Cryoport Inc (CYRX) 2022 Q2 法說會逐字稿

Good afternoon, and welcome to the Cryoport's Second Quarter 2022 Earnings Call. (Operator Instructions) As a reminder, the call is being recorded.

I would now like to turn the conference over to your host, Todd Fromer with KCSA Strategic Communications. Please go ahead.

Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. 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 the information currently available to our management team. Our management team believes that 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 or 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 experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1-A, Risk Factors and elsewhere in our annual report on Form 10-K filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission.

It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Todd, and good afternoon, ladies and gentlemen. We appreciate you joining our 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 '22 In Review document to our website. It can be found under Investor Relations in the Events and Presentations section. This document provides a review of our recent financial and operational performance and the 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.

I'll provide a brief update on our business, and then we'll move on to answering your questions. Reflecting strong demand across all business units and geographies, we delivered another solid quarter with second quarter revenue increasing 14% or 18% on a constant currency basis to a record $64.2 million. Importantly, all our business delivered double-digit topline growth in this period. Our gross margin increased slightly more than 200 basis points from first quarter 2022 as we continued our disciplined approach to CapEx as our New Prague manufacturing operations return to production.

Although, the macro environment has been volatile this year, demand for our products and services remain strong. We are meeting this demand and preparing for projected demand through continued expansion of our business through both acquisitions and internal expansion projects. An important milestone for us during the quarter was the opening of our first 2 global supply chain centers. These 2 new world-class facilities are located in Houston, Texas and Morris Plains, New Jersey, and formed the foundation of our global supply chain center network. I'm happy to report that both facilities are fully staffed and accepting clients.

During the quarter, we were also busy on the acquisition front as we further strengthened our presence in the EMEA region with the acquisition of Cell&Co BioServices located in Clermont-Ferrand, France. Given its capabilities, licensing and strategic locations, Cell&Co will play an important role for our company by accelerating the expansion of our new global supply chain center network in the EMEA region by approximately 2 years.

Also just last week, we closed on the acquisition of Cell Matters, located in Liege, Belgium. Cell Matters specializes in cryo-process optimization, cryo-processing, and cryopreservation, which further expands our supply chain platform from the life sciences upstream in support of standardized apheresis collection and processing.

Our increasing portfolio of new products, services and systems, coupled with our expanding global footprint is continually moving us forward and achieving a growing essentiality within our markets into life sciences across the cell and gene industry as we are increasingly providing new solutions to derisk processes for delivering therapy efficacy for patients in need. We have successfully accomplished this as we have been methodically and -- methodical and disciplined in expanding our platform and global footprint through organic development, acquisitions, partnerships and business alliances.

And looking ahead, we believe that we are -- there are still many opportunities on which we can capitalize to deepen our relationship with our clients. Fortunately, we're in a strong financial position with approximately $550 million in cash, which is sufficient to support our planned growth initiatives.

Regenerative medicine is growing and so is our pipeline of potential commercial customers in regenerative medicine with a total number of global clinical trials supported by Cryoport reaching a record 626 at the end of the second quarter of 2022, a net increase of 65 over second quarter of 2021 and 24 over the year-end. It is worth noting that a record 81 of these trials are in Phase 3, up from 69 this same time last year.

In addition to strong demand for our products, systems and services, we will also benefit from increased client utilization at our new and expanding Bioservices, which includes commercial therapy storage, secondary labeling, kitting and fulfillment. Therefore, we are confirming our full year 2022 revenue guidance to $260 million to $265 million. This revenue guidance represents a solid growth of 17% to 19% and is driven by current demand across our business units.

This ends my prepared remarks. And now we'll be happy to take your questions. So operator, if you'll please open the lines for questions.

(Operator Instructions) And our first question will come from Puneet Souda of SVB Securities.

You have Michael on for Puneet. So my first question, I was just wondering for FX impact in the quarter, could you give any color on how that impact is spread across the various parts of the business? And then for 2022 overall, what FX impact are you contemplating on the top line? And do you see FX meaningfully impacting any of your margins?

Yes. Just a few comments on that. As you've seen in our earnings release, we did disclose kind of the constant currency versus the as-reported revenue growth -- so as-reported 14% and constant currency 18%. We have about roughly about 36% of our revenue is related to foreign currency. So we certainly saw an impact in Q2. Without that impact, revenues would have been $66.1 million instead of the $64.2 million. So about $1.9 million increase in revenues on a constant currency basis. So there is an impact that we do expect to see impact going forward into the second half of the year. Obviously, nobody knows exactly where the exchange rates will be.

