Ladies and gentlemen, thank you for standing by, and welcome to the Cryoport, Incorporated Third Quarter 2021 Earnings Call. Now during today’s conference call, all participants will start in a listen-only mode and later, we’ll conduct a question-and-answer session. [Operator Instructions] And a quick reminder for today, this event is being recorded, its November 4, 2021. It’s now my pleasure to turn the call over to Mr. Todd Fromer, President of KCSA Strategic Communications. Please go ahead, sir.

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 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 1A, 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 filed 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. Good afternoon, ladies and gentlemen. We appreciate you joining our earnings call today. With me this afternoon is our Chief Financial Officer, Mr. 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 the third quarter 2021 in review document to our website. It can be found under Investor Relations in the "Events and Presentations" section. The document provides a review of our recent financial and operational performance and a general business outlook. If you’ve not had a chance to read it, I would encourage you to go to our website and download it. Now, for a brief update followed by your questions regarding our third quarter results. I’m happy to report that our third quarter was the fifth consecutive record quarter for Cryoport. Strong demand coupled with supremacy of execution from our team drove our solid performance in the quarter and we are firmly on track to deliver record revenue for the full year. During the third quarter, we added 38 new customers at Cryoport Systems, which has doubled the prior quarters with new wins. Revenue from our eight commercial agreements increased 44% year-over-year while CRYOPDP added 72 new customers during the quarter. The number of clinical trials we support increased 13% year-over-year in organic growth from Cryoport Systems and CRYOGENE developed or delivered a 38% year-over-year revenue increase. Cryoport on the whole performed well in third quarter with CRYOPDP and MVE Biological Solutions delivering solid growth that was well above their historical growth rates. Cryoport is setting the pace for the cell and gene therapy supply chain through our deep expertise and comprehensive solutions. Our pipeline of commercial customers is the largest in our history. We’re now supporting…

Certainly. [Operator Instructions] Our first question coming from the line of John Sourbeer from UBS. You may now proceed.

Hi, thanks for taking my question. So I guess, new wins were up around 2 times from the prior quarter and pull the trials were up, the teens year-over-year. Can you maybe talk a little bit about some of the competitive contract wins? And do you think that Cryoport Systems is currently taking share from competitors?

John, its a good question. And Dr. Sawicki is best suited to answer that question. Mark?

Yes, thanks, Jerry. Yes. I think we’re absolutely still pulling share from the market. That’s our goal ultimately is to continue to increase our overall market in particular in the cell and gene space. The 38 wins to us is significant. And in particular, as you’re coming out of a COVID low as it relates to new business development. So we’re very, very comfortable that we are pulling share.

Got it. I appreciate that. And I think gross margins declined around 70 bps. Can you talk maybe about any of the impact you’re seeing there from supply chain issues or inflation that is impacting the margins?

Yes, its a good question. And I think Robert is best suited for that.

Yes. First off, we are a supply chain company. So obviously, we’re very in tune with them. We’re very focused on that. I think if you look at the third quarter, our primary objective during the third quarter was really one to ensure a minimal disruption to our client base, which we did very successfully. And then to continue to drive market share and revenue, which allowed us to drive that record revenue for the quarter. Having said that, obviously like all companies we’ve experienced supply chain challenges, such as increased costs of suppliers and transportation costs. We’re very much focused on that. We have no clear line of sight into the supply chain to ensure that we have the resources and capacity for our expected growth for the next quarters. So we believe that the Q3 was really the peak of the supply chain challenges. Having said that, obviously this is an ongoing issue that we’re very much focused on. We expect that to improve over the next quarters.

Got it. I guess this is the last question here, since acquiring CRYOPDP, you’ve done a couple of tucking deals there in Europe and Australia. Any thoughts on the opportunities where there could be potential for our new geographies for tuck-ins there.

Any thinking, any opportunities in terms of the growth expectations in those regions…

Or just new regions you might be looking at or to do similar to the deals that you did in Belgium and in Australia?

