Q2 2024 Cryoport Inc Earnings Call

Unknown Executive: Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining us on our second quarter earnings call today. With us this afternoon is our Chief Financial Officer, Robert Stefanovich, our Chief Scientific Officer, Dr. Mark Sawicki, and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our second quarter 2024 in review document to our website. It can be found under investor relations and in the news and events section.

Thank you Todd good afternoon, ladies and gentlemen, thank you for joining our second quarter earnings call today with US. This afternoon is our Chief Financial Officer, Robert <unk>, Our Chief Scientific Officer, Dr Marks a wiki and our vice President of corporate development and Investor Relations Thomas Heinzen.

As a reminder, we have uploaded our second quarter 2024 in review document to our website it.

It can be found under Investor relations in the news and events section.

Unknown Executive: This document provides a review of our financial and operational performance and a general business outlook. If you have not had a chance to read it, I would encourage you to go to our website and download it.

This document provides a review of our financial and operational performance and a general business outlook.

If you've not had a chance to read it I would encourage you to go to our website and download it.

Unknown Executive: I will provide you with a brief update on our business, and then we'll take your questions. During the second quarter of 2024, we saw continued progress across all business units as revenue from each improved sequentially. Our revenue from the support of commercial cell and gene therapies especially stood out this quarter, increasing 51% year-over-year and 20% sequentially, reflecting strong demand for these treatments. This growth demonstrates another step in the development of these life-saving therapies.

Speaker Change: I will provide you with a brief update on our business and then we will take your questions.

During the second quarter of 2024, we saw continued progress across all business units as revenue from each improved sequentially.

Our revenue from the support of commercial cell and gene therapies, especially stood out this quarter, increasing 51% year over year, and 20% sequentially, reflecting strong demand for these treatments.

This growth demonstrates another step in the ramp of these life saving therapies.

Unknown Executive: Turning to MBE Biological Solutions, our primary life sciences products business, we saw modest sequential improvement for the quarter, as we continue to experience lower overall product demand as compared to previous years. We anticipate continued softness in demand for MVE products for the remainder of 2024 and extending into 2025 as government, academic, and industrial customers continue to delay capital expenditures and leverage their existing footprints of progenic systems capacities. We have executed strong cost management across our manufacturing facilities at MBE and aligned the direct workforce with current market demand, and reduced SG&A expenses to ensure continuing positive cash flow contribution from MVE.

Unknown Executive: Longer term, we expect demand to improve as excess cryogenic system capacities are absorbed. This is not an if, in our view; it's a matter of when, as cryogenic systems must eventually be purchased to store biological commodities that are created and or produced every day globally for research, experimental, clinical, and commercial purposes.

Unknown Executive: Based on the current softness of the demand for our life sciences products and our anticipated sequential revenue growth for life sciences services, we are revising our full year 2024 revenue guidance to the range of $225 million to $235 million, with revenue expected to continue to improve progressively over the next two quarters and into 2025. As we mentioned on our last earnings call, we have been implementing cost reduction and cost capital alignment, or realignment measures as well as adjusting the building, the build out pace of our global capabilities and infrastructure to be more in line with the current market environment.

Unknown Executive: Our team has been working diligently on this, and we have made substantial progress in implementing many of these actions. We anticipate our cost reduction initiatives will be fully implemented by the end of 2024 and will positively impact Cryoport's financial results for the second half of 2024 and approximately $22 million with approximately $22 million in annualized cost savings, moving us toward our goal of profitability and a return to positive adjusted EBITDA in 2025.

Unknown Executive: Our cost reduction and capital realignment plans will enable us to continue to successfully service our customers and execute on our key growth initiatives as we optimize our operational efficiencies across our global operations. Through these actions, which are in process, we intend to drive profitable growth in our key markets, enhance operating performance, and generate positive cash flow. Our entire management and leadership team is committed to ensuring the success of this plan, and we intend to execute on it swiftly and effectively.

Unknown Executive: In addition to our cost-cutting initiatives and cost realignment plans, we are monitoring our operations daily to adjust for any near-term obstacles related to the overall industry and economic environment while maintaining a long-term strategic view of our business. In addition to driving continued sequential revenue growth, we also intend to maintain a strong balance sheet position. We ended the quarter with a $427 million cash balance, and we expect to generate positive cash flow through the actions we have underway.

Operator: Our cost reduction and capital preservation initiatives take into consideration our key strategic growth plans, which include our Global Supply Chain Center network and bioservices solutions as well as our IntegraCell platform for providing cryopreservation services, to ensure we balance our commitment to long-term profitable growth in the current market conditions. Our team is well aware of the short-term challenges we're facing. Despite these, we remain confident in a broad market recovery for the life sciences industry, with the exception of China, which we think will likely remain challenged through 2025.

Speaker Change: With the exception of China, which we think will likely remain challenged through 2025.

Operator: Our current full year 2024 revenue outlook includes sequential improvements across all our service offerings driven in part by the ramp of clinical and commercial cell and gene therapies we currently support. We remain confident in our market-leading business and the long-term growth of the life sciences. Biotech funding has improved, new therapy approvals have quickened in pace, and Cryoport is well-positioned to benefit from this as our markets start picking up. The new services and products we are launching this year will further diversify our revenue streams and allow us to comprehensively support.

Speaker Change: Our current full year 2020 for revenue outlook includes sequential improvements across all our service offerings driven in part by the ramp of clinical and commercial cell and gene therapies. We currently support.

Speaker Change: We remain confident in our market leading business in the long term growth of the life Sciences biotech funding has improved new therapy approvals have quickened in pace.

