Cryoport Inc (CYRX) 2016 Q4 法說會逐字稿

Good day and welcome to the Cryoport, Inc. fourth-quarter and fiscal year 2016 conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Garth Russell with KCSA Strategic Communications. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining Cryoport's fourth-quarter and fiscal year 2016 conference call.

Before I begin today, I would like to remind everyone that this conference call contain certain forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate to occur 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.

Our management believes these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

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 experiences and our present expectations or projections. 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 and those described from time to time in other reports which we file with the SEC.

Now I'd like to turn the call over to Jerry Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Garth, and good afternoon, ladies and gentlemen. Thank you for joining us today. With me this afternoon is our Chief Commercial Officer Dr. Mark Sawicki, who later during this call will comment on our growing position in the biopharma market, and our Chief Financial Officer Robert Stefanovich who will present our financial results for the fourth quarter and fiscal year 2016.

Over these past few quarters, we've seen a significant ramp in new business opportunities through a dynamic mix of new and existing clients in our biopharma and reproductive medicine segments. This market traction is being driven by the work of our capable sales and marketing teams supported internally by an innovative engineering operations logistics and client care staff.

In addition, we implemented new management initiatives including the launch of our consulting and advisory services for biopharma clients. Revenue recognition from our pipeline of new clients is in its early stages and reflected in our reported results today. However, it is important to note that the revenue we have recognized so far is just the tip of the iceberg as we work with clients moving through clinical trials to commercialization.

During the past few quarters, we have experienced some shorter-term pain to put us in a strategic position for longer-term gains. This short-term pain was mainly due to the long sales leadtime in the ramp periods for many of our current opportunities. These leadtimes for strategic accounts can be upwards to nine to 12 months before initial revenue is recognized due to the validation, audit and approval processes we must go through specifically with each new client.

It is noteworthy that of those biopharma accounts in our revenue pipeline several have advanced through initial clinical trial stages and are now while in Phase III planning commercialization. As you are aware patient enrollment rose with each phase of clinical trials which results in increased requirements for Cryoport services. When clinical trials move towards commercialization, as is happening today with several of our clients, those patient populations increase which generally leads to stepping up our revenue over time and then comes the commercialization.

Today I'm pleased to report that Cryoport now supports 78 clinical trials with 13 of them in Phase III, the last phase before commercialization. Of course, these trials on a risk-adjusted basis represent a good portion of what we see as our embedded growth opportunity. In a few minutes, Dr. Sawicki will share with you in more depth the good news that two weeks ago in this first quarter of fiscal year 2017 we signed our first biopharma support agreement for a commercially launched product produced by a major pharmaceutical company.

From an overall Company perspective, these positive trends in growth in our biopharma segment continued to be partially offset during the reported period by market share to reproductive health combined with a slowdown of one of our animal health clients and that impacted our fiscal year 2016 financial results. Anticipating what might be on your mind, while I will not be able to provide revenue guidance for fiscal year 2017 I will say that our first quarter for fiscal year 2017 ending June 30 will reflect our growing traction.

You may remember that in April of this year we entered into a strategic arrangement with Worthington's CryoScience by Taylor Wharton Division which provides us the abilities to rapidly scale to support our clients' commercialization activities and broaden the range of our services that include or relate to packaging and hardware. Our agreement enables us to join our engineering efforts, provides Cryoport access to innovative, validated cryogenic shipping and storage vessels and equipment. We are excited by these added capabilities as they will allow us to meet the demands of a more diverse clientele through broader offerings.

Remember, we currently work from three buckets of tools to craft our solutions: packaging, information technology and logistic expertise. We anticipate that our agreement with Worthington will allow us to further distinguish our Company in the marketplace as the undisputed leader in this exciting and developing market for temperature control logistics for the life sciences industry.

Regarding revenue, our revenue for fiscal year 2016 was $5.9 million, an increase of 50% or $2 million as compared to $3.9 million reported for fiscal year 2015. Mr. Stefanovich will provide more detail later during the call. But I would like to briefly comment on our revenue distribution by market segment.

First, reproductive medicine. This segment has been subject to recent governmental restrictions relating to medical truism by some historically important countries. Having to accommodate these restrictions and adjusting our sales efforts significantly impacted the international component of our reproductive medicine business. As we have reported, India, Nepal and Thailand took actions that effectively shut down medical tourism as it related to reproductive medicine for non-nationals.

