[Abrupt Start] Cryoport Second Quarter 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call 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 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 ls 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 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. Jerrell, the floor is yours.

Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining our second quarter 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 2024 in review document to our website. It can be found under Investor Relations in the News and Events section. This document provides a review of our 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. I will provide you with a brief update on our business and then we'll take your questions. During the second quarter of 2024, we saw continued progress across all business units as revenue from each improved sequentially. Our revenue from the support of commercial cell and gene therapies, especially stood out this quarter, increasing 51% year-over-year and 20% sequentially, reflecting strong demand for these treatments. This growth demonstrates another step in the ramp of these life saving therapies. Turning to MVE Biological Solutions, our primary life sciences products business, we saw modest sequential improvement for the quarter, as we continue to experience lower overall product demand as compared to previous years. We anticipate continued softness in demand for MVE products for the remainder of 2024 and extending into 2025 as government, academic and industrial customers continue to delay capital expenditures and leverage their existing footprints of cryogenic systems capacities. We have executed strong cost management across our manufacturing facilities at MVE and align the direct workforce and current market demand and reduced SG&A expenses to ensure continuing positive cash flow contribution from MVE. Longer term, we…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Tejas Savant of Morgan Stanley. Your line is now open.

Hi, guys. This is Edmund on for Tejas. Thank you for taking my questions. First to start on the guidance. On the call, you guys noted the anticipated sequential revenue growth in services and the expected continued softness in products were factored into the reduced guidance. So I was wondering if you can help me better understand the magnitude of each impact relative to the $17 million reduction at the midpoint. How much was it driven by the lower lifetime service ramp versus continued muted environment for MVE?

Robert, do you want to take that question?

Yeah, absolutely. Look, in general, obviously forecasting has been challenging for us, but also many other companies in the life science products and services business. When we look at the change in guidance from original guidance, it's about a reduction of 6.9% midpoint to midpoint. And that's driven, as we outlined, certainly by the fact that our product side, which is really MVE Biological Solutions, is not picking up in demand, not picking up in revenue. And we don't expect that to really pick up in '24, but we do expect to see sequential growth starting in 2025. And that's really without the expectation that China is going to come back. As you recall, earlier in 2023 and 2022, we had significant business out of the Chinese market, which has dropped in Q1 of 2023. So we do expect that to continue to be pretty much flat if you look at the remainder of the year. Services is expected to grow. I will, maybe just highlight one issue on the product side. We did see sequential growth. So Q2 over Q1 for the product side of our business, we did see some sequential growth, but it's not enough of a trend to be able to forecast an increase in demand. On the services side, as you've seen in our earnings release, we've seen some significant growth on the support of our commercial revenue clients. So for the cell and gene therapy space, that's very, very robust both growth year-over-year of 51% and sequentially of 20%. And then overall services has grown, Bioservices has grown, the other service elements of our offering has grown and we expect that to continue as well. But we have taken a more conservative stance. I think coming out of JPMorgan earlier in the year, people were very kind of optimistic, cautiously optimistic waiting on the optimism, the funding side has increased and everyone was really expecting a more significant increase in the second half in particular. But I think most of the companies have realized that while there will be a growth in the second half, it's not going to be as significant as initially inspected, albeit if you look at advancements in the cell and gene therapy side, if you look at the funding side, that continues to be robust. And eventually hopefully that will drive a trend towards more aggressive growth.

Got it. And then I guess, sticking on the guidance, could you provide some color on what provides you with confidence in the second half and your revised guidance? Maybe some color on how orders and backlogs trended for the product side and some color on how new trials are ramping up versus expectations on the services side would be helpful?

I think if obviously, we have spent a lot of time on the product side of our business, which is significantly driven by our very, very significant distributors around the world as well as our direct cloud clients. We spend a lot of time with them to really understand exactly where demand is coming from, what's to be expected. And hence, we've taken a more muted approach on the expectation for the second half. I think it's a little bit different on the services side, in discussions with our clients, one specifically related to the cell and gene therapy space. We do have weekly discussions with the expectation of the commercial launches and expectations of the commercial therapies we're currently already supporting. As you've seen in our earnings release, we've also reported a record number of clinical trials. So we've seen the growth in clinical trials, year-over-year well as sequentially. And we've seen more therapies that are getting ready for BLA, MAA filings as well as approvals. So this is certainly a fairly robust view in terms of the growth expectations. I think a lot of the growth is expected to really come in ‘25 beyond, but we certainly expect the services side to continue to grow progressively in ‘24.