Speaker Change: And cryo port is well positioned to benefit from this as our markets start picking up the new services and products. We are launching this year will further diversify our revenue streams and allow us to comprehensively support.

Operator: Our client. And as I mentioned earlier, we have been and are executing on our cost reduction and capital realignment initiatives. And when combined with our expected return to year-over-year revenue growth for the second half of 2024, this should significantly push our goal of profitability. This concludes my prepared remarks. Now I will ask the operator to open the lines for your questions.

Speaker Change: Our clients.

Speaker Change: And as I mentioned earlier, we have been and are executing on our cost reduction and capital realignment initiatives and when combined with our expected return to year over year revenue growth for the second half of 2024, this should significantly push our goal of profitability.

Speaker Change: This concludes my prepared remarks, now I will ask the operator to open the lines for your questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from the line of Tejas Savant of Morgan Stanley. Your line is now open.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your thoughts going forward you will hear a ramp that Youre ahead has been raised.

Speaker Change: Should you wish to decline from the polling process. Please.

Speaker Change: Far followed by denim breakthrough.

Edmund Nonn: Hi guys, this is Edmund Nonn for Tejas. Thank you for taking my question. First, on the guidance. On the call, you guys noted the anticipated sequential revenue growth in services and the expected continued softness in products were factored into the reduced guidance. So I was wondering if you could help me better understand the magnitude of each impact relative to the $17 million reduction at the midpoint. How much was it driven by the lower Lifetime Service Ramp versus a continued muted environment for MVE?

Robert Stefanovich: Robert, do you want to take that question? Absolutely.

Robert Stefanovich: Look, in general, obviously, forecasting has been challenging for us and for many other companies in the life science products and services business. When we look at the change in guidance from original guidance, it's about a reduction of 6.9% midpoint to midpoint. And that's driven, as we outlined, certainly by the fact that our product side, which is really MV Biological Solutions, is not picking up in demand, and not picking up in revenue. And we don't expect that to really pick up in 24, but we do expect to see sequential growth starting in 2025.

Robert Stefanovich: And that's really without the expectation that China is going to come back. As we recall, earlier in 2023 and 2022, we had significant business out of the Chinese market, which dropped in Q1 of 2023. So we do expect that to continue to be pretty much flat. You know, when you look at the remainder of the year, services are expected to grow. I will remain, and maybe just highlight one issue on the product side: we did see sequential growth.

Robert Stefanovich: So Q2 or Q1 for the product side of our business, we did see some sequential growth, but it's not enough of a trend to be able to forecast an increase in demand. On the services side, as you've seen in our earnings release, we've seen some significant growth in the support of our commercial revenue clients. So for the cell and gene therapy space, that's very, very robust, both growth year over year of 51% and sequentially of 20%.

Robert Stefanovich: And then overall services has grown, bioservices has grown, the other service elements of our offering has grown and we're expecting that to continue as well. But we have taken a more conservative stance. I think, you know, coming out of J.P. Morgan early in the year, people were very.., kind of optimistic, cautiously optimistic, with a weighting on the optimism, you know, the funding side has increased, and everyone was really expecting a more significant increase in the second half in particular, but I think most of the companies have realized that while there will be a growth in the second half, it's not going to be as significant as initially inspected, albeit if you look at advancements in the cell and gene therapy side, if you look at the funding side, that continues to be robust, and eventually hopefully that will drive a trend towards more aggressive growth.

Robert Stefanovich: Got it. And then, um, I guess, sticking on the guidance, could you provide some color on what provides you with confidence in the second half and your revised guidance? Maybe some color on how orders and backlogs trended for the product side and some color on how new trials are ramping up versus expectations on the services side would be helpful.

Robert Stefanovich: You know, I think we have spent a lot of time on the product side of our business, which is significantly driven by our, you know, very, very significant distributors around the world, as well as our direct clients. We spent a lot of time with them to really understand exactly where demand is coming from and what's to be expected. And hence, we've taken a more muted approach on the expectations for the second half.

Robert Stefanovich: I think it's a little bit different on the services side in discussions with our clients, one specifically related to the cell and gene therapy space. We do have, you know, weekly discussions with the expectation of the commercial launches and expectations of the commercial... Commercial therapies we're currently already supporting. As you've seen in our earnings release, we've also reported a record number of clinical trials. So we've seen growth in clinical trials, year over year, as well as sequentially.

Robert Stefanovich: And we've seen more therapies that are getting ready for BLA, MAA filings, as well as approvals. So there's certainly a fairly robust view in terms of growth expectations. I think a lot of the growth is expected to really come in in 25 and beyond, but we certainly expect the services side to continue to grow progressively in 24.

Edmund Nonn: Got it super helpful. And one last one for me.

Edmund Nonn: On the new cost actions you guys talked about today, you guys outlined delays or cancellations in new facilities while also taking into consideration key growth initiatives. I think earlier this year, you noted expectations for two Integra cell sites to come online this year, and a global supply chain center to come online in 25 and 26. Can you clarify which ones have been delayed and which ones have been canceled? And how will these actions impact your ability to establish the infrastructure and capacity ahead of time? The expected solid and chain therapy inflection?

Mark Sawicki: These fall under Mark's operations, so I'm going to turn that question to Mark. Yeah, thanks, Jerry.

Mark Sawicki: And the IntegraCell facilities, both of them are on track, in fact, they will both be opening their doors for contract business starting at the end of this quarter, so they're on track, and we anticipate them starting to contribute from a revenue standpoint, although obviously, a nominal amount in 24, but they are going to have their doors open. The other facilities that you discussed, all of those are continuing to progress; however, we have modified some of the pacing of the infrastructure in some of those facilities and are bringing high-demand aspects online and deferring areas that we can cover through other facilities until the market's strengthened, so there isn't any cancellation of facilities; there are some differences in the pacing of the service areas within some of those facilities.