No, let me explain that. We were looking at all regions. We divide the world into the Americas, EMEA and APAC. And so we’re looking at all regions with higher – the highest growth region we’re looking at right now for the future is of course, APAC. We think that the China market is really interesting and it’s going to be large and we have several initiatives going on there. So we’re looking globally, we’re looking regionally, and we have we have a particular focus on a Asia-Pac right at this point.

Yes. And we’ve in the past talks about our M&A strategy, that strategy includes more of these tuck-in acquisitions that you’ve seen with the Belgium and Australia acquisition, as well as potentially a strategic opportunities.

Got it. Congrats on the quarter and thanks for taking the questions.

Thank you.

Thank you.

Thanks. [Operator Instructions] Our next question coming from the line of Chad Wiatrowski from SVB Leerink. You may now proceed.

Hi guys, congrats on the quarter. Real quick just can you provide any color on Delta driven clinical trial delays seen around the space as of recent? And have you seen any impact in certain geographies? And if so, where do you see this trending and FY2022?

I think Tom is on top of that, so he can give you some insight there, our insight.

Actually that, and Mark can echo this after I finished, but we’ve seen a good clinical trial count add, just like we’ve added new customers in the quarter at a good pace. We haven’t seen a slow down. I know some of the reports out there. But if you look at the overall macro trends, the amount of money in the space, the amount of new companies being formed in the space, I think there’s quite a big pipeline of INDs that the FDA and the EMA and the JDA China version. We’re a little bit behind on and we see those coming through. So I don’t think we’re going to see it slow down at all. It seems to be picking up as evidenced by our forecast of BLAs and MAAs in 2022. Mark, you have any further thoughts?

No, I – Tom’s exactly right. In the fact, yes, I don’t see any lingering impact or delays associated with COVID-related activity. Everything’s back to pre-COVID levels. In fact, as Tom had mentioned the activity is actually stronger at this point in time. So we’re very confident in the near future.

Great. Thanks for taking the question and congrats again on the quarter.

Thank you.

All right. Our next question coming from the line of Brandon Couillard from Jefferies. You may now proceed.

Hey guys, this is Matt on for Brandon. Thanks for taking the question. Maybe I’d jump back over to the APAC region, clearly an area of focus for you guys. Can you just talk about the market share dynamics there for you and how that compares to maybe the U.S. or Europe? And then in terms of competition, in some of the key markets there, like Korea and China, you talk about local players versus kind of internal Homebrew at some of these customers. What’s the competitive dynamic there today? Thanks.

I’ll comment first. And then I’ll let Mark comment, Matt. But look, these are developing, this is a developing region, the Asia-Pac region. And we have initiatives going on in China and in Japan and certain, we have locations of course in Singapore and in North Korea and in Australia. So we’re in tune with what’s going on, but it is developing and there is local competition in each of those areas, but nothing is set right now. And in terms of full support of the industry, and certainly, we are serving the industry I mean serving those countries internationally what we’re looking for is more domestic support in growing the domestic business as well. But it’s absolutely a focus for us. And Mark, do you want to add to that?

Yes, absolutely. Yes. So if you take a look at our numbers, our APAC numbers are up from a clinical trial standpoint about 35% year-over-year. So we are seeing acceleration in that activity. The biggest challenge associated with APAC in particular, China, where the lion’s share of clinical programs are running as most China programs have traditionally run under in particular, early days under what’s called a Ministry of Health mandate, not the Chinese FDA. And the regulations associated with those programs are much looser than a formal Chinese FDA or U.S. or European authority. As they’re starting to mature, they’re moving into a more formal state. So they’re now starting to evaluate and looking at things like supply chain in a much more rigorous regulatory format. And that’s where we’re seeing the increase in demand as these transition over to more traditional type programs. And that’s just going to accelerate. So that local “Homebrew” that you’re talking about will have to mature through obviously partnerships with folks like Cryoport Systems to be able to support this type of activity from a regulatory scrutiny basis moving forward.