On the other hand, we recognize substantial growth in our domestic business, topping a 72% growth year over year. However, this growth is not enough to offset the decline in the international market where we recognize higher revenue per shipment.

Secondly, animal health. Historically, the animal health segment has been a consistent and growing business for Cryoport. However, for the fourth quarter, it fell short of expectations. Our revenue from animal health actually decreased 6.1% year over year primarily due to a slowdown from one of our larger clients. I would emphasize that we continue to see a significant opportunity for growth in the animal health segment of our business.

Thirdly, biopharma, which is our largest and fastest growing market segment. Throughout fiscal year 2016, we were confident that the segment of our business would be the major driver for our growth based on a substantial increase in new clients and their clinical forecast. As we have disclosed during the last half of fiscal year 2016 some of these programs were pushed out a few months in order to allow our clients to accumulate the data they required for advancement and this temporarily affected our growth rate in this segment.

You might wonder why programs have pushed out and typically the reasons have to do with our clients' timing of patient enrollments that fit their respective profile and subsequently the collection of sufficient data for their respective clinical progressions. Our sales team has identified additional needs and requirements of our clients in the biopharma space. These are new services and opportunities that will allow us to strengthen our client relationships and generate new revenue streams.

For example, clients have asked Cryoport to support bio-storage, product fulfillment, systems integration, scheduling and other logistic support activities. By responding, we are adding to our services and capitalizing on new and additional fee-for-service business. For example, to begin to address the demand for bio-storage we launched a new offering, Cryoport bio-storage, through a strategic partnership with Pacific Bio-Material Management, a longtime partner with whom we have formalized our relationship and expanded our offerings.

The focus of these new services is to provide advanced storage and fulfillment capabilities as well as transport a valuable and often irreplaceable temperature-sensitive biologic materials including clinical trial samples, vaccine, stem cells, regenerative therapies, critical biomarkers and immunotherapies. Our new offerings in this area have advanced capabilities such as storage solutions that include GMP compliant biorepositories that control temperatures and climatized systems with effective redundancies such as backup freezers and power. Cryoport bio-storage services will feature extensive management and monitoring including controlled access to commodities periodic temperature and activity reports as well as 21 CFR, Part 11 compliant monitoring and 24/7 365 alarm response.

Secondly, we have launched a formal Laboratory Relocation Service which further extend our offerings to include the sale and secured transport of complete biologic laboratories. Through this service we can now manage the safe, secure and proper transportation of commodities and the equipment that is used for storage in the laboratory.

And we are advancing our software advantage as it is important to many of our clients that we integrate these new capabilities with our Cryoportal logistics operating platform. If you think about it, this provides us with the ability to fully integrate storage fulfillment distribution scheduling and logistic support, creating a centralized singular datastream. This is yet another key differentiator for Cryoport and allows us to provide world-class support to our client base.

In summary, these results and new initiatives signify undeniable momentum in our business which continues to accelerate. Despite some short-term unanticipated headwinds for our fiscal year 2016, we are proud to report another year-over-year growth of 50%.

As of fiscal year 2017, I think we are off to a sound start as our current first-quarter revenue has already exceeded fiscal year 2016's first quarter. As a result of our working relationships with our clients, we believe the growth that is beginning to unfold is indicative of the advancements we expect in our biopharma business. However I do want to remind investors that we support a data-driven industry and a clinical progression in cellular therapy is based on the collection of sufficient data supporting progression.

With that said, biopharma is our largest, fastest-growing opportunity. So for the next few minutes I would like for you to hear directly from Dr. Mark Sawicki who with the help of his global sales and marketing team has laid the groundwork for our growth and long-term success.

Please hold your questions for Mark until the question-and-answer period. Mark, the floor is yours.

Thank you, Jerry. It's a pleasure to have the opportunity to speak with you today. My objective for this call is to provide you a synopsis of the current biopharmaceutical market, how it has evolved over the last 12 months and give you an understanding of its business impact related to Cryoport's recent announcements and how they fit into our strategy to engage the market and drive revenue in the current fiscal year.