Edmund Nonn: Got it. Thank you for the time.

Speaker Change: Our bring.

Speaker Change: Bringing high demand aspects online and differing areas that we.

Speaker Change: We can.

Speaker Change: Cover through other facilities until the markets strengthened so there isn't any cancellation of facilities. There is some differences in the pacing of the <unk>.

Speaker Change: Service areas within some of those facilities.

Speaker Change: Got it thank you for the time.

Speaker Change: Sure.

Operator: Your next question comes from the line of Paul Knight from KeyBank. Your line is now open.

Speaker Change: Your next question comes from the line of Paul.

Paul: From Keybanc. Your line is now open.

Paul Knight: As we look back on MBE, Jerry, I guess it was kind of like a lot of capital equipment spending in early 23. You know, we companies were not aware of when COVID would end. Burning Up the Budget: What do you think were the factors behind this tough comp on MVE and what do you think a long-term growth rate looks like there?

Paul: If we look back on.

Paul: Gerry I guess, it was kind of like a lot of capital equipment spending.

Paul: In.

Speaker Change: Early 'twenty three they had.

Speaker Change: Yeah.

Speaker Change: The company is not aware of.

Speaker Change: When Covid went in.

Speaker Change: Burning up budget.

Speaker Change: What do you think were the factors behind this tough comp on in the <unk> and what do you think of long term growth rate looks like there.

Unknown Executive: Oh, it's a good question, Paul. And certainly, we've analyzed it; we know a lot more about what happened now than we did, you know, several months ago. During the COVID period, there was free money, as everyone knows, money was basically zero, there were a lot of government grants, and there was a lot of fear buying. And so capacities built up in the marketplace. In fact, I can, I can actually, we actually have seen some, some products that were bought during that time still in crates.

Speaker Change: Oh, that's a good question, Paul and certainly we've analyzed it we know a lot more about what happened now than we did.

Speaker Change: Sure.

Speaker Change: Several months ago.

Speaker Change: The Covid period, there was free money as everyone knows I mean money was basically at zero. There were a lot of government grants and there was a lot of fear buying and so capacity is built up in the marketplace.

Speaker Change: Fact.

Speaker Change: I can actually we actually have seen some some product that was bought during that time still and creates but it was built up we did not know at the time that that was what was happening we thought it was a natural thing because we had we had done our due diligence and looked over 10 years' history of MVP. So this is.

Unknown Executive: But it was built up. We did not know at the time that that was what was happening. We thought it was a natural thing.

Speaker Change: Unprecedented.

Speaker Change: Dip <unk>.

Speaker Change: It was an unprecedented condition, but that that capacity is being used up because we are in conversations with our customers. We are in conversations with our distributors.

Speaker Change: And that capacity is being used up so we know that it will return to a growth rate China will not return we don't think until after 2025, most likely but those were the factors. It was the free money it was the.

Speaker Change: It was the government grants.

Speaker Change: It was superior buying and then all of a sudden money cost money cost was up it was 6% there were no government grants and people had.

Speaker Change: People were putting the brakes on capital expenditures and they had extra capacity. So it's just adjusting.

Speaker Change: This is a great business it continues.

Speaker Change: Continues to produce positive cash flow, we can scale up and down in that business and it is a demand. It is perpetual there is no alternative to.

Speaker Change: Cryogenic temperatures for the storage of biological commodities.

Speaker Change: And a question for Mark and that would be we see the funding data for cell and gene therapy from arm and others.

Speaker Change: My guess would be it takes a while for.

Speaker Change: New funding to translate into volume for you is that a fair assumption.

Mark: Yes, I mean, obviously, we talked about that last the last earnings call.

Speaker Change: What I see is very positive to be honest Paul is the sequential increase in clinical trial accounts.

Paul: That's very indicative that that funding is starting to matriculate down into execution.

Speaker Change: And.

Speaker Change: I anticipate continued.

Speaker Change: Positive directionality as it relates to the clinical activity, which is the earliest signs of that money pushing back into the system.

Paul: Okay. Thank you.

Speaker Change: Your next question comes from the line of David Larsen of BPI.

Speaker Change: Your line is now open.

Unknown Executive: Because we had done our due diligence and looked over 10 years of MVE history. So this is an unprecedented, you know, dip, as COVID was an unprecedented condition. But that capacity is being used up because we are in conversations with our customers; we're in conversations with our distributors, and that capacity is being used up. So we know that it'll return to a growth rate, China will not return, we don't think until, you know, after 2025, most likely, but those were the factors.

David Larsen: Sure Hi can you talk about the number of commercial products that you are now supporting the revenue contribution from them in the quarter.

Unknown Executive: It was the free money, it was the government grants, and it was some fear buying. And then all of a sudden, money costs were up, it was 6%. There were no government grants.

Speaker Change: And then just any color on China would be helpful. Thank you.

Robert: Yes, we can David will start with Robert with the numbers and then Mark will take on the other aspects of that question. Yes. So just on the commercial revenue. So if you look at commercial revenue for the quarter, we had $6 5 million so about 51% increase.

Robert: Year over year, and a 20% increase sequentially. So obviously strong performance on the therapies that we're currently supporting Mark will talk a little bit about saw the more recent announcements on approvals gloves are not reflected in our Q2 performance, but will be reflected in the quarter result, so strong commercial.

Speaker Change: Revenue, we continue to see a good pipeline going forward as well so mark do you want to call sure. Yes. Thanks, Robert Yeah. If you look at the Wall Street analyst there are obviously forecasting.

