Good afternoon, and welcome to Cryoport's Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will start in a listen-only mode. A brief question-and-answer session will follow the format presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Todd Fromer, from 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 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 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 fourth quarter and full fiscal year 2022 and 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 financial and operational performance, and a general business outlook. If you have not had a chance to read it, I would encourage you to go to our website and download it as it is elucidating in terms of our development pathway and the initiatives we are undertaking to assure our future. Now, I'd like to provide a brief update on our business, and then we'll move on to answering your questions. Today, we reported a solid finish to 2022 with record total revenue of $237.3 million led by a 24% increase in revenue from Cryoport Systems. Our annual growth at Cryoport Systems was fueled by strong demand for our comprehensive suite of products and services and strong growth in the cell and gene therapy market. At the end of the year, we supported a total of 654 clinical trials worldwide, a net gain of 52 clinical trials since year-end 2021 and with 79 of these trials in Phase 3. At the end of the year, we also supported 10 commercial therapies, an increase from eight since year-end 2021. Further, we anticipate supporting up to 21 commercial therapies in 2023, as a result of our forecast of up to an additional 22 anticipated application filings, 11 new therapy approvals and an additional 12 label…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from the line of Puneet Souda with SVB Securities. Please go ahead.

Hi, you have Michael on for Puneet. Congrats on a strong finish to 2022. I was hoping to start with getting a bit more clarity on the guide. I was wondering, how much of this is reflecting a recovery in MVE and CRYOPDP after some hiccups in 2022. And how much is strength in clinical trials or some of these new commercial therapies coming online?

I'll let Robert answer that question.

Yeah. Maybe just a couple of things on the guidance. One, we do have strong conviction on the revenue guidance. It's an 18% growth over '22 at the midpoint and 22% growth at the high end of the range. A couple of things to have in mind. One, if you look at MVE and CRYOPDP, yes, we do expect them to go back to double-digit growth. But a few things, we did have some unanticipated headwinds in 2022. And if you just look at Q1 of last year, where we had the fire damage of our MVE, New Prague facility, where we had about a $9.4 million revenue loss. If you were to add that back to the '22 number and look at it at a constant currency rate, we will be about 14% constant currency with that add back. So if you compare that with the 18% midpoint it's certainly achievable. But more importantly Jerry talked about some of the initiatives that we've put in place during 2022 and expanding our bioservices in Houston and New Jersey, the acquisition of Cell&Co which adds bioservice capabilities in Europe and then a number of key new product introductions in Q2 of this year. All of these will contribute to the revenue growth in 2023. So I think that's important to realize. The other part is, as you've seen in the growth of clinical trials, we're seeing not only growth in clinical trial basis, but also maturation of the clinical trials and advancement into the filings, as well as into expected approvals that we'll be supporting. So there's significant kind of dynamics within our market within our customer base that allows us really to drive the revenue growth for 2023.

All right great. That clarifies a little bit. And then I also had a question about the global bioservice network you're building now. I was just curious, what sort of incremental OpEx you expect that to drive and if there's any gross margin contribution we should expect as new capacity comes online?

Well, in general in terms of the margin contribution bioservices, a couple of things. We're still expecting overall targeted gross margin of 55%. That is our target. Clearly, we're not quite there yet with 43.8% of gross margins. If you look at the bioservices, it's a significant revenue capture opportunity. And all of our initiatives are really designed to capture revenue along the temperature-controlled supply chain, supporting the cell and gene therapy space. Bioservices is one of those components. And we expect certainly, the margin contribution to be accretive to our overall margin, based on that service. In terms of the operating expenses, if you look at Houston and New Jersey, those have been already baked in, because as we talked about in Q3, while we set up these bioservices capabilities, we have to have them fully staffed before clients can come in and do their audits. At this point, at Cryoport Systems, I think we have an audit every week. So that really further demonstrates the interest and the movement on bioservices.

Okay, great. If I could just squeeze in one more. I was just curious if you have any color on China. I know last quarter you mentioned some headwinds to MVE from the closure of Chengdu and we've heard some other tools players having headwinds with the COVID zero unwinding. I'm just curious if you have any thoughts there.

Yes, we do. We monitor China on a regular basis. China is an important country to us. We manufacture in China. We export from China. We manufacture domestic products and we import in China. And so far everything is working well. As the immunity builds up in the society then for COVID that becomes less of a threat and we haven't had any rolling shutdowns lately, and we don't expect any. So China we think is in good shape. Now no one knows what President Xi is going to do in the future and what his 2025 initiatives are going to entail, but we're prepared to work with those, because we do have a strong internal base and we have a fantastic team in China.

