- Management has cut costs to help move towards profitability.
- Changed business model leverages core strengths.
- Key partnerships with Fedex and DHL provide catalyst for growth.
When Cryoport Inc (OTCQB:CYRX) went public in March, 2005, it was trading at $50.80 per share. It was based on the promise that Cryoport would become the market leader in frozen shipping logistics solutions to the biotechnology and life science industries. Back then, Cyroport's solutions were disruptive to the established technologies in the frozen shipping segment.
Shipments of biological materials had been frozen in dry ice, which often required re-icing during transit. Cryoport introduced liquid nitrogen (LN2) "dry vapor" technology to keep products frozen at temperatures below -150C for up to 10 days. Unlike dry ice shipping, this approach does not require re-icing during transit.
Cyroport's solution was a better alternative for shipping stem cells, cell lines, vaccines, diagnostic materials, semen and embryos, etc, that require continuous exposure to cryogenic temperatures.
However, despite the technological superiority of their solution over established frozen shipping companies, its management was subpar and the company was not able to stay competitive. As a result, its stock price has declined over the years. Currently, Cryoport is trading as a penny stock with under $28 million of market capitalization.
Cryoport appointed Jerry Shelton as CEO in 2012, and since then he has made substantial changes to the company's existing business model. For example, he has focused on offering a diversified product line in order to cater to the different needs of various segments of the global biotechnology logistics market. His efforts are paying off, as the company has since achieved four consecutive quarters of triple digit revenue growth.
Prior to the era of Jerry Shelton, Cryoport offered a core shipping service, the Cryoport express solution which was the company's principal focus for development and commercialization. This focused niche approach was causing the company to lose money because Cryoport did not have the logistics infrastructure to provide a cost-effective way to transport frozen packages. Since he joined, Cryoport has eliminated their end-to-end shipping product and focused solely on providing the reusable cryogenic transport containers. It partnered with Fedex (NYSE:FDX) and DHL, a subsidiary of Germany's Deutsche Post AG (OTCPK:DPSGY), for the actual transportation. FedEx created its 'Deep Frozen' program based on Cryoport's technologies. It enabled Cryoport with the necessary logistics support to deliver time sensitive biological packages to greater distances in one piece.
Cryport also started offering standard Cryoport Express dry vapor shippers, a high volume version of its standard package that offered six times the capacity of the standard package. Also, it introduced a combo shipper offer that included a specimen box for holding additional paperwork, ambient medical kits, and/or any other materials.
Meanwhile, Cryoport revamped its logistics management platform and introduced Cryoportal. This is a proprietary online portal that manages ordering, tracking, paperwork, customs documentation and communications, all through a single interface. It also integrated Cryoportal with DHL's ordering and billing systems, enabling customers to order directly from Cryoport and receive preferred DHL shipping rates.
Such product diversification and value chain integration paid off well. During the 2013-2014 financial year, Cryoport revenue saw consecutive triple digit quarterly growth. In the last quarter, it effectively increased by 126.6%.
During the 2013-2014 financial year, Cryoport revenue saw consecutive triple digit quarterly growth. In the last quarter, it effectively increased by 126.6%.
Cryoport new management's drive to maximize efficiency also produced net positive results on the balance sheet. As its sales scaled, its gross profit also increased from around $0.38 million to $0.84 million during the same time span, representing a 162% increase.
Commenting on the latest financial performance, Jerrell Shelton, the CEO of Cryoport, stated that "over the past year we have delivered on several of our key goals and reported triple digit growth for each quarter. We have been able to quickly scale the business while also increasing our profitability, and improving gross profit over the prior year by $924,000." He also sounded optimistic about the future when he mentioned that "we believe the growth trend of our business and the overall growth trends for the life sciences industry, which uses our advanced, leading-edge cryogenic CryoPort Gross Profit Marginlogistics solution, are the perfect scenario to drive future profitable growth for Cryoport."
Nevertheless, amid the growth momentum created by the new management, Cryoport continues to lose money. However, the increasing gross profits are improving its negative cash flow from operations. Compared to $1.18 million of negative cash flow in the second quarter of 2013, Cryoport only lost $0.84 million of cash from its operations during the first quarter of 2014.
As of Q1'2014, Cryoport has generated around $0.14 million gross profit of its $0.83 million revenue. Current estimates suggest that its quarterly revenue will reach $1.55 million by the first quarter of 2015. At this rate of revenue growth and improving margins, it will take around three years for Cryoport to become a net cash flow positive company. Cryoport will effectively become profitable by the second quarter of 2017.
Cryoport currently has $1.11 million in current assets. According to Cryoport's form 8-K filing to the U.S. Securities and Exchange Commission (SEC), it has exited the 2013 fiscal year with $370,000 in cash and equivalents. Also, since the end of last quarter, Cryoport raised another gross proceeds of approximately $229,429 from the sale of convertible preferred stocks with warrants.
At the current rate of $0.84 million losses per quarter, the company will need to raise additional capital from debt or equity financing before the end of the current quarter to stay solvent. The good news is that it has experience raising funds via private placements. Based on its improving top line financial performance, increased total customer base and internal management efficiency in recent quarters, investors should be optimistic for another successful near term larger capital raise. Such confidence from growth investors will help Cryoport to continue its endeavor to become the market leader in biotechnology shipping logistics in coming years.
MicroCap Intelligence uses a proprietary quantitative model and strict investment criteria to identify small and micro cap companies that have a high potential for price appreciation with less potential for loss. As a microcap turnaround, Cryoport meets the MicroCap Intelligence investment criteria on both growth prospects and profitability.
Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
Additional disclosure: MicroCap Intelligence is a team of analysts that focus on small and microcap stocks. This article was written by Asif Imtiaz, one of our analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.