Mark: Good good consistent ramps in the second half of 'twenty four 'twenty five for the kite Gilead project products. The BMS products that J&J legend products <unk> got their label expansion of Bluebird modest.

Speaker Change: And then we now have obviously <unk> coming online with with moderate volume and then Christopher vertex, which is just starting.

Speaker Change: And then obviously subsequent late in the quarter, we had a couple of additional approvals, although they won't be based on market feedback significant volume drivers the move to earlier lines of therapies for some of these guys is going to be substantial.

Speaker Change: We will continue to drive really really nice.

Speaker Change: Cagr's on the commercial space and if you look at it.

Speaker Change: I mean.

Speaker Change: The BMS are backing up product that went to earlier line there now.

Speaker Change: Ah patient population potentially 80000 patients a year in car Vicki is now at 140000 so.

Speaker Change: So if you think about that.

Speaker Change: Once they address the accessibility issue that the patient accessibility issue that is going to drive continued nice improvements in volume. In addition, there's another two potential approvals this year and 24.

Speaker Change: Which is obviously substantial.

Speaker Change: And positive so.

Speaker Change: We yes, we can.

Speaker Change: Could also potentially have another seven filings through the balance of the year.

Speaker Change: Okay. Thanks, Thanks, very much and thoughts on China.

Speaker Change: Yes.

Speaker Change: As in the <unk>.

Speaker Change: <unk>.

David Larsen: Economy is going to stay there for a while David.

Speaker Change: Don't think it will improve.

Speaker Change: Through 2025.

Speaker Change: And at this point in China, the revenue related to China is very small so we're just a little bit above 3% of total revenue.

Speaker Change: Related to China, So the risk there is for us minimal.

Speaker Change: Okay, and then just one last quick one in terms of <unk> any more color on channel demand.

Speaker Change: Where are we seeing the weakness is it across the board is it certain countries is it certain facilities academic medical centers research labs.

Speaker Change: Large biopharma entities, just any more color on where the weakness is.

Speaker Change: Thank you very much.

Unknown Executive: And people had people were putting the brakes on capital expenditures, and they had extra capacity. So it's just adjusting. This is a great business, it continues to produce positive cash flow; we can scale up and down in that business. And it is a demand that is perpetual; there is no alternative to cryogenic temperatures for the storage of biological commodities.

Speaker Change: Well, it's a weakness in the general market, David and as I was mentioning earlier.

Unknown Executive: New funding to translate into volume for you, is that a fair assumption? It is. Yeah, I mean, obviously.

Speaker Change: Two answering Paul's question. It was it had to do with.

Unknown Executive: Hi, can you talk about the number of commercial products that you're now supporting, the revenue contribution from them in the quarter, and then any color on China would be helpful. Thank you.

Speaker Change: And certainly in the freezer side it had to do with.

Unknown Executive: Well, it's a weakness in the general market, David. And as I was mentioning earlier, to answer Paul's question, it had to do with, certainly on the freezer side, it had to do with, with some defensive buying during COVID, some capacity build up in the cryogenic systems across the board, both in doers and in freezers. So it's pretty, it's pretty much across the board.

Speaker Change: With some defensive buying during COVID-19 some capacity buildup in the cryogenic systems across the board, both endures and and freezers. So.

Speaker Change: It's pretty it's pretty much across the board and it came in that.

Unknown Executive: And it came, and we that weakness, it's just the market, you know, using up the cryogenic systems capacities that have been that were built up during that COVID period. We are having conversations, more conversations now with larger clients, and the order, the order stream seems to be stabilizing. So, we think we think we think we're at a baseline point with, you know, MVE.

Speaker Change: That weakness right now is just the market using up the cryogenic systems capacities that were built up during that period.

Speaker Change: We are having conversations more conversations now with the larger.

Speaker Change: Clients in the order the order stream seems to be stabilizing so so we.

Speaker Change: We think we're at them. We think we think we're at a base point with.

Speaker Change: Within the EU.

Unknown Executive: MBE, by the way, is still cash flow positive, and it's still a contributor. And it's a sound business, it's fully integrated with, or not fully, but it's partially integrated with, other parts of our company, like bio storage, biobiologistics, and bioservices. So it's an important part of our company, and it is profitable.

Speaker Change: <unk> by the way is still cash flow positive is still is a contributor.

Speaker Change: And it's a <unk>.

Speaker Change: <unk> business, it's fully integrated with our not fully but it's partially integrated with other parts of our company.

Speaker Change: Like <unk>.

Speaker Change: <unk> storage.

Speaker Change: Biologics.

Speaker Change: In <unk> services. So it's an important part of our company and it is profitable.

Speaker Change: Thanks very much.

Speaker Change: Your next question comes from the line of Brent <unk> from Leerink Partners. Your line is now open.

Speaker Change: Hey, this is Philip on for Puneet, Thanks for taking my question.

Philip: Just kind of touching on what you just talked about.

Philip: Could you give just some color on how the order book has been trending for MD like half month over month trends and improving or stabilizing stabilizing sequentially.

Unknown Executive: What can you tell us about, like the exit rate in June or just how demand has been trending there? You're asking about Shindu specifically.

Speaker Change: What can you tell us about like the exit rate in June or just how demand has been trending there.

Speaker Change: Okay.

Speaker Change: Asking about you're asking about <unk> specifically.

Unknown Executive: I'm talking about MBE. Yeah, yeah. And so, so Chinese demand is at an all time low. I mean, your questions revolve around Chinese demand, correct?

Speaker Change: Okay.

Speaker Change: Talking about MGE.

Speaker Change: Yes, yes.

