Q3 2024 Cryoport Inc Earnings Call
[inaudible]
For more information visit www.FEMA.gov
Speaker Change: Good afternoon and welcome to the CryoPort second quarter 2024 earnings call.
All participants will start in a listen-only mode.
Speaker Change: Following the presentation, we will conduct the question and answer session.
Speaker Change: If at any time during this call, you require immediate assistance,
Please press star zero for the operator.
As a reminder, this call is being recorded.
Speaker Change: I will now turn the call over to your host, Todd Fromer, from KCSA Strategic Communications. Please go ahead.
Todd Fromer: Thank you, Operator. Just a quick correction. This is Pryor Court's third quarter conference call for 2024. Before we begin today, I would like to remind everyone that this conference call contains certain photos of these statements.
Todd Fromer: All statements that address our operating performance, events, or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team.
Todd Fromer: Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not take undue reliance on any such forward-looking statements because such statements speak only as of the date when made.
Todd Fromer: We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law.
Todd Fromer: In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experience and our present expectations or projections.
Todd Fromer: These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors, and elsewhere in our annual report on Form 10-K, which follows with the Securities and Exchange Submission, and those described from time to time in the other reports which follow with the Securities and Exchange Submission.
Speaker Change: It is now my pleasure to turn the call over to Mr. Gerald Shelton, Chief Executive Officer of Crowdport. Gerry, the floor is yours.
Gerald Shelton: Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining our third quarter earnings call today. Joining us is our Chief Financial Officer, Robert Stavanovich, our Chief Scientific Officer, Dr. Mark Sawicki, and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen.
As a reminder, we've uploaded our third quarter.
Gerald Shelton: 2024 in review document to our website. It can be found on the main page of the Croport, Inc. website. This document provides a review of our financial and operational performance and a general business outlook.
Gerald Shelton: If you haven't had a chance to read it, I would encourage you to visit our website and download it.
Gerald Shelton: I will now provide you with a brief update on our business and then we'll take your questions.
Gerald Shelton: Our life sciences services business showed 9% growth for the third quarter with bio-storage and bio-services revenue increasing over 12% compared to last year.
Gerald Shelton: This increase in our service revenue was coupled with a substantial improvement in gross margin to 46% for our life-size services business.
Gerald Shelton: Reflecting on our performance through the third quarter, we are maintaining our full-year revenue guidance of $225 million to $235 million, anticipating continued growth in life science services while acknowledging the ongoing softness in the life sciences product business.
Gerald Shelton: To address our current market dynamics, we have been actively executing on our cost reduction and cost realignment strategies that we shared with you earlier this year. We've made substantial progress, and we are on course to complete these adjustments by the end of the year.
Gerald Shelton: Our actions are showing positive results, as shown by improvements in our gross margin, adjusted EBITDA, and positive cash flow through the quarter.
Gerald Shelton: As planned, these strategies are moving us closer to our objectives of sustainable profitability, and we believe that these measures will lead us to a return of positive adjusted EBITDA during 2025.
Gerald Shelton: In addition to our focus on profitability, we continue to advance the growth plans we have underway as we balance those plans with our commitment to achieve profitability with current market conditions.
Gerald Shelton: In October, we launched our IntegraCell Chiral Preservation Solution with a new state-of-the-art facility on our Houston campus.
Gerald Shelton: This new cryopreservation service will provide standardized cryopreservation of leukapheresis material, seamlessly integrating this service with CryoPort's end-to-end global temperature control supply chain platform to support the development and commercialization of cell-based therapies.
Gerald Shelton: Our IntegraCell offering addresses yet another critical aspect in optimizing the supply chain for the development and commercialization of cell-based therapies through high-quality, more consistent cryo-preserved starting material.
In addition,
Gerald Shelton: There have been other exciting recent developments across our business, which includes Cryogenes successful opening of its file repository operations in San Antonio, Texas, and the onboarding of its first major client, a major core blood repository.
Gerald Shelton: Beyond providing bio-storage services for this client, CryoGene will utilize CryoPort Systems Advanced Biologics.
Gerald Shelton: capabilities to provide national and international patients with vital core bloods, ensuring the integrity of these crucial materials as we benefit from further growth in the national core blood market.
Also, as a part of our company's overall mission
Gerald Shelton: responded to a Methodist Hospital emergency request in the wake of Hurricane Helen, impacting, Hurricane Helen's impact on the southeastern region.
Gerald Shelton: Mobilizing quickly, our team provided recovery freezers for the hurricane caused by COSM.
Gerald Shelton: The hurricane that caused severe damage to a manufacturing facility that produces essential reagent supplies for patients.