It’s really helpful. And then you noted in the release, I think you’re spend about 30% of the pipelines allogeneic, which is I think kind of on par where it’s been historically, but given the development that space 32 Phase 3 clinical trials. Can you just update us on how you’re thinking about serving the allogeneic market going forward as somebody start to commercialize? And then maybe if some of the moves you’ve made over the past few years that better position you to serve that market going forward. Thanks.

Sure. I can take that if you want Jerry.

Go ahead. Go ahead, Mark.

All right. Yes. So as you guys are aware, obviously we’ve been building out what we call our supply chain centers, which include a full bio services competency. And one of the reasons that we’ve done this is to be able to support the staging of allogeneic volumes as it relates to batch manufacturing distribution. And so one of the tie ins to this is having the ability to support that, that local storage and distribution on a regional basis for our clients, as well as building the infrastructure and the inventory through obviously MVE Biological Solutions for the aluminum aspect of that distribution and scale of processes. So we’re absolutely entertaining and preparing for it, and we do have the infrastructure in place to be able to support any of these launches as they move forward.

Thanks.

All right. Next question coming from the line of Paul Knight from KeyBanc. You may now proceed.

Yes. Hi guys. The back out obviously shows very good core growth on a logistics, the acquired businesses would it be fair to say that they’re up similar to 2Q meaning up about 20% organically? Is that in the ballpark? And then it does look like they were kind of flattish sequentially. Is there any seasonality in those acquired businesses that create that kind of sequential flow? That would be kind of my first question.

Yes. I think just to address, the performance of the – of MVE Biological Solutions and CRYOPDP, you are absolutely right both had actually very significant growth compared to their historic performance. So and actually well above the number that you mentioned. So very, very strong performance by both business units and continuing very strong demand both for MVE Biological Solutions, freezer, and shipper solutions on a global basis as well, CRYOPDPs services. If you look at the revenue being flat compared to, yes, the very strong record revenue they had in Q2, you’re right. It’s hard for us to say that seasonal, certainly there were some supply chain related delays that we experienced during Q3, as I mentioned earlier, that had some impact on the revenue. But overall, again, it’s very, very strong performance and we see that strong performance continuing into Q4 and beyond.

All the growth numbers were almost not quite, but almost double what you said. And the backlog – so record backlog. So we’re in great shape, but both of those businesses are doing extremely well.

Obviously a good market for them, but it seems like the sales integrations working, because you talk about – they must be – you must be pulling in cross-selling. Is that a – is that where are you at with that? And what’s going on with that, Jerry?

Well, we do get integrations a little bit different than other companies where we operate as an operating holding company. And we do get synergies from one from the other referrals, one from the other, we have a very tight team. Our culture is throughout the company, not just in one company, but throughout the company. So that’s taking place in a very nice way. And so we do get referral business one to the other and it’s working very nicely. The integration is working nicely. As it – as are the synergies that we promised between CRYOPDP and Cryoport Systems.

And you would mentioned Mark, I think this is probably for you, you – I think in the press release side possible 21 BLA filings next year. That was about what 14 last time you reported, is that is that a good read-through or correct?

Yeah, the numbers are accelerating. And I’m sorry, go ahead, Tom.

It was 12 we’re predicted for 2022 before, so it increased nine during the quarter.

Great. Got it.

Yes. We absolutely see an acceleration and that comes back to what Tom and I had mentioned previously, we are starting to see a significant ramp and activity. And a lot of programs that have had delays for one reason or another are starting to pull forward and finally moving towards filing events, whether they’re COVID related or data related or manufacturing capacity related issues. A lot of those are finally being worked through and we see a significant bolus of activity on longstanding clinical portfolio companies that are now getting ready to file. So we’re very, very bullish, because of that.

Okay, thanks.

All right. Next question coming from the line of David Larsen from BTIG. You may now proceed.