Speaker Change: So so China demand as it is at an all time low.

Speaker Change: Your question is around the China demand correct.

Speaker Change: That's around <unk>.

Unknown Executive: All right, Philip, restate your question, and I'll answer it.

Speaker Change: Alright, yes.

Speaker Change: Philip.

Speaker Change: Please state your question.

Speaker Change: I'll answer it.

Speaker Change: Yes, I just wanted to I was just wondering on sort of.

Speaker Change: Color on how the order book has been trending for just for like that business overall, China and more broadly as well just kind of how it month over.

Unknown Executive: Okay, so we do follow our order trends, you know, pretty carefully. Our orders. We think that our order trends are stabilizing and that they're sound, you know, at this point.

Speaker Change: Yes.

Speaker Change: Okay. So so so we do file our order trends pretty carefully.

Speaker Change: Our orders are we think that our order trends are stabilizing and say.

Speaker Change: They're they are sound.

Speaker Change: At this point.

Speaker Change: The.

Speaker Change: The China market of course is rather insignificant right now, it's not accounting for more than about <unk>.

Speaker Change: 4% of the business.

Speaker Change: And then if we look at the freezer and the <unk>.

Speaker Change: You're ordering trends.

Speaker Change: They are at a lower level, but they are steady at this point.

Unknown Executive: I just think that if you look at the order intake, while it looks promising, it's just not enough data to say that it's trending upwards. No, we can't say that.

Speaker Change: I just think if you look at the order intake.

Speaker Change: It looks promising it is just not enough data to say that it's trending upwards no. We can't say and then I think the reality, we do expect it to come back. It's really a question of when will the demand coming back come back because we know.

Speaker Change: MD is by far the largest provider of cryogenic systems and the global market. So as demand comes back.

Speaker Change: <unk>, we will be the beneficiary of that will.

Speaker Change: Comeback in demand. It is already profitable we took measures to make sure that sales generating and the <unk> from a gross margin perspective in the high teens from an EBITDA perspective, and as volume starts coming back obviously that contribution will increase.

Speaker Change: Got it that makes total sense. Thank you.

Speaker Change: And then maybe just a follow up.

Speaker Change: You just touch on threat.

Speaker Change: A lot of different kind of estimate flying around for the label expansion impact, but just kind of wanted to ask.

Unknown Executive: Just what is your sense of like how meaningful this is for you and kind of what we can assume in terms of

Speaker Change: Just what is your sense of like how meaningful this is for you and kind of what we can assume in terms of.

Speaker Change: Topline benefit for this year or next year.

Speaker Change: To your point Theres like constraints on Tim.

Speaker Change: Manufacturing capacity and accessibility on the therapeutic side so.

Speaker Change: Just wondering sort of how we could think about that.

Speaker Change: Yes, so if you take a look at the data with the label expansion. The eligible patient population goes up to about 17 5000 patients a year, which is a significant step up obviously.

Speaker Change: We anticipate a notable increase in revenue.

Speaker Change: Predominantly in Q4, and then through 'twenty five.

Speaker Change: So we're very very optimistic overall.

Speaker Change: Okay.

Speaker Change: Got it. Thank you appreciate it.

Speaker Change: Your next question comes from the line of Matt Stanton of Jefferies. Your line is now open.

Unknown Executive: Hey, thanks. Maybe to start one for you, Robert, on the positive adjusted EBITDA in 2025, could you just clarify if that assumes a certain level of growth or revenues with the cost? So, are you basically saying that you can get to positive adjusted EBITDA in 2025 without any meaningful top-line expansion? And then just on the $22 million of annualized savings, sounds like some of that will show up in the back half of the year. Anything you can help us with in terms of pacing for the rest of the year and what might start to show up in 3Q and 4Q? Yeah, no, absolutely.

Matt Stanton: Hey, Thanks, maybe to start one for you Robert on the positive adjusted EBITDA in 2025 could you just clarify if that assumes a certain level of growth or revenues that cost us or are you basically saying that you can get to a positive adjusted EBITDA and 25% without any meaningful top.

Speaker Change: Line expansion and then just on the $22 million of annualized savings.

Speaker Change: Some of that will show up here in the back half of the year anything you could help us with in terms of pacing for the rest of the year and what might start to show up in <unk> and <unk>, yes.

Robert Stefanovich: Yeah, no, absolutely. I think, look, if you look at the adjusted EBITDA, you can see that, you know, even in our Q2 performance, sequentially, there was quite a significant improvement in adjusted EBITDA, so we produced the EBITDA loss about half sequentially, quarter over quarter. Now, the measures we've taken, both on the products and the services side, were taken, you know, actually, MBE took some of the measures already last year, you know, just in reaction to the slowdown in demand, and then we had significant initiatives underway in Q1, Q2.

Speaker Change: Yeah, No absolutely I think look if you look at the adjusted EBITDA you can see that even in our Q2 performance.

Speaker Change: Sequentially, there was quite a significant improvement in adjusted EBITDA. So we reduce the you had a loss about half.

Speaker Change: Sequentially quarter over quarter now the measures we've taken both on the products and the services side were taken actually MBE took some of the measures already last year just in reaction to the slowdown in demand and then we had significant initiatives underway in Q1 Q2, we expect to have those completed.

Robert Stefanovich: We expect to have those completed globally by the end of the year. In terms of, you know, the expectations of positive adjusted EBITDA for 2025, I think, you know, in terms of the revenue ramp, that's going to dictate the timing of us reaching that goal, but we do expect to be able to achieve that, even with a more modest increase in revenues based on the actions that we've taken, and the actions we've taken related to adjusted EBITDA, that's one part related to, you know, the reduction of FTEs in the organization, reduction of consultants that have worked for us full-time in some of the non-critical areas, and then we obviously have, from a cash flow perspective, delayed some of the expected capital expenditures to align them more, you know, with the expected growth.