As mentioned previously, biopharma, and more specifically regenerative medicine, represents the future of healthcare. There are now more than 685 companies involved in gene and cell therapies worldwide, supporting more than 669 clinical trials including 68 Phase III programs and the number of new entrants continues to accelerate. This activity is being reinforced by significant financing activity to the tune of more than $10 billion in 2015 aligned according to the Alliance for Regenerative Medicine.

In addition, many of the industry leaders are investing significant resources into the development of scalable regenerative therapy platforms. An example is a recent GE investment of $40 million into the center for Commercialization of Regenerative Medicine in conjunction with the Canadian government. In addition, Lonza, Cognate and WuXi have all announced significant investments in the expansion of manufacturing capacity to support the anticipated demand.

Cryoport has been a very active in client engagement in this space. We've expanded the number of clinical trials we support to 78 including 13 Phase III trials, which is nearly 12% of the total clinical market in this space and 19% of the Phase III pipeline. This is an addition of 29 new clinical programs over the last six months.

Some of the programs recently announced include Perseus PCI, International Stem Cell and ImmunoCellular Therapeutics, all of which have engaged Cryoport to support their cryogenic logistics needs for product distribution to patients. Of the 13 Phase III programs we are heavily engaged in commercialization discussions with six companies on their commercial launch needs, the earliest of which is set to launch in late fiscal year 2017 or early fiscal year 2018.

In addition, we have just find our first commercial program with one of the largest pharmaceutical companies in America supporting a $4 billion blockbuster biologic product that is already on the market. This is a very important milestone for Cryoport as it validates our commercial capabilities for the more than 70 clinical trial customers we currently support and gives us a world-renowned customer in the biologics therapeutic market which is estimated to represent 20% of the worldwide pharmaceutical market in 2017 and is an expansion out of our core regenerative medicine space expanding our reach.

We expect this program as well as the maturation of the clinical programs in our portfolio to accelerate our revenues in the biopharma space in the coming quarters. In fact, as Jerry stated, we have already started to see an acceleration of revenues in this segment which will be recognized in our upcoming fiscal 2017 Q1 financial report.

As mentioned earlier in the call, our existing client base has asked Cryoport to be able to support sample storage, fulfillment and distribution, leading to our announcement of a formal strategic partnership with Pacific Bio-Material Management. We are already heavily engaged in multiple late-stage contraction negotiations and expect this partnership to demonstrate notable economic value for Cryoport in the coming quarters.

Thank you. I'll be happy to take questions during the question-and-answer period. Now I'll turn the floor back to Jerry.

Thank you, Mark. For a more detailed discussion of our financial results for the fourth-quarter and fiscal year 2016 I'd like to introduce our Chief Financial Officer Robert Stefanovich. Robert?

Thank you, Jerry. Good afternoon, everyone. I will now review our fiscal year financial results, provide some additional comments and then turn the call back over to Jerry.

As a reminder our fourth quarter and fiscal year ended March 31, 2016. Now to our fourth-quarter results. Our net revenues for the fourth quarter ended March 31, 2016 were $1.6 million, an increase of 29.7% or $357,000 as compared to $1.2 million reported for the same quarter last year.

This growth was driven by our biopharma segment which increased by 46.8% or $0.3 million to $1.0 million compared to $690,000 for the prior-year fourth quarter. Revenue in the reproductive medicine market increased by 12.3% to $294,000 -- from $294,000 to $331,000 for the three months ended March 31 2016. Our reproductive medicine revenue was impacted by third-quarter events that I'll discuss during the review of our annual results.

Our revenue in animal health remained flat at approximately $200,000 for the three months ended March 31, 2016 compared to the same period of the prior year as a result of a temporary reduction in production volume from one of our larger clients. Gross margin for the three months ended March 31, 2016 was 37.4% as compared to 30.9% for the three months ended March 31, 2015. This is an improvement of over 7 percentage points and reflects several management initiatives to drive margin growth towards our target of 60%.

Operating expenses increased $1.1 million for the three months ended March 31, 2016 or 55.4% as compared to the three months ended March 31, 2015. This increase was primarily due to non-cash equity-based compensation charges, recruiting charges and salaries incurred as a result of expanding our sales force and increased marketing activities.

Net loss attributable to common stockholders for the three-months period ended March 31, 2016 was $2.8 million or $0.26 per share compared to $4 million or $0.79 per share in the last year's quarter. The prior-year fourth quarter included a non-cash preferred stock beneficial conversion charge of $1.9 million.