Gerald Shelton: These freezer units were essential to ensuring consistent patient care during the emergency situation.
Speaker Change: I'm very proud of our team, which was on the ground assisting health care workers during the devastation. It was a demonstration of selfless service to the community and the team's care for patients without complaint or hesitation.
Speaker Change: In my opinion, they're real heroes and great examples of the spirit of Crawford.
Speaker Change: At Cryo PDP, we've maintained a strong focus on acquiring new customers across all geographies with the addition of nine high-value contracts that Cryo PDP was awarded during the third quarter with a total value of over $6 million per year.
Speaker Change: We also continue to make strides at our MVE Biological Solutions business.
Speaker Change: which is core to our life science products. Our team has been implementing measures designed to align MBE's operations and workforce with our current market demand to help maximize positive cash flow contribution.
Speaker Change: Consequently, as the cryogenic systems market improves, we'll be in a better position to benefit from operating leverage.
Speaker Change: We think our initiatives, developments, and efforts will put us in a better place to take advantage of the growth of the life science and especially the substantial growth forecast for the cell and gene therapy industry.
Speaker Change: As approval for cell and gene therapies accelerate, ensuring the reliability, safety, and integrity of the supply chain is essential for these life-saving products. Cryoport is a leader in this. As of September 30th, we supported
Speaker Change: A total of 691 global clinical trials, a net increase of 21 clinical trials over last year, with 79 of these clinical trials in phase 3.
Speaker Change: Looking ahead, we expect the macro and sector specific challenges that have impacted many life science tools companies to continue for the near future.
Speaker Change: Consequently, as we move into 2025, we will further sharpen our focus on profitable growth and maintaining a strong balance sheet.
Speaker Change: We continue to be optimistic about our long-term business growth trajectory.
Speaker Change: We believe we are strategically positioned to leverage the anticipated long-term growth in the life sciences and the high-growth cell and gene therapy markets through our comprehensive and integrated supply chain solutions designed specifically to reduce risk and improve efficacies.
Speaker Change: This concludes my brief update, so now I will ask the operator to open the lines for your questions.
Thank you.
Ladies and gentlemen...
We will now begin the question-and-answer session.
Speaker Change: Should you have a question, please press star 1 on your touchtone phone.
Speaker Change: You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star 2.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: Your first question comes from Paul Knight of Key Bank. Your line is already open.
Hi, Jerry. On the
clinical trial service business
Speaker Change: It was up a little bit in the quarter, year over year.
Speaker Change: Are you, I guess these label expansions we've seen in the market, they kind of take time. Is that the way we should read that? Because it doesn't seem like, you know, there's a share gain or loss story, but
Speaker Change: Can you talk to, you know, when you would expect those label expansions to hit?
Speaker Change: Yes, Paul. It takes about 6 to 12 months for that to have effect on our operations. And Mark may have some additional comments.
Speaker Change: Yeah, so, you know, moving early to lines of treatment are already starting to benefit us. You know, for example, the J&J Legend, Gilead, and Berkelmeyer Squibb projects are contributing. In addition, the expanded label of Sarepta is also helping from a ramp start. And with the newer products that have come to market that we're supporting, you know, the CRISPR Vertex product, IOVN's Adaptamine, and Attara.
Speaker Change: These guys will start to contribute notable revenue into 2025. So all of those are positive for us. You know, looking at the clinical market, because you had mentioned clinical, but I think you're referring to commercial, but you know, the clinical side, you know, we are encouraged to see, you know, every phase of clinical trials that we support continue to grow.
End of funding. Are you seeing that in
Yeah, you know...
Speaker Change: Biopharma Mark funding did take a step down sequentially in the third quarter, with financing totaling about $16 billion in the third quarter versus $15 billion in the second quarter.
Speaker Change: You know, the first and second quarter, first quarter was about $43 billion, second quarter was about $23 billion. However, year-to-date aggregate are notably above 2023 and 2022 levels. So that's obviously a significant benefit. And you've got to look at a broader context than strictly one quarter.
Speaker Change: And the good thing is we're seeing, you know, obviously, as we've mentioned in previous calls, that the trial activity seems to have stabilized and we're starting to see, you know, consistent increases in clinical trial count on a quarter-by-quarter basis.
Okay, thank you.
Speaker Change: Your next question comes from David Larson of BTIG. Please go ahead.
Speaker Change: Hi, can you please talk a bit about MVE and the products business, your doers, sort of piece of doer shipments, the large freezers, the smaller freezers, any color there would be very helpful. Thank you.
Yeah, sure it you know
Thank you. Thank you. Thank you.