Hi, congratulations on another very good quarter. Maybe just talk a little bit more about the supply chain pressures that you saw on 3Q. I think you mentioned that 3Q is the peak you would expect for inflation. And then in terms of like inventories, have you purchased like maybe a year of inventories ahead or have you locked in pricing for a year’s worth of supply within MVE. Any additional color there would be very helpful. Thank you.

Sure, David. We – first of all, we – in an environment like this, we haven’t really had an environment like this for 40 years. And I remember the 1970s very well and exactly how that played out. And this is a fast moving environment with price increases and with miss deliveries, trouble labor market, et cetera, et cetera. Anyway, we embrace that and we certainly are increasing our safety stocks. I can’t tell you that one product it’s a uniformly a year across everything, but we certainly are increasing safety stocks, we’re meeting price increases and head on and we negotiate where we can. But it’s very hard to get any kind of an agreement today for forward pricing for any length of time. The transportation we’ll peak, we’re already seeing signs of transportation costs coming down in a number of areas. But our folks are trained, highly trained and we are a logistics company. So we’re embracing these issues and we’re working our way through it. And I think our team is doing a fantastic job in getting through it. So I don’t know if that’s enough color for you, but happy to answer any other questions you have about it.

No. That’s actually very helpful.

Let me just add one gentlemen on that real quick, and that is that one of the other things we’re aggressively doing is making sure that we have a supplier redundancy in our platform, which gives us more flexibility as it relates to material procurement.

Right. So I think last quarter, it was mentioned that MVE was operating at like their maximum capacity or at the highest level of capacity that they had ever. And there was a second shift going on, I think, in a plant in New Jersey. So I guess I can – we can assume that those productivity levels have been maintained. They haven’t been slowed down or anything like that because of supply chain concerns.

Well, last quarter, what we’ve commented on was that was in process. I can tell you that both plants are adding extra shifts, both in New Jersey, not New Jersey, but the Minnesota, you said, New Jersey. It is actually Minnesota and Georgia plants are adding additional shifts. We also are doing tactical things to improve our capacity within the plant. And then we have strategic plans underway for expansion in the future. So great teamwork, great teams. And we’re working down that backlog, which we need to work down so that we can give better customer response to our loyal customers.

And then just one more for me, in terms of like the BLAs and the MAAs that are filed for 2021, I had thought that it was going to be 2021, in 2021 and has that declined to 13 with some of those pushing into 2022?

The short answer is yes, it’s come in. Some of it was pushed out. Some there was one that voluntarily withdrew. So it’s a mix. And some of it, I think in the last quarter, we moved it from 2021 down to 2019 and now 2019 down to 2013.

Okay. And then just one more, I’m sorry. In terms of the competitive wins, you’re obviously taking a lot of share. Can you give a little more detail on exactly why you’re winning in the market and what differentiates you from your peers? And then are you also able to take price? Thanks.

Mark, you want to take that?

Yes, I’m happy to. So why do we pull share, if you take a look at our business, we are the only fully integrated supply chain entity in the cell and gene space. We manage all aspects of the supply chain. We don’t subcontract the third parties, we don’t rely on third party assets to work on distribution or packaging. And so that allows us to have a much more control on the quality platform and to better manage risk. And that in itself is a significant driver for a share. The other things that we’re looking at is we’re the most progressive as it relates to infrastructure as an organization and capacity management. We planned in advance. We make sure that we have adequate inventory and we do aggressive forecasting to ensure we’re ahead of the curve and we’re not reacting to the curve so that we can support any commercial launch activity and other ramp based activity. So all of those things are significant contributors to our share capture and provide the ability, as we look at our business itself, our focus is around a platform that eliminates risk. And so that doesn’t relate to commoditization of our space at all. And so that’s not something that we have an interest in. We think it’s a material risk to commoditize any aspect of our supply chain, we will not do that.

David, you could look at what Mark just said in a different way too. And you could think of us as being equipment process and information driven. We execute all of those in a superlative way. And we strive to improve that at all times, like, no one else in the industry. So it’s a compelling formula when the customer looks at Cryoport.

Great. Thanks again.

