more or less flat for Q3 and Q4 because it was leveled out. And with that, we had to adjust our financial modeling and do a quantitative impairment assessment. And that led to that one-time charge reducing the goodwill. No other goodwill or intangible assets were considered impaired. So that’s really the explanation.

Tejas Savant: Got it, that’s super helpful. And then one final one for you, Jerry. I know you were at the Advanced Therapy Week conference in Miami. Just any color on just customer feedback and traction there? And as you talk to them about perhaps some of your upcoming products or recently launched products, whether it’s the HV3 Shipper, or perhaps the Fusion 2.0, et cetera, where do you sense the most unmet need and excitement, and where do you see the most traction over the next couple of years for you guys?

Jerrell Shelton: Tejas, it’s a really good question but it’s a very complicated answer in the sense that we have 20 some odd initiatives going on inside the company right now building out for the future. And we are constantly re prioritizing to meet market needs as they come up the HV3 Shipper is going to be a fantastic addition to our product line because it will reduce the total cost of shipping for the manufacturers. The Fusion line as it’s developed and especially as we develop the 800 series, the smaller series will open up markets that we’ve never been in. It’ll open up second and third floors. The Broad Institute, for example, to cite just one customer that I think we can cite, bought Fusions because of the plumbing issues, they could use it flexibly on higher floors.

And so that’s a very exciting product. The Vario, which can be — which is an energy-efficient unit, can be dialed up and down for different temperature ranges from minus 20 all the way up to cryogenic temperatures. We have IntegriCell coming on where we’re going to be furnishing optimized cryoprocessed apheresis, which will be standardized and it will be producing more robust material, it will be crowd preserved to allow manufacturers to insert the materials when they want to as opposed to when they have to from being fresh material, will be crowd preserved. It’ll expand manufacturing capacity, it’ll improve the quality of the therapies, it’ll be more consistent. And this is another standard setting thing that we’re doing. We’re opening up this gene therapy business, minus 80, with the Cryoport Elite UltraCold.

So it goes on and on, and we just bought TEC4MED, which I mentioned in my comments, is an incredible communications and temperature monitoring system that will start over time to tie all of our companies together and give us the most complete chain of compliance in the world. It’ll be terribly exciting as it gets into that process. So those are just a few of the things. And we have levels of priority. It’s not just one priority. It’s levels of priority as we serve the industry. We’re rolling out, of course, CRYOPDP in the United States. It already has a number one footprint in Asia-Pac and also in EMEA, and we’re just now rolling it out in the United States. It’s been underway for a while. We acquired Bluebird to accelerate that. We’re opening up operations to supplement that and to build out, continue to build out that operation.

So we have a host of things going on that are meeting — that are not only meeting the industry but anticipating where the industry will be and help enabling it to grow and to prosper, and that’s both in cell and gene therapy.

Tejas Savant: Got it. Appreciate the color, guys, and best of luck with the year.

Jerrell Shelton: Thank you very much, Tejas.

Operator: Your next question comes from Puneet Souda of Leerink Partners. Your line is already open.

Puneet Souda: Hi guys. Hopefully you can hear me okay.

Todd Fromer: Much better, Puneet.

Puneet Souda: All right. So, just if you can help me a little bit on the on the guide. I mean, it came in on the lower end of the guide in itself that was flat for the year. You are seeing some improvement in MVE, as you pointed out, in sequential improvement, but China is still not improving. So, sort of taking all that in, I guess, my main question is, you’re implying about a 6% growth this year in ‘24. What is actually sort of embedded in that guide? What are the levers that you think push that 6% growth potentially higher and is there or is there enough sort of for lack of better word, conservatism baked into that?

Jerrell Shelton: Well we did take a conservative approach, Puneet. We looked at all of our business units and we built our forecast from the ground up. And certainly we think that there are some upsides that could happen this year. There could be more therapies approved. Our existing therapies could ramp quicker, both of which I alluded to a little bit earlier. Some of our introductions of products this year could be adopted much quicker than we forecast. So we definitely have upside, but we wanted to be conservative. We’re not interested in disappointing anyone, and our business plan is around that. Robert, would you like to comment any further on that?

Robert Stefanovich: No, no, I just, echo what Jerry said. If you look again at the outlook for 2024 and you look at what we’ve achieved in some of the key areas in ‘23, you can see the continuum of services revenue growing, in particular, the commercial revenue, in particular, the BioStorage/BioServices revenue, and those are really some of the leads. Like Jerry mentioned, there’s a few new initiatives that are coming online this year, and if they ramp faster, that can contribute more revenue. Again, we certainly took a conservative look. If you talk to other companies in the life science tool space, you’ll hear them say they’re being cautiously optimistic, and we are as well. But that’s kind of where we stand.

Puneet Souda: Okay, that’s helpful. And then just following up on CRYOPDP as well, I mean, the combined CRYOPDP and MVE is still, I believe, more than 60% of your revenue. Could you maybe just elaborate a bit on — should we start thinking about the normalized sort of growth rate at MVE similar to what you acquired it when at the time of acquisition, correct me if I’m wrong, it was low single digit to maybe mid-single digit and CRYOPDP was not far from that. So maybe just help us understand what’s the normalized sort of growth rate we should — we ought to be thinking for these two businesses?