Speaker Change: We have an uneven market recovery in MVE. And as you know, we manufacture two primary cryogenic system product lines at MVE, Dewar's and cryogenic freezers. And while Dewar sales were what we expected, we experienced weaker cryogenic freezer demand in North America and EMEA.
Speaker Change: But on the positive side, we did see a pickup in order flow from APAC, excluding China. And as we look at order patterns, we think freezer demand may be a bit better in Q4, but we continue to expect demand to be depressed for the year.
Speaker Change: Over 42% gross margin. I think we're still able to achieve a robust gross margin even at this lower revenue rate. And then I'm able to achieve still a good cash flow from the products business as well as positive adjusted even then.
Speaker Change: That's very helpful. Sounds like it's still profitable, cash flow positive, still a good business. Can you also talk a bit about your bio storage business?
Speaker Change: Last quarter I think you mentioned like a significant number of clients that have that have signed up for that that are using the bio storage solution just any call around that would be helpful and then also the Integra cell launch how is that progressing please?
Speaker Change: David, that continues to be the case and Mark can amplify on both of those situations.
Speaker Change: Yeah, so bioservices revenue, as you mentioned, was just under $4 million, up 12 percent, which is a solid improvement and continues to increase. We have onboarded quite a few projects in the bioservices area over the last six months. They do run in a bell curve consistency where early activity in support of clinical trials is a little bit slower and then it ramps over time, and most of those projects will take a few quarters to really start to contribute substantial revenue, but they are all onboard and running, and we do see consistent increases in the bioservices revenue, which is outpacing our overall services business right now, which is great. And TegraCell just opened its doors, as we had mentioned. We had a grant opening.
Meulek, Adam Jelenoshing,chiedli1230 p.
Speaker Change: Okay, thanks very much. It seems like Life Sciences, Biostorage, and TegraCell, they're all doing well. It's just this sort of very stubborn MVE division that's facing a bit of a cyclical downturn is what it looks like to me. But okay, thanks very much. I'll hop back in the queue.
Thank you.
For more information visit www.FEMA.gov
Your next question comes from Kyle Kruse.
From UBS.
Your line is already open.
Speaker Change: Hello, thank you for taking the questions. Could you please, turning to 2025, you touched on it a little bit, expecting the market to remain a bit muted. Could you touch upon how you see the cadence of end market demand evolving throughout the year?
And with regards to cost actions that have been taken.
Speaker Change: This year, how should we think about those flowing into 2025, and if there was any reduction in incentive comp within 2025?
Speaker Change: that played into the margin improvement, could you cite that and would that be a headwind heading into next year? Thank you.
Speaker Change: The services side of the business for that for the foreseeable future now Gerry you want to comment on product I think that.
Speaker Change: I made some comments a little bit earlier about the Ian about is the fact that it does have two product lines, which sometimes gets overlooked doors and.
Speaker Change: And the.
Speaker Change: In freezers.
Speaker Change: <unk>.
Speaker Change: And of course, we've been in.
Speaker Change: <unk>.
Speaker Change: Demand has been down globally, but it's been down more than China that it has any other place.
Speaker Change: Whose encountered for a couple of weeks and I can tell you that we do have a strategy for competing in in China.
Speaker Change: And.
Speaker Change: We will be implementing that so.
Speaker Change: He was a very.
Speaker Change: Very.
Speaker Change: Very good business, it's a profitable business still even at these depressed rates, it's running margins in the 40% range and it has a positive cash flow of positive a bit.
Speaker Change: It's a good business and that we're in a position now where when things do improve the operating leverage will be available and it will produce more cash flow than it's ever produced so yeah, maybe just to talk a little bit about the other question you had related to the cost.
Speaker Change: Cost reduction efforts that we've had.
Speaker Change: The resource alignments, and then clearly a bit of a change of the overall financial profile over the pro the company.
Speaker Change: As we mentioned in the earnings call for Q2 these initiatives that we implemented.
Speaker Change: Are well underway.
Speaker Change: We expect to have those completed by the end of the year.
Speaker Change: The initiatives in total expected to generate over $20 million annualized cost savings you can see just based on our Q3 performance in Q2 and Q3 performance.
Speaker Change: The sequential improvement of our adjusted EBITDA performance with Q3 being a negative $2 4 million and we have mentioned for 25 that we expect to achieve positive EBITDA during the year 2025.
Speaker Change: If you look at the cash flow performance cash flow from from operating activities moved from a negative $8 million in Q2 to a positive $5 million in Q3. So all of these things are moving in the right direction and will continue to maintain a very strong balance sheet with over $270 million in cash and short term investment.
Speaker Change: And then from a gross margin perspective, I mentioned earlier for the product side.