In terms of the exchange rate impact on the various markets, we've seen obviously an impact on all 3 markets, the biggest part really being in Animal Health and in Biopharma.

Got it. That's helpful. And then my second question is about clinical trial. So it is good to see, I guess, net adds all across the board. And we're just wondering, just given the macro environment, if there's any potential cancellations or curtailing, especially from small biotechs. And was it possible to give any color on just how many of these clinical trials you're servicing are with smaller biotechs versus big pharma?

We see no evidence of any deceleration as it relates to clinical portfolio activity within the entities and the programs that we support to date. We've done an analysis internally and the programs that we support are very well supported from a cash position. And so we have a high degree of confidence that we're not going to see any negative impact related to any sort of macro environment. In fact, the cell and gene space is still very robustly being invested. There's a lot of investments still going into this space as it relates to health care and biotech overall.

The next question comes from John Sourbeer of UBS.

Maybe just a question on the commercial revenues, continue to ramp year-over-year. Any way to provide some color on what you have in the outlook for the guidance on the second half of the year and how you see that ramping throughout 2022?

Yes. Just maybe before Mark comments on it, on the revenue outlook, we don't give that granularity in revenues. We did provide guidance for the full year of $260 million to $265 million. We do reiterate that guidance now as well. Obviously, it is going to be a mix of the business units and of the revenue driven by the growth and maturation of clinical trials and then ultimately, the growth in the commercial revenue as well.

Yes. Just to add to that, obviously we've had a significant focus on building as robust of a clinical trial pipeline as we can. And that has demonstrated the ability to transition that to commercial therapies where we're currently supporting 9 programs. That's despite the fact that cell and gene is still very early in its development. We do anticipate commercial growth to continue. And there's a couple of different areas and reasoning behind that.

So first and foremost is we're seeing continued expansion of approved therapies on a global basis, launching in new countries and new geographies. A lot of these therapies are also really pushing towards earlier line therapy, and we're seeing success in them moving from fourth line to third line and now third line to second line treatment. And they're also focused on expanding the number of indications, which we've also seen substantial success on from a lot of the therapies that we're supporting now. And that doesn't even include any new therapy launches. So I think the combination of these 4 things is a very positive element, and will continue to drive growth in this space for us.

Got it. I appreciate the color. And maybe just a follow-up on the last comments there. On allogeneic therapies, are you anticipating any approvals in '22? And can you just add some additional color on what you see are the opportunities around allogeneic?

Tom, why don't you take that?

There could be 2 allos, maybe 3 allos approved this year.

And if you recall, we're just currently supporting a little bit more than 30% of our pipeline as allo at this point.

Got it. I appreciate the color. And then I guess maybe just one last one. It sounds like that the New Prague facility is operational at capacity. Any additional color you can provide on how MVE is recovering and maybe any insight as to how the backlog is looking on that business?

MVE is doing fine at this point. We will -- we're working hard throughout the rest of the year to make up the lost capacity that we had -- the lost production we had in the first quarter, but the plant is working well and MVE is doing very well.

The next question comes from Richard Baldry of ROTH Capital Partners.

This question is sort of outside of your own controls. I'm curious at what you think is gating the growth rates for the commercial side of the business. I think the rev is 22%. It seems to me that with the number of new indications coming online sort of the critical treatment protocols they are providing that I would have thought that'd be growing significantly faster. So is there something, whether it's manufacturing capacities, otherwise that's holding that back? And how do you think that will progress over sort of the near intermediate term?

Rich, it's Tom. I'll take a swing at it first and then maybe Mark can add to it. But you hit it on the head, it's manufacturing capacity. Again if you go back and look at Bristol-Myers, they just reported their quarter ahead of ours a couple of days ago. They called it out again. They couldn't fill demand. Thankfully Gilead did increase their demand. They opened up a new facility in Maryland that increased their capacity by 50%, but that's not fully up and running at full tilt. And then more capacity is coming on hopefully as we speak here. We have a lot of customers building out. So that's the biggest thing today.

No, I think you hit it right on the head. I mean, there's 2 primary issues. One is final product manufacturing capacity, which a lot of these companies are bringing online. Tom mentioned the Kite facility down in Frederick, Maryland is one of them. And the second is viral vector capacity. And a lot of folks are starting to internalize viral vector production. So they have more control over that supply chain and eliminate that as a barrier to scalability.