Thanks.

All right. Next question coming from the line of David Saxon from Needham. You may now proceed.

Good afternoon and thanks for taking the questions. My first question is just on the APAC region. Can you talk about the pace at which the regulatory bodies in APAC are moving to approve these cell and gene therapies maybe relative to the pace of the FDA? When do you think you’ll start seeing commercial revenue there? And lastly, how important is the Chinese market specifically to reaching that five-year revenue target you put out a while back of 650 to 750.

Yes. Mark, do you want to take that question? It’s right down your part?

Certainly. The short answer is, we’re already seeing commercial revenue out of APAC in particular, out of the Japan market, the Australia market, the Singapore market. So we are already seeing commercial revenues manifesting out of the commercial therapies that we’re supporting. We believe that’s going to continue to aggressively expand. And what are the reasons that we’re looking at China as hard as we are right now is because a lot of that expansion in particular from a portfolio expansion basis for these existing therapies is in the China market, which obviously pretends to be a significant market. But we also have substantial assets and infrastructure in countries like Korea through CRYOPDP. And in India, which allows us long-term to be able to expand into the vast majority of APAC seamlessly. So hopefully that answers your question.

Yes. That was helpful. And then on the gross margin, I mean, it sounds like some of the issues you’ve seen in the third quarter, they peaked in the third quarter. But it sounds like, there’s some residual impact in the fourth quarter. So from a gross margin perspective, should we be thinking somewhere in between second quarter and first half? And then I’ll just ask my last question upfront. Can you just give an update on the Cryosphere shipper? I think last I heard at least, the launch was planned for the first quarter of 2022. Is that still the case? And is that going to be a material revenue driver or just more incremental to the total platform. Thank you so much.

Let me comment on a couple of those and then I’ll turn it to Robert, but the Cryosphere will be up in the first half of the year and our target is the first quarter of 2022. So – and that is a revolutionary shipper. There’s nothing like it in the world and it has been well received and we’re anticipating it to be highly sought after once it’s introduced into the marketplace. So we’re excited about the Cryosphere. In terms of margin, look, the headwinds across the world are not going to just seize in one short period of time. It’s going to take for the headwinds, the world is facing, it’s going to take a year or so or a shorter time who knows. I mean, you can’t tell exactly how that’s going to unwind. We think that we have things under control. We think we have things visibility and line of sight. So when we say – when Robert saying is, it’s peak. That’s our best judgment at this point. And – but we know how to handle most of the things that we are facing. And I don’t know that there’s any that, I would say, most, I think there’s nothing we’ve faced that we haven’t been able to handle. So we do anticipate improvement, but I’ll let Robert talk with you more about that.

Yes. And just, yes, look as a team, yes, we’re not reacting to what’s transpiring. I think even on the last call, we said, we’re well aware of some of the challenges that the global industry is facing. So I think the takeaway really is that, we have action items. We have actions underway to address the issues that we’re aware of. First and foremost, again, is to drive market share, drive revenue, ensure that we have the redundancies not to have any disruption. And we’re confident that we can manage that well, it’s shown by the results of this quarter. And again, I think you can expect a strong fourth quarter moving forward as well.

Great. Thanks so much and congrats on the quarter.

Thank you.

Thank you.

[Operator Instructions] And our next question is coming from the line of Yuan Zhi from B. Riley. You may now proceed.

Congratulations team on another outstanding culture. Thank you for taking our questions. I have few of if I may. So first, a quick follow-up on the supply chain issue, are you mentioned supply chain issue with [indiscernible] and can you comment on how does that have impact on your other segments help in is, including Cryoport Systems and CRYOPDP.