Speaker Change: Globally by the end of the year.

Speaker Change: In terms of the expectations of positive adjusted EBITDA for 25, I think in terms of the revenue ramp that's going to dictate the timing of us reaching that goal.

Speaker Change: But we do expect to be able to achieve that even with a more modest increase in revenues based on the actions that we've taken.

Speaker Change: And the actions we've taken related to adjusted EBITDA, That's one part related to the.

Speaker Change: The reduction of Ftes in the organization reduction of consultants that have worked for us full time and.

Speaker Change: And some of the non critical areas.

Speaker Change: And then we obviously have from a cash flow perspective delayed salt.

Speaker Change: <unk> capital expenditures to align more with the expected growth. So the answer is yes, we do expect to achieve it timing of it will depend on.

Robert Stefanovich: So the answer is yes, you know, we do expect to achieve it. The timing of it will depend, you know, in part on the ramp of revenue, and then for the remainder of the year, if you look at, you know, Q3 and Q4, I wouldn't expect, you know, more than, you know, say somewhere around $5 million in total to run through the second half, but, you know, the fully annualized run rate is expected to be about $22 million. Now it's a combination of reductions on the cost of sales side, so the direct labor and direct cost of sales, as well as the SG&A side.

Speaker Change: Part of the ramp up revenue.

Speaker Change: And then for the remainder of the year.

Speaker Change: If you look at Q Q3, and Q4, I wouldn't expect more than say somewhere around $5 million in total to run through the second half.

Speaker Change: But the full the annualized run rate is expected to be about $22 million and thats a combination of reductions on the cost of sales side on the direct labor and direct cost of sales as well as the SG&A side.

Unknown Executive: Thanks. And then maybe going back to one of the questions from earlier, just in terms of the MVE long-term growth rate, is there any way you can kind of quantify how important or how big the growth rate in China is to that business? And I guess the point behind that is if China going forward is a more mature growth market, and maybe it's high singles instead of mid-teens, just trying to kind of think about kind of a structural headwind to MVE's growth rate from what China attribution had been there historically. Thank you.

Speaker Change: Okay. Thanks, and then maybe going back to one of the questions from earlier just in terms of the.

Speaker Change: And the long term growth rate is there any way you can kind of quantify how important or how big the growth rate in China, what's in that business and I guess the <unk>.

Speaker Change: Behind that is China going forward is a more mature growth market and maybe it's high single instead of mid teens, just trying to kind of think about kind of a structural headwind to <unk> growth rate from what China attribution had been there historically thank you.

Unknown Executive: You want to take that? Yeah, look, I think, you know, if you look at

Speaker Change: You want to take that.

Robert Stefanovich: Yeah, look, I think, you know, if you look at China, it's a little bit of a question of when they will come back, how strong they will come back. So if you take that kind of out of the picture, and you just expect a very, very modest contribution from China, looking at the MBE growth rate, you know, we certainly expect it to be at higher single-digit growth rates.

Speaker Change: Yes look I think if you look at China.

Speaker Change: <unk>.

Speaker Change: <unk>.

Speaker Change: And when they will come back how strong that will come back.

Speaker Change: If you take that kind of all of the picture and you can just expect to very very modest contribution from China.

Speaker Change: Looking at the <unk> growth rate, yes, we certainly expect it to be at higher single digit growth rates.

Robert Stefanovich: Again, if you look at the rationale for acquiring MBE, it was one, the vertical integration, the fact that they're the down and player for cryogenic systems, and the fact that they are, you know, cash generating and profitable. We've maintained, you know, the profitability as a percentage, both from a gross margin and adjusted EBITDA perspective. You know, we've also maintained our strategic global positioning as a leader in the space. So again, as that comes back, so will further contribution.

Speaker Change: Again, if you look at the rationale for acquiring <unk>. It was one of the vertical integration of the fact that they are the dominant player for cryogenic systems and the fact that they are.

Speaker Change: Cash generating and profitable we've maintained the profitability as a percentage both from a gross margin and adjusted EBITDA perspective.

Speaker Change: We've obviously maintained the strategic global positioning as a leader in this space.

Speaker Change: So again as that comes back so will further contribution ultimately you look at our zoom out and look at our model overall. The overall expectation is of services is going to continue to grow.

Robert Stefanovich: Ultimately, if you look at our, you know, if you zoom out and look at our model overall, the overall expectation is that services are going to continue to grow much more significantly over time. So it's MBE is not going to have that same growth rate if you look at 25, 26, and 27, but it will still maintain its leadership, it will still maintain its strategic importance in terms of vertical integration, and, you know, maintain profitability.

Speaker Change: Over time much more significantly.

Speaker Change: So <unk> is not going to have the same growth rate. If you look at 25, 26 and 27, but it will still maintain this leadership was still maintain its strategic importance.

Speaker Change: In terms of the vertical integration.

Speaker Change: And maintain its profitability.

Speaker Change: Thank you.

Operator: Your next question comes from the line of Yuan Zhi from B. Reilly. Your line is now open.

Speaker Change: Your next question comes from the line of <unk> <unk> from B Riley. Your line is now open.

Yuan Zhi: Thank you for taking our questions. I am curious to hear any trends you have observed from IVF and fertility clinics. Was there an increased cryogenic storage demand from those customers recently?

Speaker Change: Thank you for taking our questions I guess on the wall I am curious to hear any trend you have observed from Ibs and fertility clinics was there increased cryo storage demand from those customers recently thank you.