Now to our annual results. Our net revenue for the fiscal year were $5.9 million, an increase of 49.5% or $2 million as compared to $3.1 reported for fiscal year 2015. This increase was primarily driven by a 76.7% growth in our biopharma market, contributing $1.6 million in additional revenue with a significant increase in the number of clients utilizing our services compared to the prior year.

We added 127 additional new clients in this market and are supporting 78 clinical trials, of which 13 trials are in Phase III. This increased activity in biopharma and the clinical trial space in particular is expected to drive future revenue growth for Cryoport as these clinical trials advance and result in therapies that commercialize.

Mark provided information on the exciting trends in the regenerative medicine space. It's important to understand that we are considered the pick and shovel play in this industry. We provide the necessary tools, or in our case logistics solutions, to life science companies developing cellular therapies. All of our commercial success in the biopharma market is, therefore, not tied to the success of one particular drug or therapy.

Now to the reproductive medicine market. Our targeted sales and marketing campaigns continue to drive growth in this market which increased by 43.6% or $0.4 million from $0.9 million to $1.3 million year-over-year. This increase was primarily driven by revenue growth in the US market of 72.7%, partially offset by a lower revenue ramp internationally of 23% year over year.

During Q3 earnings call in February we discussed how regulatory changes in certain countries caused the shutdown of medical tourism related to reproductive medicine and the actions we took to expand our service into other countries to compensate for these changes. Our outlook remains strong.

Revenues from the animal health market decreased by 6.1% or $57,000 to $870,000 for the fiscal year ended March 31, 2016, which were impacted by a temporary reduction in production volume from one of our clients during the second half of our fiscal year. Overall, we see an increase in the awareness of our cryogenic logistics solutions in the life science space in general and we continue to add a significant number of clients in the biopharma market in particular. Equally important is that we are establishing long-term credibility with our customer base, have excellent customer retention and expect significant revenue growth from our current customer base over the next years. With the increase in customers, customer concentration was further reduced and only one of our customers in animal health accounted for approximately 14% of total revenues during the fiscal year ended March 31, 2016 compared to 25.5% for the same period last year.

Now to our gross margin. Gross margin for the fiscal year 2016 was 32.1% or $1.9 million as compared to 29.7% or $1.2 million last year. Note that our cost of revenues are primarily comprised of freight charges, payroll and related expenses for our operation center in California, third-party charges for our European and Asian depots in the Netherlands and Singapore, depreciation expense of our Cryoport Express shippers and supplies and consumables used for our solutions.

The increase in gross margin by over 2 percentage points is primarily due to the increase in net revenue combined with a reduction in freight charges and a decrease of fixed operating costs as a percentage of revenue. The increase in margin was driven by our fourth-quarter results where we as previously mentioned achieved a gross margin of 37.4%.

We started implanting a number of initiatives geared to grow our margin towards our 60% target. These initiatives address both revenue capture and a reduction in related costs.

As I have mentioned on previous calls our model is a technology-centric and scalable business model with the cloud-based Cryoportal as our central nervous system providing a platform for the efficient delivery of our solutions. As revenues ramp we expect to take advantage of greater efficiencies and process improvements that are currently underway and are expected to drive margin growth as we scale.

Now to our operating expenses. General and administrative expenses increased by $2.4 million or 69.4% for the year ended March 31, 2016 as compared to the prior year. This increase is primarily due to non-cash stock compensation expense of $1.3 million, salaries and associated employee costs of $0.4 million and public company related expenses in the amount of $0.4 million including legal fees and costs to list and obtain listing of the Company's common stock on the NASDAQ Capital Market exchange. In addition, we disposed of components and equipment used to manufacture our shippers in the amount of $121,000 due to our decision to co-develop and outsource our manufacturing to the Taylor Wharton Division of Worthington Industries, a partnership we announced in April of this year.

Sales and marketing expense increased by $1.2 million or 42.7% for the year ended March 31, 2016 as compared to the prior year. This increase was primarily due to increases in salaries and associated employee costs including relocation costs, recruiting fees in the aggregate month of $0.5 million incurred to expand our sales logistics force, stock-based compensation expense of $0.4 million and the engagement of a new marketing firm to support our sales efforts in the amount of $0.4 million as well as increased travel expense and trade shows in the amount of $0.1 million.

