Q3 2012 Results
On February 22nd, CryoPort Inc. (OTC:CYRX) filed their 10-Q for fiscal Q3 2012 ending December 31, 2012. Results continue to show that revenue and shipping volume have yet to gain much traction. Q3 revenue of $144k compared to our 188k estimate and was up from $111k in Q2.
Net loss and EPS were $2.08MM and ($0.07) compared to our $2.15MM and ($0.08) estimates. The difference is a result of lower than modeled interest expense and change in (non-cash) derivative value, partially offset by a slight (~7%, $115k) negative variance in operating expenses.
CryoPort exited the quarter with $2.80 million in cash and equivalents, compared to $4.95 million at 9/30/2011. Cash used in operations was $1.48 million and $4.67 million in the three and nine months ending 12/31/2011. Cash used in investing activities was $167k and $369k over those same periods. Cash used in financing activities of $1.44MM through the nine months ending 12/31/2011 reflects $1.78 million in principal payments in convertible bonds ($795k currently outstanding, maturing June 2012). CryoPort received $571k in cash (from financing activities) from the exercise of warrants over the same period.
$5.2MM Private Placement
In February CryoPort announced private placements of 9.5 million shares of common stock for $0.55 / share for gross proceeds to CryoPort of $5.2 million (net = ~$4.7MM). The buyers will also receive one warrant for every share purchased, entitling the holder to purchase one share of common stock at $0.69 over the next five years. CryoPort should receive the full proceeds by 3/2/12.
Per the indenture, the private placement triggered a technical default on the outstanding convertible notes. To remedy the default, CryoPort issued to the noteholders warrants to purchase 280k common shares at $0.69 over five years and also placed into escrow $444k, which represents the outstanding principal on the notes which will be used to retire the notes under the existing repayment schedule.
Pro forma for this financing cash balance at 12/31/2011 was about $7.5 million. At the ~ $1.7MM current average quarterly cash burn rate, this represents about 13 months of funds, slightly less than this when factoring in the $800k in principal owed on the convertibles through June 2012. If shipping volume picks up from recent history, operating cash burn should moderate to a certain extent, although this may also necessitate an increase in container inventory (i.e. - increase in capex) which, at least initially, may offset any increase in cash from operations.
OUTLOOK / VALUATION
While revenue growth and shipping volumes have been disappointing relative to expectations, management indicates that they continue to add customer accounts and are getting increased interest from clinical research organizations and pharmaceutical companies. These are the customer classes that potentially represent very significant opportunity for CryoPort. Recent highlights include the addition of ACM Global and ImClone Systems as new customers beginning in late 2011. In addition, other life sciences companies, including diagnostic testing organizations, are also showing meaningful interest. A catalyst to help secure new, larger accounts, per our recent investor note, is the addition of a new high volume container (introduced in early 2012), which will accommodate much larger shipment sizes.
The issues surrounding the rather anemic revenue ramp to-date appears to continue to be the long, drawn-out tire-kicking process by potential customers, which includes running multiple test shipments. In addition, customers that do adopt the system may only initially do so for only a portion of their cryogenic shipping needs, but over time, gradually shift to a greater reliance on CryoPort's container. As we noted when initiating on the company early last year, although CryoPort appears to have a significantly better system of shipping frozen materials, a better mousetrap often does not result in rapid acceptance. Staying the course is often viewed as a safer bet than trying something new for fear that the something new will provide no meaningful benefit, cause disruptions or be costly. It seems that this may be a headwind that CryoPort will be fighting for some time - and may be longer than management initially anticipated.
While we continue to be highly positive on CryoPort and their cryogenic shipping solution, due to what now appears will be a longer process in customer adoption, we have significantly trimmed our revenue forecasts through the end of our financial model. We now look for revenue to grow to about $57 million in 2015, down from our prior estimate of $90 million.
We continue to value the company based on an industry P/E multiple (currently 21x) and discount this back to the present at 20% / year. We look for EPS of $0.27 in 2015. Based our valuation methodology, this values the stock at approximately $3.00 / share. We are moving our price target from $3.85 to $3.00 / share and maintaining our Outperform rating.