Unknown Executive: We focus on cryo-transportation with reproductive medicine, not cryo-storage, and consistent improvement in volumes associated with reproductive medicine over the last seven, eight quarters. And that's largely due to our strategy where we've locked up and established significant relationships with the large clinic networks, in which any action that goes on through them comes through us versus going through intended parents and individuals. And so that will continue to drive volume increases for the foreseeable future.

Speaker Change: Yes.

Speaker Change: We focus around cryo transportation with reproductive medicine, not cryo storage.

Speaker Change: We have seen.

Speaker Change: Consistent improvement in volumes associated reproductive medicine over the last seven to eight quarters, and that's largely due to our strategy, where we've locked up and established significant relationships with the large clinic networks in which any action that goes on through them comes through us versus going through.

Speaker Change: Intended parents and individuals and so that will continue to drive.

Speaker Change: Volume increases for the foreseeable future there.

Unknown Executive: Got it. Any chance you can extend the transportation to, you know, the upstream to provide cryogenic storage services to those customers?

Speaker Change: Got it.

Speaker Change: So you can extend the transportations, who knows upstream per house credit scoring to services to those customers.

Unknown Executive: It's not something that we're currently evaluating. Our focus in bioservices is really focused around the cell and gene space, and our infrastructure is really built around managing cell and gene product flow, not reproductive medicine material, which is a different strategy and a different approach. Got it. Thanks for the additional comments.

Speaker Change: It's not something that we're currently evaluating our focus in <unk> is really focused around the cell and gene space and our infrastructure is really built around managing celgene product flow not reproductive medicine material, which is a different strategy and a different approach.

Unknown Executive: Got it. Thanks for the additional cover.

Speaker Change: Got it thanks for that additional color.

Speaker Change: Yes.

Speaker Change: Thank you.

Operator: Your next question comes from the line of David Saxon of Needham. Your line is now open.

Speaker Change: Your next question comes from the line of David Saxon of Needham. Your line is now open.

David Saxon: Great. Good afternoon, and thanks for taking my questions. Maybe one for Robert.

David Saxon: Great Good afternoon, and thanks for taking my questions, maybe one for Robert.

Speaker Change: On free cash flow what was that for the quarter, how should we think about cash burn for 2024.

Robert Stefanovich: Just on free cash flow, what was that for the quarter? How should we think about cash burn for 2024 over a year? You do have a net cash position, and you've talked here about the restructuring program. But how are you thinking about balancing the investments you've been making and continue to make over the next 12, 24 months or so, and then these 2026 converts?

Speaker Change: Four year.

Speaker Change: You do have a net cash position and you've talked here about the restructuring program.

Speaker Change: How are you thinking about kind of balancing the investments you've been making.

Speaker Change: And continue to make over the next 12 24 months or so and then these 2026 converts.

Unknown Executive: Yeah, no, it's a good, fairly comprehensive question. But yeah, no, I think if you look at the initiatives we've taken, they're quite significant in terms of, you know, really slimming down the organization. You know, as you know, we've built out very, very aggressively over the last couple of years to really set us up both organically as well as through acquisitions, to establish a global platform, become a leader in the space, and really become the leader supply chain for cell and gene therapies.

Speaker Change: Yes.

Speaker Change: Good I'm fairly comprehensive question, but.

Speaker Change: Yes, no I look if you look at the initiatives we've taken there.

Speaker Change: They are quite significant in terms of.

Speaker Change: Really slimming down the organization.

Speaker Change: As you know we've built out very very aggressively over the last couple of years to really establish of both organically as well through acquisitions to establish a global platform to become the leader in the space to really complete our supply chain for cell and gene therapies. So now is a time, where we have to really adjust a little bit to the current market current demand.

Unknown Executive: So now's the time where we have to really adjust a little bit to the current market, current demand. And that really drives us to implement these initiatives to really drive really profitable revenue, profitable growth. So that's really a kind of a main piece.

Speaker Change: And that really drove us to implement these initiatives to really drive really profitable revenue profitable growth.

Speaker Change: So thats really a kind of a main piece if you look at the cash burn cash used in operations was about $11 2 million for the first half Capex was about seven 8% ignoring that we've dialed down the capex expenditure compared to last year last year at the same time, we have spent about $18 3 million in capex.

Robert Stefanovich: If you look at, you know, the cash burn, cash use, and operations were about 11.2 million for the first half, and CapEx was about 7.8. So you can already see that we've dialed down the CapEx expenditure compared to last year. Last year, at the same time, we spent about 18.3 million on CapEx. So we're taking a number of measures to really drive and protect the cash, you know, net, we're net debt positive, about 70 million after this transaction. I think if you look at the buyback of the convertible, that gave us the ability to buy back 160 million at an 11.5% discount.

Speaker Change: So where we are taking a number of a number of measures to really drive and protect the cash net where net debt positive about $70 million. After this transaction I think look we look at the buyback of the convert that gave us an ability to buy back $160 million and 11, 5% <unk>.

Speaker Change: <unk>.

Speaker Change: And that leaves us with significant dry powder, approximately $250 million cash and short term investments to operate our business and pursue strategic activities. So we're really well positioned I think from a balance sheet perspective from a from a kind of global operational infrastructure perspective, and it's now on.

Speaker Change: Completing the execution of these plans that we have to drive more profitable.

Speaker Change: Performance within the organization and as Jerry and Mark had mentioned without cutting off any of the key strategic initiatives growth initiatives that we think will increase our share of wallet with our client base and really further entrench us into the life sciences market in the cell and gene therapy space in particular.

Speaker Change: <unk>.

Speaker Change: Okay.

