Q2 2012 Results
On November 14th CryoPort (OTC:CYRX) filed its 10-Q for fiscal Q2 2012 ending September 30, 2011. Q2 revenue of $111k was below our $192k estimate and was down 11% from the $124k posted in fiscal Q2 2011. Important to note, however, is that revenue from one particular customer accounted for 42% of total revenue in Q2 2011 - that same customer accounted for only 3% in the current period as it no longer had a need for cryogenic temperature shipping. Had revenue from this customer stayed flat from the year-earlier quarter, we estimate Q2 2012 total revenue would have come in somewhere in the neighborhood of $160k. CryoPort also noted in the 10-Q that the number of active customers increased compared with Q2 2011. Continued diversification and expansion of the customer base is a clear positive for CryoPort and is perhaps more meaningful a metric than revenue growth at this early stage. In addition, CryoPort made significantly more progress late in the second quarter and after quarter-end with bringing on more substantial customers - revenue from which was likely insignificant in Q2 but should be much more meaningful going forward.
EPS was ($0.07) compared with our ($0.08) estimate, the difference a result of a $115k variance between modeled and actual change in derivative value and slightly lower ($1.69MM A vs. $1.72 E) operating expenses , partially offset by the lower revenue number. The change in derivative value is non-cash and reflects the value of outstanding warrants - which is largely driven by the change in the value of the underlying security (i.e. - common stock).
CryoPort exited the quarter with $4.95 million in cash and equivalents, compared with $7.06 million at 6/30/2011. Cash used in operations was $1.64 million and $3.19 million in the three and six months ending 9/30/2011. Cash used in investing activities was $133k and $202k over those same periods. Cash used in financing activities of $931k through the six months ending 9/30/2011 reflects $1.2 million in principal payments in convertible bonds ($1.35 million currently outstanding, maturing June 2012). CryoPort received $456k in cash (from financing activities) from the exercise of warrants over the same period.
We have made some slight changes to our model following Q2 results although our long-term outlook, investment thesis, recommendation and price target all remain intact.
New Customers: CryoPort continues to make headway with adding new customers, which recently included two fairly high-profile names, ACM Global and ImClone Systems.
In mid-September ACM Global, a large Rochester, NY, based central lab services company with significant global reach, announced the launch of CryoPort's shipping container for its cryogenic shipping needs. ACM's central lab services caters to lab testing for global clinical trials in over 60 countries. The company performs more than 13 million tests per year and has worked with more than 6,000 sites. The September announcement comes after ACM validated CryoPort's shipping container with almost 600 specimens on multiple shipping lanes, which included destinations in India, China, Southeast Asia and Europe. Tracy Hendershott, ACM's Global V.P. of clinical trials, referenced lower costs of shipping (including eliminating the need to re-ice during transport, a requirement with dry ice containers) as one of the major benefits of CryoPort's container. We feel this deal with ACM validates not only the high customer satisfaction but also that CryoPort's upfront investments (in time and money) in demonstrating the benefits of the container/service to prospective customers will eventually pay off (Ms. Hendershott praises CryoPort for being "extremely collaborative in complying with ACM's stringent validation efforts...").
ImClone Systems, a high profile biotech company focused on oncology drugs, developed Erbitux, one of the most important cancer drugs (Erbitux) to-date. ImClone was acquired by Eli Lilly (LLY) in 2008 for more than $6 billion. ImcClone also spent several months inspecting, reviewing and validating CryoPort's operations and shipping container, which included multiple test shipments. In October, ImClone finally pulled the trigger, adding CryoPort as a qualified vendor and began using CryoPort for cryogenic shipping.
CryoPort also announced in the November letter to shareholders that it has more than 50 potential customers currently evaluating CryoPort Express.
Sales / Marketing: CryoPort has made some key additions to its sales and marketing operations over the last several months, which included the hiring of a senior director of marketing, four U.S-based senior sales directors and a senior sales director in Europe. In August Dr. Rafik Bishara, who chairs the Pharmaceutical Cold Chain Interest Group and is a renowned expert in the field, joined CryoPort's advisory board. Dr. Bishara not only brings important industry contacts and knowledge, his presence as an advisory board member provides even further support for and credibility to CryoPort as the future leader in cryogenic shipping.
Presentations: CryoPort continues to actively promote its product and services at key industry events throughout the world including the largest conferences in pharmaceutical shipping.
New Operations Center: In September CryoPort announced an agreement with MediRent BV to open an operations center in the Netherlands, providing CryoPort with a key hub in Europe. MediRent is a Netherlands-based leading provider of rental and logistics services for clinical trials. Under the deal, MediRent will provide all the necessary services to operate the center including warehousing, shipping / receiving, container refurbishing and customer service / support.
CryoPort’s target markets are currently worth up to $500MM and growing at 20%+ per year. We have not been able to poke any significant holes in their product or business model and believe it is conceivable that CryoPort Express could soon become the industry standard for shipping frozen biological material. Despite the anticlimactic launch, customer feedback has been highly favorable. Deals with FedEx (FDX) and DHL are in place and could spark a ramp in customer flow. Two significant life science customers came on-board in the last 2 months. Scalable business model means earnings and EPS could accelerate quickly with greater customer acceptance. We believe the current share price considerably undervalues the company. We maintain our Outperform rating and $3.85 price target.