Jerrell Shelton: Once the MVE starts to fall out, and I don’t pair these businesses together, they’re totally different businesses and they’re totally — serve totally different parts of the market with totally different missions. So I’ll take them one at a time. On MVE, I think once it pulls out of this lull, I think you will be able to assume the growth rates are maybe even a little bit better than single digits, maybe in the low double digits once it’s out of this low. So what created the low and what created this? We do have some hypothesis. I’ve mentioned in the past that there was a pullback on capital expenditures. Well, we’ve all known that because the economy has been in a cautious mode for over a year with the overall global activities and capital budgets have been affected.

But I also think that there was — this is an hypothesis on my part. This is not factual but it is a hypothesis that there was a little bit of a build-up during the COVID period of time of capacity and that capacity is being filled up now. Once that’s being filled up, you’ll see the normal rates. Look, biological material is being produced all of the time and it’s being produced in great quantities all the time. It has to be stored. And there’s no way to avoid it. Cryogenics are the way that you store that material. So it will come back. And we’re very confident in MVE, its position in the market, its products, the way it serves the market, and its long-term prospects. We think they’re outstanding. And there will be new products and new services coming out of MVE over time as well, and some diversification of revenue streams over time.

As far as CRYOPDP goes, CRYOPDP is the world’s third largest specialty courier serving biotech, or biopharma. It is rolling out in the United States. We’ve been in that process now for a while, but we did buy Bluebird Express in order to accelerate that process. We’ve had 10 years’ experience with Bluebird Express. At Cryoport Systems, we know the quality of that operation and its people, and so we know it’s a great addition. And we continue to build out in the United States. We will find that — we will find momentum in the United States as we build out the structure, and as Bluebird has some impact on that growth in the United States. So I think that the growth rates there will be a little bit in excess of what they were. They will still be in the low single digits once it finds its footing in the United States.

Other parts of the world are doing fine.

Mark Sawicki: You mean low double digits, Jerry, not low single digits.

Todd Fromer: Sorry, just clarifying. He said low single digits and that’s what he meant, Mark.

Puneet Souda: Sorry, just clarifying. That’s low single digits for the US part of the business and double digits for international?

Mark Sawicki: Yes, yeah, yeah, exactly.

Puneet Souda: Okay. Just last question if I may, just, the Alabama IVF decision, does that — can you outline what’s the impact for you and what changes you have to bring about in your network for that?

Jerrell Shelton: Alabama was not a big impact on us. We got more publicity than we did anything else out of Alabama, that we do ship in and out of Alabama. And when the Supreme Court ruled as it did, we suspended shipments until we could understand the situation. We suspended business there, both for MVE and Cryoport systems and Cryo — as well as CRYOPDP. So we did suspend business there until we got a clear reading. Then a new law was passed and we opened up Alabama again. So we’re doing business in Alabama. Things are business as usual in Alabama at this point, but we certainly are monitoring that situation just in case there’s a change of mind in that state. But it did create a lot of publicity.

Puneet Souda: Okay, thank you guys.

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

John Sourbeer: Good evening and thanks for taking the question. I just want to dig in a little bit more on the commercial revenues. I think they slowed quarter-over-quarter. Any additional details you can provide there on the quarter? And then also how do you think about this high level this ramps out over the next year given some of the recent approvals and the outlook for approvals in 2024?

Jerrell Shelton: Well, John, let’s let Robert start with giving you some factual information. And then I’d like for Mark to comment on what’s happening in the market, because what’s happening in the market is pretty exciting.

Robert Stefanovich: Yeah, and the latter probably is the most important, because those are some of the drivers for the revenue in ‘24 and beyond. But if you look at the commercial revenue, and we think I mentioned on the last quarterly call, when you look at our quarterly revenue, look at a trailing 12-month average. But where you look at even the full year or the Q4 commercial revenue ramp, it’s in the 33% to 36% growth year-over-year. So we continue to see strong growth in commercial revenue. It’s now $22 million of total revenue. So it’s starting to become a more substantial portion of our services revenue. We expect that to continue. Mark, do you want to talk about some of the market dynamics that we’re seeing?

Mark Sawicki: Yeah, absolutely. Thanks, Robert. Yeah, so as Robert has said, I mean, looking at this on an aggregate 12-month basis is extremely important because any time you have new therapy launches, there’s some volatility in the early phases. They start to ramp. However, the law of aggregation is what we’re really looking at here. We’re seeing very, very strong approval activity. And in fact, I think between the end of ‘23 and ’24, may be the strongest 18 months in the history of the cell and gene space from an approval standpoint. There are three BLA filings completed in Q4, which is the adaptive immunity to [bio and autologous] (ph). One new approval in Q4. We’ve already had two new approvals in Q1, another 17 possible filings in 2024, of which one has already been filed.