And could you talk maybe a little bit, if not qualitatively or quantitatively, qualitatively, to the acquisition revenue impacts in the third and fourth quarter from your most recent deals? Is there any way to kind of get our hands around how large those entities were or the headcounts that those would have brought in and maybe back into some concepts of the size of our own?

Yes. I mean those are relatively small acquisitions. We all say that if you look at those acquisitions, they certainly have a strategic component to them. But in terms of size, if you look at even the acquisitions that we talked about that we closed subsequent to quarter-end, you look at Cell Matters, very strategic acquisition, but it's a small acquisition and ultimately they're going to start generating revenues as part of a broader initiative.

If you look at Polar Expres in Spain, that's part of the expansion of CRYOPDP into the Spanish market. That was an acquisition of $1.5 million worth an earnout. So those are going to contribute some revenue. If you look at the acquisition that we closed in April, Cell&Co in France, they have a contribution, which was less than $1 million, a little bit over $500,000.

For the quarter.

For the quarter.

The next question comes from Yuan Zhi of B. Riley Securities.

Congratulations on an impressive quarter. So maybe one first question directly to Jerry. When we look at the global footprint and we began to see some overlap locations between Cryoport systems and CRYOPDP. So maybe can you talk about the plan here, either replicated the success you have here in the U.S. to EU considering the numerous acquisitions in EU happened in the last couple of months? Or do you plan to improve the synergy between these 2 segments in the U.S. here?

There's really no overlap. Cryoport Systems has a different mission than CRYOPDP, which is a specialty courier survey biopharma. But we are working on the synergies, and we absolutely will improve them over time.

The other thing I'll just add to that is that we are focused on looking at opportunities where it makes sense for colocation and obviously cost management associated with co-occupying common facilities as well as synergies associated with the business platform. So both of those things are also significant factors in looking at that synergy activity.

Yes. Got it. That's helpful. And a follow-up here is, in the quarterly review, you mentioned some interesting metrics here, the quality audit. Just curious, is there an improvement compared to first half of 2021? And are this from new customers or from existing customers?

It's a mix of new and existing, but it grows all the time because we keep growing our pipeline of business. So it's something we thought was important. We talked about quality a lot, but we really haven't disclosed anything and we thought it was important for the Street, our customers, everyone that looks at these reports to see how dedicated we are globally to our quality team, our quality systems, our processes.

Yes. And one last question from us. Since you guys reiterated the guidance gain for 2022, just curious since the guidance is calculated based on your order book and expectations, and we have started to see some improvement in our supply chain in the cell and gene therapy space, like you mentioned. Gilead had a great quarter in -- just announced. Just want to check if there is any read through to your order book -- the order book and the near-term demand that we had when we think about modeling?

Yes. I mean just obviously, if you look at the guidance, we're clearly looking at the supply chain issues, the foreign exchange, and we still feel very strong about the revenue that we can achieve for the full year. So hence, we're reiterating that guidance.

I don't know, Mark, if you want to add anything.

Yes, the only thing I'll add is, you asked about order book. And so obviously, we do based -- our extrapolation is based on client feedback, and we try to get as much forecasting information as we can from our clients, in particular as it relates to volume considerations around our service business. And so we do take that into account as well.

And you have to again step back and look at where we are right now as a company. The amount of clinical trials that we're supporting are being 626 and the expected BLA filings, MAA filings that will further contribute to those dynamics. So we have a very kind of strong customer base, a strong support of clinical trial portfolios that ultimately will assist in driving the revenue for the remainder of the year.

The next question comes from David Saxon of Needham & Company.

Maybe a follow-up to the last question. Yes, guidance does require some sort of acceleration into the back half, but you also have this $9.4 million of revenue from the fire. So I just wanted to see, did you -- were you able to recapture that in the second quarter? And what's the expectation for the cadence of recapturing whatever is left of that $9.4 million?

Yes. No, just -- it's a very good question. I think just to be very clear, if you look at the performance for Q2, this is not driven by a recapture of revenue from the New Prague facility. This is really driven by growth in all of our business units where we've seen very solid growth.

So in terms of recapturing the revenue from Q1, as we mentioned, that's going to happen over time as we brought the manufacturing facility in New Prague, which is 1 of 3 manufacturing facilities of MVE Biological Solutions. As that has ramped up, obviously we're going to continue to serve the client base and recapture some of that revenue over the quarters. So the impact on Q2 is really minimal. The growth was really driven by all of our business units collectively.

Okay. So if I'm hearing that correctly, it might extend into '23.