Great. Thank you very much.

Thank you. Our next question is from the line of Brandon Couillard with Jefferies. Please go ahead.

Hey. Thanks. This is Matt on for Brandon. Maybe sticking with that theme. I think on the third quarter call there was kind of three items you guys discussed for the guidance, where you said freezer pricing in China and then some headwinds at PDP. So you just touched on China, but I'd be curious Jerry to get your thoughts on kind of the updated status of the freezer pricing and trade down dynamic as well as some of the headwinds you saw in PDP, how those fared in 4Q and kind of how you're thinking about them heading into 2023. Thanks.

Okay. So, thanks for that question. I mean it's a good thing to be following up with the mix of MVE business was still challenged in the fourth quarter due to the macro environment and some of the pushback that we were getting. But that's stabilizing, and it's beginning to turn back. As I explained to you about those uncertainties, it was just capital allocation reservations, because of the macro conditions. But those things are tended to normalize right now and we don't -- that's disappearing. And I think we discussed that a little bit earlier. In terms of cryoPDP, it's moving along well. We have expanded our operations in cryoPDP. Some of the initiatives did impact our income statement, as I alluded to in my earlier comments and Robert alluded to, because they are investments that we did move into five different countries last year -- four countries expansion-wise and then a massive development in India where we lead the market with cryoPDP services.

Thanks. That's helpful. And then, you guys have discussed a lot the slew of new products and services coming online in 2023 from the Cryosphere to the Cryoport Elite as well as some of the newer global supply chain centers ramping up in the Takeda service as well, just to name a few. Is there any way you can kind of talk about or quantify how those are expected to contribute to revenue in 2023? And maybe if you don't have dollars for each one maybe stack rank, which could be potentially the biggest new product catalysts as we think about 2023 here. Thanks.

Yes. Let's start with the IntegriCell platform, because I think that's the one that ties back into the Takeda and Syneos announcements. Just from our perspective, it is one of the most exciting concepts to hit the cell and gene therapy industry in quite a while. It's really the first opportunity for the space to be able to provide accessibility to fully standardized high-quality leukopaks. And it addresses also a significant patient accessibility issue. And obviously, it's going to take some time to build this infrastructure out. And it has to also go through, obviously, regulatory and audit activity with our clients. So we're not going to, obviously, disclose anything financially on that at this point, but we do believe that we'll start to see revenue although modest late in 2023 and it will start to ramp and become more material in 2024. The other two platforms the Cryosphere and the Elite platforms; so Cryosphere is, as Jerry mentioned, we'll launch in early Q2, it is ready to go. Our clients are now initiating validation related activity around it as well as the Elite line, which is really focused around gene therapy distribution, those processes take a little bit of time, because they have to go through a full validation process, which can take upwards of a year. So we don't -- some of these have already been started like for example for Elite, we do have folks that have been actively working in conjunction with us for that validation and we'll see contribution on the negative 80 Elite line this year. Cryosphere, we won't see a material impact until next year.

Great. Thanks. I’ll leave it there.

Thank you. Next question is from the line of John Sourbeer with UBS. Please go ahead.

Hi. Thanks for taking my question. If you look at clinical trials year-to-date, I think, up around 9% and I think also in your prepared remarks you may be mentioned you think you're taking some market share. Can you just talk about some of the competitive wins at Cryoport System? And any just thoughts on what your market share is looking like across Phase 3 trials?

Yes. As we have mentioned, we're at 79 programs in Phase 3. We continue to add programs and increase our overall portfolio within the space itself. There's not a direct head-to-head competitor in the market. We have some folks that are complementary to certain aspects, but it's not a completely threat correlation from that perspective. So we don't have a concern from that regard. We are the clear market share leader in the supply chain support. And as you guys are aware, cell and gene therapy is a very, very fast-growing market within life sciences. And we'll continue to grow that base and the related revenue. So we are anticipating upwards of 11 new commercial approvals on Cryoport portfolio companies this year, as well as another potential 12 line and geographic expansions of existing portfolio. So that's going to really start to drive obviously revenue on the commercial side.

Appreciate that. Maybe just adding on to that. So you think long-term here and I think you also mentioned Regenerative Medicine growing 25%, 30%. You're at around 18% here for the midpoint in the 2023 guide. Do you think there's an opportunity to -- as these trials mature become commercialized to accelerate your growth to maybe closer to where some of the industry analysts are pointing at that for the range?