Got it. Super helpful. And one last one for me. On the new cost actions you guys talked about today, you guys outlined delays or cancellations in new facilities while also taking into consideration key growth initiatives. I think earlier this year, you noted expectations for two IntegriCell sites to come online, the Global Supply Chain Center to come online this year and two more to come on in 2025 and 2026. Can you clarify which ones have been delayed and which ones have been canceled? And how will these actions impact your ability to establish the infrastructure and capacity ahead of the expected cell and gene therapy inflection?

These fall under Mark's operations. So I'm going to turn that question to Mark.

Yeah. Thanks, Jerrell. And the IntegriCell facilities, both of them are on track. In fact, they will both be opening their doors for contract business starting at the end of this quarter. So they're on track and we anticipate them starting to contribute from a revenue standpoint, although nominal obviously in ‘24, but they are going to have the doors opened. The other facilities that you discussed, all of those are continuing to progress. However, we have modified some of the pacing of the infrastructure in some of those facilities and are bringing high demand aspects online and deferring areas that we can cover through other facilities until the markets strengthen. So, there isn't any cancellation of facilities. There is some differences in the pacing of the service areas within some of those facilities.

Got it. Thank you for the time.

Sure.

Your next question comes from the line of Paul Knight from KeyBanc. Your line is now open.

As we look back on, MVE, Jerry, I guess it was kind of like a lot of capital equipment spending in early 2023. They had -- we -- company is not aware of when COVID would end, burning up budgets. What do you think were the factors behind this tough comp on MVE? And what do you think a long-term growth rate looks like there?

It's a good question, Paul, and certainly we've analyzed it. We know a lot more about what happened now than we did several months ago. During the COVID period, there was free money, as everyone knows. I mean, money was basically at zero. There were a lot of government grants and there was a lot of fear buying. And so capacity is built up in the marketplace. In fact, I can actually -- we actually have seen some product that was bought during that time still in crates, but it was built up. We did not know at the time that, that was what was happening. We thought it was a natural thing, because we had done our due diligence and looked over 10 years history of MVE. So this is an unprecedented dip as COVID was an unprecedented condition. But that capacity is being used up, because we are in conversations with our customers, we're in conversations with our distributors, and that capacity is being used up. So we know that it will return to a growth rate. China will not return, we don't think until after 2025, most likely. But those were the factors. It was the free money, it was the government grants, and it was some fear buying. And then all of a sudden, money cost was up. It was up 6%. There were no government grants and people had -- people were putting the brakes on capital expenditures and they had extra capacity. So it's just adjusting. This is a great business. It continues to produce positive cash flow. We can scale up and down in that business. And it is a demand, it is perpetual. There is no alternative to cryogenic temperatures for the storage of biological commodities.

And the question for Mark, and that would be we see the funding data for cell and gene therapy from ARM and others. My guess would be it takes a while for new funding to translate into volume for you. Is that a fair assumption?

It is. Yeah, I mean, obviously, we talked about that last earnings call. What I see is very positive, to be honest, Paul, is the sequential increase in clinical trial count. I think that's very indicative that funding is starting to matriculate down into execution. And I anticipate continued positive directionality as it relates to clinical activity, which is the early sign of that money pushing back into the system.

Okay. Thank you.

Your next question comes from the line of David Larsen of BTIG. Your line is now open.

Hi. Can you talk about, the number of commercial products that you're now supporting, the revenue contribution from them in the quarter? And then just any color on Shine would be helpful. Thank you.

We can, David. We'll start with Robert with the numbers, and then Mark will take on the other aspects of that question.

Yeah. So, just on the commercial revenue, so if you look at commercial revenue for the quarter, we've got $6.5 million, so above 51% increase, year-over-year and a 20% increase sequentially. So obviously, strong performance on the sequentially. So obviously, strong performance on the therapies that we're currently supporting. Mark will talk a little bit about some of the more recent announcements on approvals, those are not reflected in our Q2 performance, but will be reflected in the quarters out. So strong commercial revenue, We continue to see a good pipeline going forward as well. So Mark, do you want to comment?

Sure. Yeah. Thanks, Robert. Yeah. If you look at the Wall Street analysts, they're obviously forecasting good consistent ramps in the second half of '24 and '25 for the Gilead products, the BMS products, the J&J Legend products, Sarepta, they got their label expansion, Bluebird, modest. And then we now have obviously Iovance coming online with moderate volume and then CRISPR Vertex, which is just starting. And then, obviously, subsequent late in the quarter, we had a couple of additional approvals, although they won't be based on market feedback, significant volume drivers. The move to earlier line therapies for some of these guys is going to be substantial and will continue to drive really, really nice CAGRs on the commercial space. If you look at it, I mean, the BMS Abecma product that went to earlier line, they now have a patient population potential of 80,000 patients a year and CARVYKTI is now at 140,000. So if you think about that, that's once they address the accessibility issue, the patient accessibility issue that's going to drive continued nice improvements in volume. In addition, there's another two potential approvals this year in 2024, which is obviously substantial and positive. So we yeah -- I mean, we could also potentially have another 7 filings through the balance of the year.