No, I think it's really more when you look at -- when we say recapturing revenue, I mean, that's not an exact science, right? And so you look at the revenue we're bringing on and that's driven by client demand, certainly we had an issue in Q1 through the fire damage. And with the New Prague facility being fully up and running again, we are recapturing some of that revenue.

But Tom will quantify that at this moment.

David, we added a third shift in order to catch up that we didn't have before. So we think we can catch up this year.

Okay. Got it. And then my second question is just on margins. Gross margin, there were some sequential improvement, which is good to see. Just wondering what you're seeing from an inflation perspective and then whether or not you can take price at all to offset any of that.

Yes. Look, you're absolutely right. Gross margins, we had a really strong sequential growth over Q1. We do believe the margins have stabilized, and we expect those to gradually improve over time.

You have to also look at the types of investments we're making and the expected growth that we're seeing in this market. So that will impact gross margins. Example is Bioservices. So we're just starting to ramp up Bioservices. We had 2 facilities that were opened in Houston and in Morris Plains in June. Clients are now going through the audit processes and you'll start seeing revenue come in through those Bioservices facilities as well. So I'd expect gross margins to improve.

In terms of the pricing where we are looking like -- most companies looking at our pricing, looking at adjusting our pricing. We have made adjustments to our pricing and that's really an ongoing exercise as we review the inflationary trends as well as foreign exchange trends.

The next question comes from Brandon Couillard of Jefferies.

This is Matt on for Brandon. First one on Cell Matter, the deal this week that you guys entered doing into a strategic partnership with them this year. You can talk a little bit about maybe what you learned from partnership to acquire the asset was also planned. And then kind of how do you expect this to impact your cryopreservation offering going forward? And just maybe talk about the ability it offers you to expand the portfolio upstream a bit more?

Yes. So one of the things we're always doing is we're always critically evaluating the overall supply chain related to cell and gene distribution. And one of the biggest pain point is moving upstream, and that is the collection and processing related activities of apheresis and leukopoiesis product as well as the associated distribution requirements of moving fresh product all around the world. And it's been a pain point in the industry for last number of years.

We've got resounding feedback from initial engagement around this platform as well as industry feedback that this is a critical pain point that needs to be addressed. This gives us a substantial opportunity to address that. And it will address the deficiency in the marketplace in general, but it also provides the ability to derisk and improve product quality, which is a critical consideration in particular with the manufacturing variability that a lot of these companies are seeing based on the collection related activities and collection and processing activities.

So we think it's a significant opportunity and it's an opportunity to derisk. It's an opportunity to obviously present a platform that substantially improves the overall product quality that's going into the manufacturing centers. And that's the feedback that we're getting from the industry as well.

And then following up to another question on the 2 new facilities you guys opened. Can you just talk about kind of initial thoughts or reactions from your customer base? I think Robert noted that a handful are going through their audit process. Any color on timing of that and then how you expect utilization of those 2 new facilities to kind of -- into the back half of the year and the way that can be tapped -- sorry, just handicap the potential revenue there, if we look out 12 to 18 months once the more normalized operations?

Yes. So there are -- there's already client activity. We're already supporting client clinical activity in both locations. So it's not -- we've already gone through the process. Some of our clients actually audited the facilities pre-completion to be able to move product in there as quickly as we can. That being said, obviously, it takes time to build out that backlog componentry associated with the storage and fulfillment-related considerations, and we're still bringing certain services online in the Bioservices area with them. So not all the services are instantaneously operating because you have to go through regulatory processes. So from our perspective, it's probably a 12- to 18-month process before you get a full absorption of that -- those particular assets from a storage consideration.

Matt, one other thing to keep in mind is if you think about allo and allo getting approved and allo coming to market, there aren't any allo approved yet. So we have to be and our clients demand has to be ahead of the curve, so they can be getting this into their filings, they can be auditing our facilities and everything else. So we have to be out ahead of this a bit. We don't want to be too far ahead, but we're really bullish on the Bioservices, the whole network of the global supply chain network. It's going to be a big factor for us moving forward.

The next question comes from David Larsen of BTIG.

Can you just remind me what was the FX impact? I think you said it was like a $2.2 million revenue drag. Is that correct? And then how quickly can you react to price? So if you're seeing inflation pressures with steel, freight and semiconductors, like how quickly do you actually see those higher costs coming through? And then can you turn around and increase price like that same month? Or is it like -- is there a quarter delay or a 6-month delay?

Yes. No, absolutely. So just in terms of the FX impact, for the quarter it was about $1.9 million, for the 6 months about $2.8 million. So it did have an impact in spite of us showing record revenue for the second quarter. Obviously, if we didn't have an exchange rate impact, it would have been still quite a bit higher.