Yes. So all of these therapies, they kind of move up in a stepwise manner. There's been headwinds, as it relates to ramp associated with a couple of factors. One is manufacturing capacity, and a lot of our commercial portfolio entities have really been working hard to increase overall capacity. The second issue that these guys are seeing right now is -- and you can see this in a lot of our commercial clients' recent earnings commentary, they're only supporting about 30% of patient demand today. And that's really down to a patient accessibility issue. And so one of the reasons we launched the IntegriCell platform was to drive accessibility and to provide accessibility to facilitate ramp for them. So as these things come online, we absolutely believe they will contribute to acceleration in that number.

And maybe just to add to it if you look at Cryoport Systems, the revenue growth there was 24% and actually commercial revenue grew 27%. So it is continuing to increase. And then as Mark alluded to there's significant dynamics in 2023 that will further help revenue increase.

And remember the commercial is almost -- are a net number. And so, they don't -- they also account for programs that have dropped out. And so there is -- we have seen, the second half of the year, a little bit more volatility on the number of drops in adds. So it is a net number.

I guess, maybe, last one here, just on that last point. So just maybe, is that -- on the drops in adds, is some of that macro funding related that you're seeing or any slowdown in projects there? I guess any just additional color you can provide.

Absolutely, not in slowdown. No slowdown at all. In fact, we see accelerating activity with a lot of our clients. There was still over $12.5 billion put into the market in a bad fiscal year, which is a significant investment in the space.

Great. Appreciate all the color. Thanks for the questions.

Thanks.

Thank you. Our next question is from the line of David Larsen with BTIG. Please, go ahead.

Hey. Congratulations on a good quarter. Can you talk a little bit more about MVE, like roughly, what percentage of total revenue is coming from MVE? And we're now almost through February or two out of three months in the first quarter. Have you seen an uptick in the large freezer shipments? And with a warmer sort of summer have energy costs improved over in Europe? Is that having a favorable impact? Just any more color there what you're seeing through February, would be really helpful. Thanks.

Yes. As I mentioned earlier, MVE is returning to normalcy. It will grow in this next year and the impact -- and there's nothing to talk about the impact of energy prices in Europe at this particular time. Look, we had a -- nothing goes in a straight line and we had a little bit of a blip, while nothing has happened -- while the market is buoyant for Cryoport Systems. There was a pause there for MVE, which has straightened out and progress is being made there. So the product orders are back into the normal mix.

Okay, great. And then, for Cryoport Systems, 24% year-over-year revenue growth, that sounds very high to me. Just can you provide any color around what the mix is between, like, incremental clinical trials that you've picked up versus pricing, versus additional products that you're selling into those customers? What's driving that 24% growth?

So as you guys recall, I mean, a lot of these initiatives that we've been really focused on building are starting to pay dividends. We're really focused around revenue diversification of our portfolio of clinical and commercial entities. And I think what you're seeing is, that disconnect between number of trials added versus revenue, is a manifestation of that strategy, a successful manifestation of that strategy related to revenue diversification.

Okay. And then just one last one. Any thoughts on your clients' investments into manufacturing capacity? I mean, are you generally seeing that across the board with like Bristol, Novartis, like Gilead. Just any -- like are you seeing that happen now? And I guess that should be a tailwind in 2023?

Yeah. There's been a substantial investment in manufacturing capacity and it continues on. Kite launched their significant facility in Frederick Maryland in the middle of last year. BMS is very, very active in building out additional -- two additional facilities, one in Massachusetts and one in the Netherlands. So we will absolutely see accelerating activity associated with that.

CDMOs are also building out, Dave. So it's the outsourced manufacturing is growing in addition to the customer direct on manufacturing.

Okay. Great. Thanks very much. Congrats on a good quarter. I’ll hop back in the queue.

Thank you.

Thank you. Our next question is from the line of David Saxon with Needham & Company. Please, go ahead.

Hey, guys. Thanks for taking the question and congrats on the quarter. Maybe just to follow up on that last question about customer capacity. You guys have, in the past, talked about revenue per therapy being in the $2 million [ph] to $28 million range. So do you guys -- and as far as I can tell, none of your therapies are tracking to that, I guess, on average. Do you have a path to reaching that with your visibility into customer manufacturing capacity expansion? And how should we think about once the therapy gets approved, how long that it could take to kind of reach the steady-state run rate?

