Righting The Ship At CryoPort


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Despite certain competitive advantages and robust services offerings, CryoPort (NASDAQ:CYRX) has struggled to attract much customer demand since the launch of their novel cryogenic shipper and logistics services in 2010. While customers that did adopt their shipping and logistics platform were typically satisfied and continued to use the service, initial customer acquisition was a long, drawn out process and bore little fruit in the earlier days. Part of the issue appears to have been that CryoPort was relatively inflexible in terms of customizing their services to potential customers' needs. It was a "one-size fits all" approach despite not all prospective clients needing the liquid nitrogen shipper and the logistics, tracking system. This inflexibility and inefficient sales approach resulted in anemic revenues and escalating operating expenses.

In an effort to right the ship, during 2012 CYRX brought on a new CEO and COO and reconstituted the board. The new leadership has made some significant changes, which we discuss in more detail below, which almost immediately have reduced operating expenses and meaningfully accelerated revenue growth.

Q3 2014: Revenue Record Streak Continues. Liventa Deal Is A Meaningful Revenue Opportunity…

CYRX announced results for their fiscal third quarter 2014 ending December 31, 2013 on February 13th. Results on both the top and bottom lines came in just about dead-on with our estimates. Significant is that the revenue growth streak, on both a sequential and yoy basis, continues to be extended. Also important is that gross margin continues to widen with revenue growth. Q3 revenue of $757k marked the ninth straight period of setting a new quarterly record. Revenue has consistently grown both quarter-over-quarter and year-over-year since fiscal Q3 2012 (ending 12/31/2011). The current quarter also marks the third straight quarter of generating positive gross profit, with gross margin increasing each quarter.

We remind investors of the company's business update call back in September 2012, when management indicated that they believed, based on recent trends of customer growth, customer stickiness and shipping volumes along with ironing out certain issues hampering sales through the FedEx channel, and implementation of a more customer-centric and tailored menu of offerings to appeal to a larger and broader customer base, that revenue would continue to grow sequentially for the foreseeable future. With nine quarters of sequential growth, management's efforts are clearly paying dividends and we expect this streak to continue. We think a large part of this success has been implementation of the expanded and tailored, yet comprehensive and turn-key offerings that the company first announced and began rolling out in calendar 2012. This has had the benefit of appealing to a broader, more diverse customer base and has almost certainly contributed to the recent ramp-up in the customer base as well as facilitated scoring recent engagements with the likes of Zoetis, OCASA and, most recently, with Liventa.

The company notes that they are generating revenues from several end-user segments including reproductive medicine and in-vitro fertilization, in addition to the animal husbandry area. This is in addition to numerous life sciences companies with various product lines as well as freight forwarders that have shown interest in CYRX's shipping and logistics services. So while increasing the customer count is of obvious importance, this broadening of end-user segmentation perhaps provides the best insight into the wide applicability of CYRX's offerings. Prior to the company's shift in strategy from a one-size fits all approach to a more customer-centric and customized solutions type business, there was little diversity in the customer make-up. That has rapidly changed since CYRX has rolled out a much more comprehensive set of offerings and solutions allowing the company to score business in segments that previously would have effectively been out of their scope of expertise. We expect this to set the stage for an accelerated pace of customer wins, contract closes and revenue ramp.

We met with CYRX's management (Jerry Shelton, CEO and Robert Stefanovich, CFO) at the JP Morgan healthcare conference in San Francisco in mid-January. We came away highly encouraged by the relative success that the shift to a more customer-centric services offering has had in attracting new customers and broadening the type of customer base. The tangible progress has already begun to show itself in the income statement. The ongoing intangible progress (i.e. - sales efforts, services customization per customer, awareness building, services and product enhancements, etc) that management shared with us is where we expect a steepening revenue ramp to materialize from. The agreement with Liventa, announced earlier this month, was the most recent example of the fruits of CYRX's efforts in turning intangibles into tangibles.

Increasing the customer base, broadening into additional customer segments, increasing shipments per customer, and customer "stickiness" should all bode well for continued growth. Relative to the customer base, the earnings release notes that CYRX has doubled their customer base over the last nine months and also that they "are in the early adoption stages with a number of larger life sciences companies." While CYRX did not disclose the number of customers in the earnings release or 10-Q, on the aforementioned September 2012 update call they noted they had approximately 100 customers at that point. As such, we think a fair estimate, given a doubling over the last nine months, would put the current customer base at 250 or more. While many of these customers may only make relatively few shipments (as has always been the case due in large part to a drawn out adoption process), a doubling of the customer base in such a relatively short period of time suggests the rate of customer wins has accelerated and "stickiness" remains strong.