Speaker Change: In spite of more depressed revenue.
Speaker Change: Maintaining a 42% plus gross margin.
Speaker Change: Where we expect to see more operating leverage is on the life Science services side. So that's where we've seen some of these measures already taken place moving gross margins for services to 46%.
Speaker Change: So that's again moving in the right direction I think if you go into 'twenty five we'll obviously provide more guidance when we discuss our Q4 and full year earnings.
Speaker Change: Yes.
Speaker Change: Thank you for that and then maybe one last one any.
Speaker Change: Dissipation of any changes as a result of the recent election, and then ill jump back in the queue. Thank you.
Speaker Change: No.
Speaker Change: No there is no indication of changes I mean.
Speaker Change: Look a lot of a lot of the analysts have put out.
Speaker Change: I'll cheat sheets on what they expect and I think they are pretty common we know.
Speaker Change: So there's no need for me to repeat these on those on this call, but we don't think anything of significance is going to change change for us.
Speaker Change: Your next question comes from Puneet suitor.
Speaker Change: <unk> Leerink partners. Please go ahead.
Speaker Change: Yeah, Hi, guys. Thanks for the questions here so a.
Speaker Change: A couple.
Speaker Change: On commercial correct me if I'm wrong.
Speaker Change: Is that down sequentially and year over year can you just elaborate.
Speaker Change: More on that.
Speaker Change: Sure happy to.
Speaker Change: So it was it was down a hair sequentially basically flat.
Speaker Change: As you remember we continuously talk about the commercial revenue was a stair step pattern.
Speaker Change: So what we see is that jumps up it goes flat it jumped up it goes flat. So some of our commercial customers had really good quarter as others were more uneven if you look at the nine month period, and we'd like to look at that rolling forecast every year nine months was up 14%, which was a good performance.
Speaker Change: We do expect to see another strong step up in Q4 as the established therapies continue to ramp and then more recently launched therapies start to contribute.
And were seeing several of our commercial accounts, starting also leverage other credit port services other than their historical by our logistics business, which will start to contribute in an increase of revenue on a per patient basis.
Speaker Change: Yes, so we don't see this pattern is unusual.
Speaker Change: Startup startup industries and that's what we're still in the startup phases of this industry.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: My question is really look when we look at the last couple of quarters Youll weakness has continued across the industry.
Speaker Change: Unfortunately, cryo port has missed as a result.
Speaker Change: Just given the backdrop today.
Speaker Change: Can you just help US understand why you are continuing to reiterate the guide at this point.
Speaker Change: And what can you provide us about 25% at this at this point.
Speaker Change: I think for 25, it's again too early to say we are obviously in the process of completing our budgets and our longer term forecast.
Speaker Change: So we will provide more guidance for 25, we do expect growth, obviously, but we'll provide more guidance I think if you look at the performance for the full year, Yes, we've provided guidance sale of $2 25 to $2 35, So even if you look at the.
Speaker Change: Very conservative estimate for Q4, yes, we will still land within that.
Speaker Change: Our guidance that we provided and as Mark indicated there are some additional.
Speaker Change: Revenue contributions that we expect during the Q4, so we are comfortable.
Comfortable with the guidance that we've provided and reiterating the guidance for the full year.
Speaker Change: Okay.
Speaker Change: And then could you elaborate what are your assumptions for MBE.
To the fourth quarter and I'm wondering if you can provide that for any any thoughts on next year.
Speaker Change: Forget growth assumptions for Mb.
Speaker Change: Specifically, providing guidance for product and services, but I would say in general terms for for MBE currently we.
Speaker Change: We expect.
Speaker Change: Really modest modest revenue changes from where we are right now it's too early to talk about any specific trends in the demand curve.
Speaker Change: From our from our perspective, where we're looking at very moderate changes from our current revenue level.
Speaker Change: And again for 25 will provide a little bit more insight.
Speaker Change: Okay, and then last one if I could could you provide an update on the <unk> III shipper has that started have you started using that and can you.
Speaker Change: Provide us what the replacement cycle for the current mushrooms to basically three ship where it looks like.
Anthony: Anthony Yes. So we are in the middle of manufacturing right now so it is out at our at our vendor we have the first.
Anthony: Manufactured units in house, they are going through their final qualification and quality checks.
Anthony: It will be it will be available for market at the end of this year are already engaged with many of our commercial clients around that transition.
Anthony: The timing it depends on the client.
Anthony: Some are talking to quarter, some were talking four to five quarters and it depends on the quality processes inside their own organization.
Anthony: The receptivity has been fantastic they love us they love the product all the clinical sites that we've sat down and talked to a loved the product as well. So we think adoption is going to be extremely robust.
