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Research Report Update

CYRX: YoY and Sequential Revenue Growth Continues

11/12/2012

By Brian Marckx, CFA

10-Q Filed:
  Revenue, expenses, EPS all in-line with our numbers. YOY and sequential revenue growth continues…

On November 9th CryoPort (OTC BB:CYRX) filed their 10-Q for the fiscal 2013 second quarter ending September 30, 2012.  Revenue, expenses and EPS were very much in-line with our numbers.  And importantly, CYRX extended the streak on revenue growth, on both a yoy as well as sequential basis, to four straight quarters (from fiscal Q3 2012 through Q2 2013) indicating that shipping volume is gaining positive traction, albeit at a modestly increasing rate.  

Q2 revenue of $234k was largely in-line with our $273k estimate and was up from $111k at Q2 2012 (+111% yoy) and $191k at Q1 2013 (+23% sequentially).  Operating expenses of $1.4 million were slightly lower than our $1.5 million estimate and again benefited from CYRX's recently implemented cost-saving initiatives.  Net income and EPS were ($1.55) million and ($0.04), compared to our ($1.59) million and ($0.04) estimates. 

CYRX exited Q2 with $1.7 million in cash and equivalents, down from $3.0 million at the end of fiscal Q1 2012.  Cash used in operations was $1.2 million.  CYRX also repaid (per terms of the notes) $24k of principal on the related party notes ($708k o/s as of 9/30/12, 6% annual interest, principal repaid currently @ $8k/month with remainder due at 3/1/2015 maturity).  In the 10-Q CYRX notes that they believe cash on hand and cash from operations should be sufficient to sustain operations through the end of fiscal 2013 (March 31, 2013). 

We have made only minor adjustments to our model following Q2 results and continue to model sequential revenue growth throughout the remainder of fiscal 2013.  We are maintaining our Outperform rating and $3.00/share price target.   

Jerrell Shelton named CEO / President

CYRX's search for a CEO ended with the early November announcement that Jerrell (Jerry) Shelton, who weeks earlier was elected to the company's Board, was named as CryoPort's President and Chief Executive Officer.  Mr. Shelton comes with an impressive background including a Harvard MBA and high-level executive positions and board posts at a number of technology and service organizations including IBM, The Thomson Corporation (Thomson Reuters), and Solera Holdings.  Mr. Shelton has had consistent operational and financial success for predecessor organizations, much of which we think can potentially translate over to CryoPort including significantly growing revenues, increasing customer contracts, penetration of target markets, implementation of strategic vision, and, ultimately, increasing shareholder value.  We had an introductory call with Mr. Shelton last week and came away confident that he shares the belief that CryoPort's shipper and logistics services can be a game-changer in cryogenic shipping and is energized and focused to make that a reality.    

New and updated customer offerings

As CryoPort first announced on their 9/20/12 Business Update call (which we fully summarized in our 9/21/12 Investor Note), CryoPort is expanding their service offerings in order to appeal to a broader, more diverse customer base.  This is in contrast to only offering customers their full-service CryoPort Express Shipper plus CryoPortal logistics service which had been the case in the past and may have left potential customers on the sideline as that one-size fits all approach didn't always fit with customer needs.  The Q2 2013 10-Q describes in more detail CYRX's current customer offerings which we have included below.

 Expanded Service Offerings which now include:

> 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 multiple Cryoport Express Shippers to the customer (uncharged and in bulk) enabling the customer to charge the shippers at their facility, process its orders through the Cryoportal and then return the shippers to Cryoport after each shipment for cleaning, testing and refurbishing.  Cryoport provides the 24/7/365 logistics services utilizing its Cryoportal logistics platform.

> Customer-Managed Solution: Cryoport ships a fully-charged Cryoport Express Shiiper(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 the full capability of the Cryoportal to provide complete logistics services while enabling the customer to utilize their own packaging solutions. 

> Distribution Partnerships:  Partnership arrangements with freight forwarder, integrators, and other logistics providers to be a part of their solution.

 

OUTLOOK

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, particularly over the long-term.  This has recently started to translate into greater revenue traction.  Through the most recent reporting period CYRX extended the streak on revenue growth, on both a yoy as well as sequential basis, to four straight quarters (from fiscal Q3 2012 through Q2 2013) indicating that shipping volume is gaining positive traction, albeit at a modestly increasing rate.  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.  We view the recent turnover in CYRX's leadership which included the appointment of individuals with backgrounds of success in turnaround situations, growing customer count and revenues, implementation of strategy, and increasing shareholder value as highly positive.  In addition to the new leadership we see several catalysts to near-term revenue growth including resolution of the issues related to FedEx and the CryoPortal interface, the recent addition of new shipper sizes, a new focus on qualifying customers and identifying the low-hanging fruit, and the newly introduced broader menu of shipper and service offerings to appeal to a more diverse customer base.  

While the long, drawn-out tire-kicking process by potential customers which includes including running multiple test shipments will likely continue to be a necessary evil before some customers adopt the full CryoPort Express Solution, CYRX's new menu of offerings should now allow them to generate revenue from ancillary sources such as customers that only want the shippers or only logistics for (example) maybe a small volume cell line and may not require the long test-shipment process.  Longer-term we still see the full shipper and service offering as the major driver of CYRX's revenue but, in the meantime, these ancillary offerings should provide a meaningful contribution to the top-line and help cash generation. 

 To access a free copy of the full CYRX research report, CLICK HERE.

    

 

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