Q3 revenue of $757k was up 147% yoy and 31% sequentially, and slightly ahead of our $725k estimate. Q3 also marked the third straight quarter where revenue covered COGS and gross margin has consistently increased over these three quarters (Q1 11%, Q2 12%, Q3 22%). Over the long term, gross margin should continue to benefit with an increase in revenue.

Operating expenses of $1.42 million were in-line with our estimate and comparable to the first two quarters of the year. This compares very favorably to the ~$1.65 million/qtr average in fiscal 2012, which had yet to fully benefit from the company's cost-cutting initiatives, which were put in place with the change in management. Q3 net income and EPS were ($1.8) million and ($0.03), in-line with our ($1.8) million and ($0.03) estimates.

CYRX exited fiscal Q3 with $220k in cash and equivalents, down from $532k at the end of fiscal Q2. Subsequent to quarter end CYRX issued $310k principal of 5% bridge notes. Cash used in operations was $842k in Q3, down from $1.1 million in Q2 and $1.2 million used in Q1.

CYRX will look to issue a larger financing in the near term. We note that CYRX and Emergent Financial have been very successful in raising capital in the past. The company's improving financial results, committed larger shareholder base, increasing customer count and operational progress with hopefully bode well for a successful near-term larger capital raise.

Expanded Service Offerings encompass: (per company filings)

> Cryoport Express Solution: Cryoport's liquid nitrogen dry vapor shippers (Cryoport Express Shippers) including the Standard shipper (holds 75 2.0 ml vials) and the High Volume shipper (holds 500 2.0 ml vials). The service part of this offering is Cryoport's fully outsourced turn-key logistics solution which provides direct access to the cloud-based Cryoportal for order entry (which can also be done by contacting Cryoport client Care), 24/7/365 logistics services through its Client Care Team, and complete training and process management for each customer.

> Customer-Staged Solution: Cryoport ships an inventory of Cryoport Express Shippers to the customer (uncharged and in bulk) enabling the customer to charge the shippers at their facility, process their orders through the Cryoportal which permits Cryoport Client Care to oversee the logistics of each shipment and the return of the shippers to Cryoport for cleaning, testing and refurbishing. Cryoport Client Care provides the 24/7/365 logistics services utilizing its Cryoportal logistics platform.

> Customer-Managed Solution: Cryoport ships a fully-charged Cryoport Express Shipper(s) to the customer enabling them to utilize their internal expertise and manage all or a portion of the logistics services. As with the above solutions, the shippers are returned to Cryoport for cleaning, testing and refurbishing within a pre-determined time period.

> Customer Integrated Logistics: The Cryoport logistics team provides a tailored and full range of logistics support solutions. In addition to tailoring a management solution, the robust, enterprise grade Cryoportal is used to provide complete logistics services while enabling the customer to utilize their own packaging solutions or Cryoport Express Shippers. Cryoport can provide onsite logistics personnel allowing the customer to fully outsource their cold chain logistics needs to Cryoport and focus on its core competencies.

> Distribution Partnerships: "Powered by Cryoport" is an important partnership arrangement with integrators, freight forwarders and other logistics providers, enabling partners to expand their solutions offering by adding the total Cryoport Express Shipper solution to their customer offering.

Customer-Centric Approach Clearly Paying Dividends and Should Continue To Do So

CYRX continues to score customers and build the customer base, which management indicated has doubled over the last 9 months (through Dec 2013). This acceleration in customer wins in a relatively short period of time is likely a direct result of Cryoport recently expanding their service offerings in order to appeal to a broader, more diverse customer base and one that is tailored, comprehensive and turn-key. The company's value proposition has evolved into one that is a complete solution that covers the entire logistics transportation process and one that can be tailored to the specific needs of a diverse customer base. This has allowed expansion of their target market, provided more shots on goal and appears to be resulting in more shots going in the net.

The new leadership that was put in place in 2012 has made significant progress in righting the ship at CYRX, a ship that appeared to be well on its way to sinking from anemic revenue and escalating expenses. We think there's ample reason to believe that this revenue streak can be extended given the recent successes in scoring key customer wins and improving the adoption process. While risks remain, such as a need for additional operating capital and the inherent risks related to micro-cap stocks, we think CYRX has the potential to be the "game-changer" in biological cryogenic shipping that they initially billed themselves to become.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: I work as a Consultant Analyst for Zacks Investment Research. The article is written by me and is 100% my opinion. I receive compensation from Zacks for writing equity research reports and providing valuation analysis on this company's stock and expect to do so in the future. Zacks receives compensation from the company. Please see the Zacks Disclaimer for further information: http://scr.zacks.com/Disclaimer/default.aspx