Speaker Change: Okay Alright.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, if you have a question. Please press star one.
Speaker Change: Okay.
Speaker Change: Your next question comes from Matt Stanton of Jefferies. Your line is already open.
Speaker Change: Yes, Hi, this is Jack on for Matt I appreciate the question.
Speaker Change: Following up on commercial understanding youre not guiding in 2025, but you've talked about 25%, 30% as a decent go forward rate.
Speaker Change: Is that a fair assumption on the commercial side as we think about next year.
Speaker Change: As we had mentioned.
Speaker Change: We're in the middle of the budgeting right now the budget process.
Speaker Change: What we do is we do a top down and bottom up based on client forecasts.
Speaker Change: And their demand forecast as well as the commercial launch schedules associated new products in our product.
Speaker Change: Label expansions.
Speaker Change: We will have good clarity on that and to be able to provide more and more oversight on that in the next quarterly call.
Speaker Change: It should be a positive outlook, though when you factor in our supporting 17 commercial therapies today.
Speaker Change: You could have two more approved before the end of the year two more with <unk> dates in January.
Speaker Change: And a lot of filings throughout 2024, and another possible 18 for 2025. So the trend is moving in the right direction in the commercial revenue should continue to grow for a long time.
Speaker Change: We had mentioned Q4 looks very good so we should see a nice step up in Q4.
Speaker Change: Great I appreciate the color.
Speaker Change: Then I guess moving to the <unk>.
Speaker Change: Quarter implied guide it looks like it would be $61 million.
Speaker Change: The reaffirmed full year, it's a high single digit sequential step up.
Speaker Change: Could you just talk about your level of comfort in that step up maybe speak to some things that may improve versus third quarter and the level of visibility you have as we said more than a month into the quarter.
Speaker Change: Yes, I think again the guide itself for the year is $2 25 to $2 35. So we believe we'll be in that range.
Speaker Change: Look at Q3 the.
Speaker Change: Revenue came in a little bit.
Speaker Change: It's short of expectations. So we are taking a more conservative view on Q4 expectations.
Speaker Change: For the product side, but the services side is robust and we do expect greater elasticity in terms of growth.
Speaker Change: And on the product side.
Speaker Change: Anyone else wants to it.
Speaker Change: No.
Speaker Change: I think thats the answer I mean look we understand the concern but this year has been a challenging time for us with Celgene therapy and life Sciences tool space.
Speaker Change: Took a hit and we've changed to adapt to the near near term challenges and so the reality is that the growth of cell and gene therapy hit a soft spot.
Speaker Change: Its ramp and expansion.
Speaker Change: So unlike the biologics business.
Speaker Change: Kind of sputtered for a while and today, it's over $300 billion annually interest industry. So.
So I think when you look basis based on the visibility that we have with the client base with the commercial revenue our commercial clients that we support.
Speaker Change: And really that significant number of clinical trials that we support we're quite confident that the celgene space will pick back up and its pace of growth and so we're quite quite actually bullish about the longer term growth aspects of the commercial cell and gene therapy.
Speaker Change: And just I guess I'll just add one last comment on that.
Speaker Change: We had mentioned the commercial revenue side, we did have another two commercial approvals in the quarter and we had a couple of commercial approval as early in the year all of those are starting to contribute revenue.
Speaker Change: And we will continue to ramp. In addition, you had you had the product line expansion for <unk> you had the product line expansion on the BMS product lines, all of which will increase the patient count and we are seeing.
Speaker Change: Obviously benefits from that and you can see that some of that as evidenced by some of their earnings releases over the last week or so.
Speaker Change: I appreciate it thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
There are no further questions at this time.
Speaker Change: And over the call to Jerry Shelton for closing remarks. Please go ahead.
Jerry Shelton: Well, thank you for your questions and our discussions in closing our third quarter.
Jerry Shelton: <unk> were in line with our expectations, reflecting economic and industry related issues.
Jerry Shelton: We have we've seen throughout this year.
Jerry Shelton: <unk>, our actions and our business is stable driven by strong longer term fundamentals while.
Jerry Shelton: While demand.
Jerry Shelton: Our life Sciences products business remains subdued we continue to see further growth in the life Sciences services business.
Jerry Shelton: We will continue to implement our cost reduction and capital realignment strategies, which have to date led to improvements in our gross margin adjusted EBITDA and cash flow.
Jerry Shelton: Focusing on profitable growth, we intend to reach our goal of returning to positive adjusted EBITDA during 2025.
Speaker Change: Thank you for joining us. This afternoon. We appreciate your continued support and interest in our company. We are looking forward to updating you on our progress again next quarter.