Yeah. Remember these are still -- these programs are still early in the evolutionary cycle from a pharmaceutical maturation standpoint. One of the keys here around achieving that $28 million threshold is broadening out the accessibility of that product line with moving from third line or fourth line to third line and now third line to second line as well as those geographic expansions. Those are going to really facilitate acceleration of that revenue associated with these therapies. I mean, if you take a look at some of these alone, you look at the BMS products -- their patient population went from 8,000 to 14,000. I mean that's almost a 2x increase in potential patients that can be treated by that therapy. So you can do the math in your head and what that attribute -- what we could attribute as an upside opportunity for that just as one example.

Okay. Thanks. And then on the P&L, I mean, it was nice to see gross margin expanded modestly but SG&A came in quite a bit above what I was modeling at base. I guess what's driving that? And how should we think about OpEx for 2023? And then if I could just sneak a third one in quickly. I thought last quarter you were going to -- you mentioned you might give updated thoughts on an LRP, the $650 million to $750 million. So just any update there? And thanks so much for taking the questions.

Yeah. No problem at all. Just a little quick on the gross margins. I mean, you're right. If you look at the full year gross margin was 43.8%, a slight increase over last year. In Q4 we had about 43.5%, which is up about 250 basis points over the prior year fourth quarter. And you see that for services as well as for product we've seen an increase in gross margin and having said that obviously we have a number of initiatives in 2022 as well as in 2023 that have still some impact on the margin -- overall margin contribution. In terms of the operating expense, one thing I do want to direct you is to look at the quarter end review documents. We think they are what we call a peel back in terms of what we've been doing in 2022, what initiatives we put in place and how that has impacted our EBITDA. So you look at that peel-back analysis, you could see that there's been significant investments that we made not only on the CapEx side, CapEx was about $22.1 million for 2022, just slightly down from 2021. But in geographic expansion that have probably an impact on OpEx and with that on EBITDA about $7 million new service offerings that we've talked about that relates to IntegriCell as well as to the bioservices, and then other parts are the technology and the software we talked about. So that's the total impact of about $23 million in 2022 related to initiatives that are all geared towards revenue capture to further establishing ourselves as the -- really the essential player in supply chain for the cell and gene therapy space. In terms of looking at the 2025 guidance, look, we understand that people would like to have long-term guidance. But given the macroeconomic conditions, volatile markets that are still present today and the level of uncertainty we felt that it was not the right time to give long-term guidance. The overall economic environment related to inflation supply chain issues, COVID-19, the situation in Ukraine there are still a lot of factors that we're all aware of. But given that, we felt it is best not to provide that guidance at this point in time. We're constantly, obviously, evaluating this topic and will provide long-term outlook when we believe it's appropriate.

Okay, great. Thanks so much for the color.

Thank you. Our next question is from the line of Jacob Johnson with Stephens. Please go ahead.

Thanks. Good afternoon everybody. Maybe following up, a couple of follow-ups on those last questions. Maybe Robert just first on the path to mid-50% gross margin, can you just talk about the product lines or the areas where there's the greatest opportunity for margin expansion as we think about that path to the mid-50%s from where we are today on the gross margin side?

Yeah, absolutely. I think the critical area for margin improvement is clearly on the services side. And on the services side really within both the Cryoport Systems offering and the broadening of the offering as well as CRYOPDP as well -- as CRYOPDP more and more into cell and genes especially CRO logistics. But if you look at Cryoport Systems and we said that early on, we're still at the early stages of cell and gene with only a couple of meaningful therapies in the market that have been launched globally and are contributing revenue. Now if you fast forward in the next two years you'll see really a significant number of new approvals of cell therapies coming into the market both autologous as well as allogeneic. And as we're expanding our solutions and expanding beyond the [indiscernible] logistics into bioservices into the IntegriCell offering you'll see significant operating leverage in improving the margins. So it's really based on the maturation of these clinical trials to commercial launch and then the maturation in the industry on a commercial basis.

Okay. Got it. And then Robert just another long-term question and then I have one other kind of quick follow-up on guidance. But the other long-term question you guys talked about 25% to 30% growth from the end market. And certainly I think most of us agree there's bright days ahead for the industry. But as we think about the freezer business that's probably one that moves around a little bit more than the services side of things flattish last year I guess double-digit growth expected in 2023. Is there any way to think about the long-term kind of growth outlook for MVE?