I think, again, what we’ve seen, if you look at margins and margin development, the margins on the other businesses were not that significant. It was really mostly to look at MVE Biological Solutions business related to specific equipment parts and transportation costs that we experienced as higher level of pricing. That does not mean that the other business units are not impacted at all, but that’s where we saw a more significant impact for the quarter as you can see on the product revenue and related margins. So I think that’s all we can call it at this point in time. We are rolling out in a number of initiatives from a supplier and pricing perspective. And those are underway right now. So I don’t – can’t really comment further on actions that we’re taking. I do, I can’t say that we’re still reiterating our gross margin target of 55%, obviously given the current circumstances that will take some time. But we certainly believe that 55% gross margin is achievable coupled with the 30% adjusted EBITDA margin.

Yes. Got it. That’s very helpful. And maybe can you share some progress and the cases, where you successfully cross sell services within your portfolio? I would like to hear if those customers are many from the Cryoport Systems parks are on both sides between the Cryoport Systems and MVE Biologics. Thank you.

What we talked about in the past is really when we talked about cross selling, it’s more of the synergy revenues that we’re referring to. And those are revenues between CRYOPDP and Cryoport Systems, where now companies combined offering a more comprehensive solution. And Mark was referring to kind of the quality aspect of having everything in one hand, where we’re providing a full service to our client base and to Cryoport Systems client base. So that’s well underway and we’ve seen that progress over the last three quarters. That’s really when – where we’re talking about cross selling or synergy revenues between the two companies offering a comprehensive solution.

Yep. Got it. Thank you.

We do also see customer referrals between the businesses as well.

Yes. That’s all I have. Thank you.

Thank you.

Thank you.

Thank you.

All right. Our last question for today comes from the line of Jacob Johnson from Stephens. You may now proceed.

Hey, good evening, everybody. Maybe first question, just on MVE, can you talk about and kind of following up on the last question, can you just talk about your ability to sell MVE and cell and gene therapy and maybe kind of what you’re seeing in that end market in terms of the cold chain build out that’s going on right now.

Jacob, we do sell into the cell and gene therapy business. We sell into Biopharma/Pharma, Biopharma and reproductive medicine. And we sell across the board in the life sciences, but we – at MVE, we sell through a distributor network. We don’t sell directly, it’s through a distributor network that we sell on a global basis. So that’s how we conduct the business at MVE.

Got it. Thanks for that, Jerry. And then just on kind of like the regulatory backdrop for shipping and handling these advanced therapies. I think a couple of quarters or maybe a year ago, there’s some guidelines or some best practices or some ISO something or another that came out that kind of highlighted the value proposition of what you guys do. Can you just kind of update us on anything we need to be paying attention to on kind of the regulatory aspect of handling and shipping these therapies, I guess, in the U.S. and maybe abroad as well?

Yes. We actually participated in developing that ISO standard and Mark has some commentary on it. I’m sure.

Yes, we do. We contributed to the development of the ISO-21973 standard that went out in 2020. That standard is continuing now to start to intercalate into the organizations from an understanding in an application basis. We’re also – we also expect many of those recommendations out of ISO to move in a few year period. It doesn’t happen instantaneously. It’s typically a three to four year period passed the ISO standard being listed to move into the regulatory bodies from an obligation standpoint. So we absolutely believe that many of the traceability standards that have been outlined there, we’ll move into FDA and European and rest of the world requirements from a regulatory standpoint.

Got it. Thanks for that, Dr. Sawicki.

And Jacob, congrats you were the first out with a note that that was really quick.

Thank you, Jerry.

All right. We have no further questions in queue. I’ll turn the call back over to Jerry Shelton for closing remarks.

Well, thank you for your questions. In closing, I’d like to say that we are confident about our future. And as a mission driven business, we will continue to focus on growth and the creation of long-term value for all of our stakeholders. The strong results we have delivered this year, the progress that we have made against our strategic plan and the initiatives we have underway all pretend a very exciting future for Cryoport. We’re glad you could join us today, and we appreciate your continuing support and interest in our company. We look forward to updating you on our programs again – on our progress again next quarter and we look forward – we hope you all have a great evening. Operator?

Thank you, sir. And ladies and gentlemen, that will conclude the conference call for today. Thank you very much for your participation and you may now disconnect your lines. Thank you.