Research and development expenses increased by $0.2 million or 56.1% for the year ended March 31, 2016 as compared to the prior year. Our research and development efforts are focused on continually improving the features of the Cryoport Express solutions including the Company's cloud-based logistics management platform, the Cryoportal, the Cryoport Express shippers and development of additional packaging solutions and accessories to facilitate the efficient shipment of life science commodities. In addition, research and development efforts have been directed towards developing an advanced condition monitoring system, the SmartPak II condition monitoring system, which is currently in beta testing and is scheduled to be fully launched in August 2016.

Net loss attributable to common stockholders for the fiscal year ended March 31, 2016 was $15.1 million or $2.05 per share compared to a net loss of $12.2 million or $2.44 per share. The net loss for fiscal years 2016 and 2015 included non-cash preferred stock beneficial conversion charges of $4.5 million and $4.9 million respectively.

Cash and cash equivalents as of March 31, 2016 were $2.8 million compared to $1.4 million at fiscal year year-end March 31, 2015. In addition to the cash on hand, we completed two equities raises subsequent to fiscal year-end. In April 2016 we completed the warrant tender offer, raising $2.5 million in gross proceeds and last week we completed the rights offering for gross US proceeds of $1.3 million.

The funds raised will be used for working capital purposes and to continue to drive customer acquisition and revenue growth. We currently have 15.1 million shares of common stock outstanding which included the common stock issued in the recent tender offer and rights offering. We have no preferred stock outstanding.

Lastly, we will file our Form 10-K with the Securities and Exchange Commission tomorrow, Tuesday, June 28.

With that I will now turn back the call to Jerry. Jerry?

Thank you, Robert, for a very comprehensive report. In closing, I would like to call the attention of our shareholders as well as other interested parties that are on this call to the special nature of Cryoport and its solution supporting the life sciences industry. We are pioneers in this fast-moving and growing and evolving life sciences industry.

In this age of biology development we are distinguished by being advanced and to our knowledge and for the time being unique in our capabilities. We support research and development and coming commercial products that are slated to change the course of healthcare and impact almost every aspect of humanity. It's a special place and we have a special mission to fulfill.

Through interaction with our clients and the life sciences industry at large we know that the market with its evolving precision logistics requirements is beginning to recognize Cryoport with its advanced technologies and growing reputation for reliability as the preferred solution. One of the key things that is useful for shareholders to understand in practical terms about our increasing pipeline of clients is exactly how our increasing number of trials impact Cryoport over time.

Clinical trials as they relate to us through progression generally and for a revenue ramp moving to the clinical stages of development to commercialization. For example, revenue to Cryoport for Phase I trials might typically range from $15,000 to $75,000 annually. For Phase II $50,000 to $150,000 and for Phase III $200,000 to $1 million, and for commercialization $3 million to $20 million-plus. So you can readily see why I say we are just at the tip of the iceberg.

These next 12 to 18 months as a number of these late-stage clinical trials move to commercialization will be very exciting for Cryoport and its shareholders. Mind you, all trials will not progress, a percentage will fail at every stage. When we are factoring those statistics into our forecast, it is the percent that succeeds that is our future.

We have enormous growth potential in the biopharma space and we are enjoying rapid rapidly growing brand recognition. We have built and are continuing to build a solid Company. I have never been more excited about our future.

For investors and for management there are also a couple of other factors to consider. As a publicly traded Company we are the only pure play temperature-controlled logistics provider in the life sciences industry. Currently we are the leading provider of cryogenic logistics solutions. We have the most advanced enabling technologies available to support this rapidly growing global life-sciences industry.

Secondly, our business model has reasonably high barriers to entry, primarily distinguished by our engineered systems and software. Thirdly, for the time being, we have limited organized competition and no direct competitor that can offer the superior and advanced solutions we offer.

Most importantly, we have a clear vision. We have a capable team of people and partners. We are executing and when faced with changing environments we are agile and pivot to successfully respond and continue our march to profitability and value creation.

It's worth spending some time on our people. Our Company has never been in better shape and it's my goal to always be able to say that to you. Relatively recently assembled, I've never worked with a more dedicated group of people.