Yes. I mean, I think, one thing to have in mind looking at last year is the fact that there was a onetime event in the New Prague facility that had an impact on the revenue of about $9.4 million. And because of the significant order backlog that we have for that part of the business we weren't really able to make up that revenue during 2022. So you do have to look at that when you look at kind of apples-to-apples 2022 over 2021. Having said that, MVE obviously has a very strong reputation in the market for quality and we see demand. We have a very, very strong distributor network on a global basis. So I think we have line of sight acknowledging certainly that there's still a lot of uncertainty in the marketplace in general, but we do and did a very kind of bottoms-up view for the next year and outwards to see what we can expect. One part I do want to mention on MVE, they have a good gross margin. I think there's still some upward mobility on the gross margin. But more importantly they're a solid profitable company. So they have good EBITDA contribution and we expect that to continue.

Okay, great. And then just last one for me. Can you quantify the headwind to the commercial revenue in the quarter? And then the other question on commercial revenue you talked about 11 potential approvals this year. Is that something that's included in guidance or is that something that perhaps could be upside as the year plays out?

Yeah. So yeah the headwinds the approximation about $1 million in the quarter for Q4 was the headwind on the commercial number. And so if you account for that our growth rate on commercial is really closer to 35% for the year, which obviously is a very strong number. We have modeled although conservatively, obviously, the commercial launch activity because as everybody is aware there's a lot of volatility associated with timing even though there is an expectation for the potential of 11 new therapies coming to market and 12 line expansions. We don't know the exact timing of that. So if they all come to fruition on schedule there obviously is upside opportunity associated with that. But we do account more conservatively for those launches from a guidance standpoint.

Got it. That’s helpful. Thanks for update. And thanks for taking my questions.

Sure.

Thank you. Our next question is from the line of Yuan Zhi with B. Riley Securities. Please go ahead.

Good afternoon. Thank you for taking our questions. I have a couple of them. So for the 11 new approvals, you guys are anticipating without disclosing who they are, can you comment on how many of them anticipate are anticipated to get FDA approval in the US?

Yeah, hold on one second. That'd be nine.

Got it. And there are a few of the commercialized or near commercial – near commercialization cell and gene therapies did not use logistics services provided by Cryoport Systems. As we see more manufacturing sites coming online, is there a plan to take market shares from those territories?

Are you talking about therapies that are on the market that are not using Cryoport currently, or are you referring to potential new approvals that won't be using Cryoport?

I guess, both, if there are any.

There are some gene therapies that are approved that are not cryogenic shipments that we're not supporting today. They're primarily at minus 80 or the dry ice temperature range. Now that, we have our Cryoport Elite minus 80 Ultra Shipper, which is being released in conjunction with one of our new gene therapy customers. I think, you'll see us weigh into those other gene therapies that haven't had a Cryoport solution before. So we're going to target that. I don't know, Mark, do you want to comment more?

Yeah. I mean, the whole point of the Cryoport Elite Ultra Cold Shipper, was actually designed in conjunction with one of our key gene therapy partners, who has a significant amount of filing activity coming around their portfolio. So it's been custom built, specifically for cell and gene, and we do believe strongly that and the feedback from the industry has been extremely positive that we'll be able to pull share from other existing offerings on the market today that are supporting gene therapies in queue.

Got it. Thank you for that. Thank you for the helpful insight there. And one last question from us. So for CRYOPDP, can you remind us whether it provides services to those therapies beyond cell and gene therapies? Could it provide logistics for radiopharma radiopharmaceuticals as well for which I see a lot of similarities between cell and gene therapy and radiopharmaceuticals?

Yeah. There is – there are some similarities. With CRYOPDP it was focused on biopharma and with a focus on moving to cell and gene therapy. And that's the direction – biopharma and cell and gene therapy with CRYOPDP.

Got it. Thanks a lot for taking our questions.

Thank you.

Thank you. As there are no further questions at this time, I would like to turn the floor back over to Jerry Shelton, CEO for closing comments.

Thank you, operator, and thank you for your questions and our discussion today. In closing, during 2022 we took a number of strategic actions to drive Cryoport's long-term growth. They are outlined in our quarter and year-end review. Now as we enter 2023, we're excited about our prospects as we're prepared to launch several new products and services with more to come. We continue to be driven by the rapid growth of cell and gene therapy, and will benefit from the expansion of industry manufacturing capacity. Our team is committed to our vision, mission, and we look forward to demonstrating this to you in the coming months. We want to 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. From Nashville, Tennessee we bid you a good evening.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.