Speaker Change: That was super helpful. Robert maybe just.

Robert: Quick follow up to that so you said $11 2 million cash used in the first half.

Speaker Change: You talked.

Speaker Change: In one of the.

Speaker Change: Your answers to a previous question about maybe seeing around $5 million in savings in the second half so for the second half burn should we be thinking kind of mid single digits.

Speaker Change: And then I will just throw my second question.

Speaker Change: As it relates to guidance I think the prior guide assume flat and the revenue side just wanted to confirm that the main driver or even all of the delta from the new guidance is envy E expectations coming down.

Speaker Change: And then for MBE I mean, Jerry you talked about.

Speaker Change: Orders stabilizing so for the third and fourth quarters is kind of just 19 $20 million range for MBE revenue, a good starting point or whats your level of confidence that orders have indeed stabilized. Thanks, so much.

Speaker Change: David.

Speaker Change: The numbers you quoted are a little bit high.

Speaker Change: <unk> is running at around $18 million per quarter run rate right now, we don't anticipate that going up.

Speaker Change: So it's a little bit high we do anticipate growth starting in 2025, but we think it's going to be rather stable for the rest of this this year and then we will see some sequential growth beginning in 2025 as that excess capacity is used up.

Speaker Change: So the company is prepared for that and.

Speaker Change: I think thats.

Speaker Change: Moving forward, but we do have growth in the services business.

Speaker Change: Abstention, <unk> cryo systems and cryo PDP.

Speaker Change: And bio bio storage is doing very well as well. So we do have those offsets moving moving forward.

Speaker Change: Yes.

Speaker Change: Your question related cash used in operations in the cash flow and Youll see that once we file the 10-Q tomorrow and in more detail on the stable cash flows, but I would expect that to go down somewhat in the second half.

Speaker Change: But you have to have in mind that it is going to be some costs related to the restructuring that we have as well.

Speaker Change: I would expect it to come down somewhat in the second half and then obviously within the second half more significantly in the fourth quarter and David I'll address those in general those points in my closing comments in a few minutes.

David: Okay, great and if I could just sneak.

David: Follow up question there Gerry.

David: You just mentioned excess capacity as it relates to MBE.

David: You talked about kind of seer buy.

Speaker Change: The COVID-19.

Speaker Change: Pandemic I guess.

Speaker Change: How do you measure that excess capacity and I'm really trying to get at like how confident are you in kind of calling the bottom here and calling for growth in 2025.

Speaker Change: Are you kind of wrap your head around measuring this excess capacity and kind of working through that and I'll leave it at that I will jump back in queue. Thanks. So much David that's a question that we struggled with its a very good question and we struggle with it because it's very hard to do you you would actually have to go out to every customer of.

Speaker Change: Of the company to see if they add inventory, we do know some that have had inventory I know it was some that's still in Craig's right now that was bought during that period of time.

Speaker Change: It's very hard for the way we determine that is by looking at order patterns. We judge then our conversations with our clients and the timing of those.

Speaker Change: The governmental budgets are really important.

Speaker Change: Because a lot of institutions are funded from the government.

Speaker Change: Research is funded from the government. These are all users of <unk>.

Speaker Change: Many other biological biological.

Speaker Change: Endeavors are funded by the government so.

Speaker Change: Government spending is important so we look at all of those things and trying to determine where where we are but it's a it's an art. It's not this is not a science it's not.

Speaker Change: Absolutely quantitatively driven because we just don't have the visibility.

Speaker Change: On what that capacity buildup is in fact in the marketplace. We're trying to read it all the time, but thats the best we can do.

Speaker Change: Continue to probe.

Speaker Change: And put things together plus looking at the order pattern plus talking with our clients about their business and about when orders are going to be placed.

Speaker Change: Great. Thank you so much.

Speaker Change: You're welcome.

Speaker Change: And speakers there are no further questions at this time I will hand over the call the Jerry Shelton Your CEO. Please continue.

Unknown Executive: Thank you for your questions this afternoon and for our discussions. Our second quarter results showed strong progress in our life sciences business, and all businesses and revenue lines improved quarter over quarter. In particular, the cell and gene therapy industry continues to advance, as evidenced by the 51% year-over-year increase we saw in our revenue from the strong demand for these life-saving therapies. I think you can tell from my earlier remarks in our discussions and our quarterly review that we're not just sitting back and waiting for market improvements.

Jerry Shelton: Thank you for your questions. This afternoon and for our discussions our second quarter results showed strong progress in our life Sciences business in all businesses and revenue lines improved quarter over quarter and particular, the cell and gene therapy industry continues to advance as evidenced in the 51 <unk>.

Speaker Change: <unk> year over year increase we saw in our revenue from the strong demand of these life saving therapies.

Speaker Change: Thank you can tell from my earlier remarks in our discussions and our quarterly review that we're not just sitting back and waiting for market improvements were proactive in taking measures that will keep us in financial trim and at the same time helped us move forward as we advance our support of the life Sciences, we're serious about reaching our goal of profitability.

Unknown Executive: We're proactive in taking measures that will keep us in financial trim and, at the same time, help us move forward as we advance our support of the life sciences. We're serious about reaching our goal of profitability and a return to positive, adjusted EBITDA in 2025. Sustainable growth is not just an aspiration; it's a mandate.

Speaker Change: <unk> and a return to positive adjusted EBITDA in 2025 profitable growth is not just an aspiration, it's a mandate.

Speaker Change: Thank you for joining us. This afternoon. We appreciate your continued support and interest in our company. We look forward to updating you on our progress again next quarter. We hope you have a good evening.

Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect. Thank you.

Speaker Change: [music].

Speaker Change: Okay.