Every individual at Cryoport is your fellow shareholder and every individual is committed to success, from our Board of Directors to our warehousing, to start each day huddling to determine how they can provide and improve processes and client satisfaction. To our administrative staff pointing to revenue and cost reduction opportunities, to our sales team who confidently cultivate clients as they depend on our confident, innovative and responsive engineering and operations staff to our client care logistics specialists who intensely interface with our clients to assure satisfaction with every experience Cryoport personnel stand tall and deliver on all fronts.

I am immensely proud of the Company we are building and the people who are building it. Our plan is to become the dominant Company in temperature-controlled logistics for the global life sciences industry and we make progress on that plan daily.

While reporting quarterly results it is very important for transparency. It is over the longer term that the greater value will be created. We are grateful for our long-term shareholders and their focus on gauging our progress based on our execution of our strategic plan as opposed to the short term.

In my opinion, our highly impressed stock price today reflects a Company that is severely undervalued as a result of influences that have absolutely nothing to do with building a sound company. This makes the recognition of our efforts by our long-term shareholders even more dear.

I'm looking forward to fiscal years 2017 and 2018 as I am confident of our outlook for scaling our business as our clients commercialize their respective products. I want to thank you for your interest and for setting aside time to be on this call today. At this time I would like to turn the call back over to Garth who will open the floor for questions.

Thank you, Jerry. Operator, if we could instruct callers how to ask questions, that'd be great.

(Operator Instructions) Brian Marckx, Zacks Investment Research.

Hi, good afternoon, guys. Jerry, you had mentioned on the Q3 call that much of the difference in the revenue, what you expected at fiscal 2016 at that time versus what you had expected and got into earlier in the year was essentially delayed versus lost, for lack of a better term. Is that your expectation currently?

Yes, Brian. That's what I meant to infer by my comments earlier. That's exactly right.

We did have in that mix of things at that time we did have a failure or two in terms of progression. But in terms of the population nothing changed in terms of our long-term forecast because we had risk-adjusted all of our forecasting. But the supposition that you just made, the quote from my earlier -- or reference to my earlier call is absolutely correct.

Okay great. And then gross margin, which was particularly strong in the quarter. Congratulations on that.

Is that -- Robert, you had talked a little bit about what was behind that but if there's any more specifics that you can offer and is that a level that you would expect to -- that you can build from and 2017 with higher revenue numbers?

Brian, let me address that before Robert talks, just a moment. You have to understand and certainly many of our shareholders understand we are a developing business and we are a fee-for-service business and we have taken actions to close some gaps to reduce costs.

As I said, every morning, our warehouse people huddle to figure out how they can improve process and reduce costs. So we are working on both sides of the equation but this is just the beginning. This is not a business that has been in existence for a long period of time or a product line that has been around for a long period of time.

It is a process and it's a march forward as we achieve our revenue goals to broaden and accelerate our gross margin to our gross margin goal. Robert, I'll let you add anything that you'd like. I just wanted to make those comments.

You really covered it. Our target is still 60%. We are working towards that.

Like Jerry said we are in the growth phase. There's a number of initiatives, some of them we could implement very quickly, others will still take time to see them reflected in our gross margin.

But our target is still the 60%. As we get different revenue streams that will play out role, as well. And then you should expect to see management's effort to continue to work on that.

Right. Yes, so I certainly understand that you guys are putting together the formula to grow the business for the long term. Obviously shareholders are looking maybe possibly a little shorter term and so operating expenses are also up. And I understand you have to invest to grow, so your operating expenses continue to grow relative to revenue.

You are bringing on a few different new service-oriented products I guess. And so maybe if you can, talk about what we should expect in terms of operating expenses with the current business and then any incremental expense related to the new business.

As we grow, Brian, you can expect operating expenses to grow. That's the bottom line. Everyone would like to hear that operating expenses are going to truncate or they're not going to advance or -- that's just not true.

Relative to revenue, relative to revenue.

At cash flow breakeven they will start to recede but you have to look at that, too, on the [Centerbus, Perebus] situation. That is as if nothing changed versus growth. So in the future I think what we will try to do is separate operating expenses related to existing business versus growth but we will be investing in growth for some period of time.

We have a big footprint to cover. We are a logistics Company and so that's broad and the demands are -- the customer demand is broad.