In terms of the supply chain and inflationary issues or trends, that's something is the balancing act. There's certainly a lag time between the time that we can implement pricing changes, which we have already done during Q1 as well. And so you'll see those kick-in. Some of the contractual arrangements, they have to be put in place. So typically, it will be more than a month lag time that you'll see there.

Okay. And then the New Prague facility for MVE, that's up and operational and at full capacity. Is that correct? And it's my understanding there's 3 plants and all 3 of them have triple shifts going on at each of them to meet sort of this high level of demand. Is that the case?

The New Prague facility has 3 shifts. We don't normally comment on details about our operations. New Prague was an exception because of the fire. But the other operations are operating at full capacity as well.

Okay. And then just my last question. I've been getting questions from investors around the competitive market. Like any thoughts on like BioLife, for example? I think they may have a relationship with Thermo Fisher. Just any broad thoughts on the competitive environment?

David, this is a market of co-optation and you often are competing with entities that are your customers or are your suppliers. And so that's the nature of the market.

In terms of competition, it's a growing market. And I've said over and over, we can expect competition on all fronts as the market grows, and it definitely is growing. And they're small competitors. But we are the market leaders and we remain the market leaders and we're committed to continuing to be the market leaders.

(Operator Instructions) And our next question comes from Jacob Johnson of Stephens.

I guess a couple of follow-ups on a couple of different things. Maybe first, just following up on Matt's question about the supply chain centers and thinking about the opportunity there. You guys have this target for $2 million to $28 million of revenue from a commercial therapy. Is there any way to tease out kind of how -- what the supply chain centers represent of that opportunity?

Jacob, we don't comment on details of our operation. So these supply chain centers are significant to our strategy. They were well thought out. They've been 3 years in the making. They're up and running, and customers already -- clients are already coming into the facility, moving their product into the facility. So that's about as far as I can go with that, Jacob, except to tell you that they're going to be significant, and these are the first 2 supply chain centers of a global supply chain network. We have 4 more that we're discussing right now, and you can expect to see a lot more activity in that area.

Yes. The only thing I'll add to that, Jacob, is obviously, one of our core strategies is revenue diversification of our existing relationships and expansion of services through acquisition and through new service platform is really focused around driving that -- basically, if you look at it on a per patient basis, driving the percentage of revenue that we get out of each and every patient interaction that we have within our organization.

Okay. I figured I'd give it a shot. And then, Robert, just on guidance, we've seen FX headwinds kind of intensified since you initially gave guidance and you reiterated it today. I mean, should we read that as you have a larger FX headwind? So kind of operationally, you're kind of increasing expectations or maybe there's some M&A flowing through there that's offsetting some of the FX headwinds, but I just wanted to kind of pick your brain on that.

So I think, look, I mean we're clearly looking at, as Mark mentioned, looking at our client base and forecasting with the expression that we have, and we're really very immersed into the cell and gene therapy space, covering a lot of companies and portfolios of clinical trials. So we have a lot of visibility.

Having said that, obviously, if you look at risk faction or you'll see this flow through to foreign exchange translation, supply chain risks and others. And we're trying to weigh that and see how it impacts our full year revenue guidance, and we feel confident with the revenue guidance that we give for the year. It's based on the views that we have right now, the discussions that we have with our clients. And again, the strong positioning in the market space with the clinical trials we're supporting with MVE being the global leader for cryogenic freezers and shipper systems, and CRYOPDP having a very strong presence and leadership in temperature-controlled couriers, specialty courier solutions. So we have a number of revenue streams that all contributed to that full year guidance.

This concludes our question-and-answer session. I would like to turn the conference back over to Jerry Shelton for any closing remarks.

Thank you, operator. In closing, first quarter 2022 which we had another quarter demonstrating our leadership position in temperature-controlled supply chain solutions for the life sciences industry, supporting our markets of Biopharma, Animal Health and Reproductive Medicine, and especially the life-saving cell and gene therapies across the clinical and commercial spectrum.

We're working hard to be the world's most comprehensive fully integrated commercially successful enabling company to the life sciences. Our focus is on biotechnology and providing the industry a fully integrated supply chain platform from the earliest stages of research to the delivery of the end commodities in their final form. Cryoport is known for industry leadership, dependability, agility, reliability, innovation and excellence, and we will strive to continue to achieve a growing essentiality to our markets.

Thank you for joining us today. We appreciate your continuing 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.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.