So we will be fulfilling that and we will be growing. And what we probably should try to do, and I don't know that Robert can comment on this, is try to figure out how we can give an indication of the operating expenses related to growth versus operating expenses related to a stabilized business.

Okay.

Let me just add to that. If you look at our organization were actually trying keep the organization very lean. But if you look at the programs that we are currently supporting and being in discussions with commercial stage companies that are getting ready to commercialize their therapies we need to have the right resources in place to handle those requests for information and proposals.

If you look at fiscal 2017, we don't expect a large increase in headcount. But you'll certainly see, as an example, increased need for additional Cryoport Express shippers of different sizes as well as secondary packaging increase of temperature monitoring systems based on the expected demand from our client base.

And software expenditures, Robert, as well as personnel gaps that we have to fill in various countries.

Okay, that actually leads me into my next question. It has to do with your Phase III trials and kind of the segue into a commercialized product. So the infrastructure that you have now, the infrastructure products, particularly the size of your shippers, are those sufficient to support a commercialized product, say the commercialized vaccine versus that vaccine in its Phase III trial?

Brian, I'm going to turn this over to Mark to answer that from his point of view. But implied in your assumption is we are a one-trick pony. We have a constant development effort going on to meet client demands.

We are customer-driven. This is not a business that you take it or leave it. We answer customers demand.

So as we move forward we have packaging in development right now and in testing for some of the applications that you were inferring. Mark, you may have something to add to that.

Yes, when you look at a commercialized product or a product that moves towards commercialization, you have to look at the evolution of the packaging itself. So as they go through early clinical phases they are very risk-averse and they go with a very conservative packaging configuration that is the lowest risk from a failure standpoint. It has as many bells and whistles as possible on monitoring and other aspects.

As they move to commercialization they want, typically, a customized piece of equipment that obviously takes into account commercial launch costs. Cost of goods, cost of delivery becomes a very significant consideration. Henceforth one of the primary reasons we initiated this consulting division that you heard and had Jerry talk about a bit was that in most of these commercialization conversations that we have we want customized equipment for that commercial launch.

And the relationship with Taylor Wharton as well as the combination with our consulting division is in direct response to that request. The good thing is that the relationship with Taylor Wharton provides us the ability to very very rapidly scale our base to support an increase in volume from tens or hundreds to tens of thousands.

Okay, great. And Jerry, my question wasn't kind of geared towards a one-trick pony.

It was actually more geared towards what were these new relationships and these new businesses somewhat related to a potential commercialized product, particularly the Worthington partnership that you entered into. So that's (multiple speakers)

Yes, let me just respond to that very quickly. One of the things you have to keep in mind here is having a Company the size of Cryoport actually get requests from very large pharmas to actively compete for a formal request for proposal. This isn't a trivial exercise.

This is an exercise that they do a tremendous amount of due diligence on their side to even ascertain who is going to be included in that active bidding process itself. So for us to actually have a commercial product now through a large biopharma and be heavily engaged in multiple others through that formal RFP process is a testament to the way they perceive Cryoport in a marketplace.

Okay. Great. One last one, is there anything more that you can talk about in terms of what exactly your role is with the big pharma $4 billion product that you referenced?

Brian, we'll have to wait on that until we are a little bit further along. And we try to make everything public that we can, but we have to have approval from our client base. So that's a new relationship.

As I said it's only two weeks old. We just signed it two weeks ago. So we have to let that mature a little bit more before we can say anything else about it.

Okay, great. Thank you and congrats on the progress.

Thank you, thank you for the questions.

(Operator Instructions) [David Halperin], Stifel Nicolas.

Hello, everybody. I'll go through these very quick. I've got some easy questions.

First of all, Robert, could you just quickly give me what the share count was? I missed that when you were going through it.

Yes, common stock outstanding is 15.1 million.

15.1 million, thank you. And Jerry, you talked about increased sales force. How many are we at now?

We have eight in total.

Eight in total, thank you.

Yes, we have one in the EU. We have five territories inside sales at IVF and, of course, Dr. Sawicki.

Got it. And Mark, question for you.

You said that the animal health science, there was a loss of a large customer. Is that permanent or is that customer likely to come back or even increase their business in the foreseeable future?

No, we didn't lose a customer. That customer, one of our largest customers in that space, had a production issue with one of their facilities that impacted their volumes going out to third parties. That has subsequently resolved itself and we are actively engaged with other parties and we believe that we will be able to add additional relationships of our major during this fiscal year.

In the coming quarter or later in the year?

I can't get into specifics around timing yet. Obviously, it's dependent on when they sign on the dotted line.

Fair enough. Okay. And back to Jerry, well, actually I wanted to pick up real quickly where Brian left off.

You said we're only two weeks into this relationship and you can't really talk about the big pharma company yet. But is that likely to start showing up in the next quarter or again is this something much further down the calendar year, fiscal 2017?

It's commercial product and so it will begin to show up soon.

Okay. Can you give a quick snapshot -- we only have three more days left in the quarter.

What's our estimated cash position as we are coming into the end of the quarter? We picked up $2.5 million gross in the April warrants, $1.3 million gross in the rights offering, $2.8 million at the end of March. Roughly where are we at?

Yes, the offer that we completed the cash position is about $4.5 million.

Okay. Thank you. So we are not likely to see anything about a going concern in the current 10-Q that's going to be coming out, right? 10-K (multiple speakers)

Yes, Robert, take that one too.

Yes, no, will still have going concern in the language. We had discussions with our auditors about that. So that will still be part of our audit report and the 10-K that we will file tomorrow.

Okay, it will show up in the 10-K? Got it.

Yes, yes.

And last question I guess, Jerry, for you, you said you won't give us forward guidance for fiscal 2017 but again given that we're only three days away are you willing -- you did say in your prepared statement that Q1 2017 is already ahead of Q1 2016. Can you give us some percentage, 30% ahead, 50% ahead, 100% ahead? Can you give us any color?

No, not right now. I'm not going to be in the guidance business again. I got my nose bloodied last year and I probably should not have given -- well, I shouldn't have given guidance. So I'm going to stay with that policy of not providing guidance.

Okay, fair enough. I think I hit all my questions, so thank you everybody.

Thank you, David, thank you.

[Anthony Gouleau], private investor.

Good afternoon. Gentlemen, my concern essentially is I appreciate the business and I have been following the Company for at least eight years, I've been studying it, and I'm just wondering at what point in time are we going to actually be profitable?

Robert, would you like to take that?

Yes, we expect in terms of getting to profitability and cash flow breakeven, it has to be a quarter that's in the $14 million, $14 million to $16 million annualized revenues. So that's really -- it's a little bit higher than we thought in the past but that's $14 million $16 million in annualized revenue, at which point we should reach cash flow breakeven.

If this is the situation why don't we try to balance general administrative expense more in line and more proportionate with the revenues? (multiple speakers)

Anthony, you would kill the Company and you would kill its future. Sure, if you want to make this absolutely totally efficient, shut it down. You would kill the Company if you balanced the right now.

What Robert was referring to, Anthony, is the steps that it takes to build the Company. And the only reason it will help from $12 million to $14 million to Robert's estimate of $14 million to $16 million had to do with overhead that we had to put on in order to accommodate the new therapies that are coming.

And the new therapies that are coming are, well, they are huge, they're huge. That's all I can say.

This is about building a Company. And it's not a zero sum game, it's not a mathematical game, it's about building a Company. Mathematics have to do with it and I do appreciate what you are saying but we can't do it that way.

Well, it just seems with the equity in the Company of $3 million I'm just wondering how many quarters like this can we take before we are in deficit again.

We have to worry about that constantly but this is not a distribution business like a nut-and-bolt type business. It's a different kind of business, and it's a very exciting business and there's a lot of value to be created here but (multiple speakers)

It'd be fantastic but if we continue at this rate you take another $2.7 million next quarter and then the quarter after you're into negative territory here. I'm just wondering -- you've got to balance it a little bit.

Yes, yes and I appreciate your comment and your thoughts.

Okay, thank you.

That does conclude our question-and-answer session for today. At this time I'll turn the conference back to management for any additional or closing remarks.

Well, thank you very much everyone. Thank you for all your questions and especially thank you for taking the end of your day to hear what we had to say and for the dialogue and for the questions.

I really appreciate your interest. We all are working hard for you, the shareholders, and we look forward to reporting to you at the end of the next quarter. Thank you very much.

This does conclude today's conference. Thank you for your participation. You may now disconnect.