Okay. Thanks very much. And thoughts on China?

Yeah. China is in the ditch and that economy is going to stay there for a while, David. We don't think it will improve through 2025.

Yeah. At this point, the revenue related to China is very small. So we're just a little above 3% in total revenue, related to China. So the risk there is for us minimal.

Okay. And then just one last quick one. For in terms of MVE, any more color on channel demand? Like, where are we seeing the weakness? Is it across the board? Is it certain countries? Is it certain facilities, academic medical centers, research labs, large biopharma entities, just any more color on where the weakness is? Thanks very much.

Well, it's a weakness in the general market, David. And as I was mentioning earlier to answering Paul's question, it had to do with -- certainly in the freezer side, it had to do with some defensive buying during COVID, some capacity build up in cryogenic systems across the board, both in doors and in freezers. So it's pretty much across the board and it came and that weakness is right now is just the market using up the cryogenic systems capacities that were built up during that COVID period. We are having conversations, more conversations now with larger clients and the order stream seems to be stabilizing. So, we think we at a base point with MVE. MVE, by the way, is still cash flow positive. It still is a contributor, and it's a sound business. It's fully integrated with or not fully, but it's partially integrated with other parts of our company, like BioStorage, BioLogistics and BioServices. So it's an important part of our company and it is profitable.

Thanks very much.

Your next question comes from the line of Puneet Souda from Leerink Partners. Your line is now open.

Hey. This is Philip on for Puneet. Thanks for taking my question. Just kind of touching on what you just talked about, could you give just some color on how the order book has been trending for MVE? Like, have month over month trends been improving or stabilizing sequentially? And what can you tell us about like the exit rate in June or just how demand has been trending there?

You're asking about you're asking about Chengdu specifically?

Talking about MVE.

Yeah. And so China demand is at an all time low. I mean, that your question is around the China demand, correct?

That's right. All of it. All right.

Yeah. Philip restate your question and I'll answer it.

Yeah. I was just wondering on sort of just color on how the MVE order book has been trending for just for like that business overall, China and more broadly as well? Just kind of how month over month, yes.

Okay. So, we do follow our order trends pretty carefully. Our orders are -- we think that our order trends are stabilizing and that they're sound at this point. The China market, of course, is rather insignificant right now. It's not accounting for more than about 4% of the business. And then if we look at the freezer and the door ordering trends, they're at a lower level, but they're steady at this point.

Yeah. I just think if you look at the order intake, while it looks promising, it's just not enough data to say that it's trending upwards. No, we can't say that. And that's, I think, the reality. We do expect it to come back. It's really a question of when will the demand come back because we know MVE is by far the largest provider of cryogenic systems in the global market. So as demand comes back, MVE will be the beneficiary of that, come back in demand. It is already profitable. We took measures to make sure that it's generating in the 40s from a gross margin perspective and the high teens from an EBITDA perspective. And as volume starts coming back, obviously, that contribution will increase.

Got it. It makes a lot of sense. Thank you. And then maybe just a follow-up. You touched on Sarepta, a lot of different kind of estimates flying around for the label expansion impact. But just kind of wanted to ask, just, what is your sense of like how meaningful this is for you and kind of what we can assume in terms of top-line benefit for this year or next year? To your point, there's like constraints on manufacturing capacity and accessibility on the therapeutic side. So just wondering sort of how we could think about that?

Yeah. So, if you take a look at the data, with the label expansion, the eligible patient population goes up to about 17,500 patients a year, which is a significant step up. Obviously, we anticipate a notable increase in revenue predominantly in Q4 and then through ‘25. So we're very, very optimistic overall.

Got it. Thank you. Appreciate it.

Your next question comes from the line of Matt Stanton of Jefferies. Your line is now open.

Hey, thanks. Maybe to start one for you, Robert. On the positive adjusted EBITDA in 2025, could you just clarify if that assumes a certain level of growth or revenues with the cost? So are you basically saying that you can get a positive adjusted EBITDA in ‘25 without any meaningful top-line expansion? And then just on the $22 million of annualized savings, sounds like some of that will show up here in the back half of the year. Anything you can help us with in terms of pacing for the rest of the year and what might start to show up in 3Q and 4Q? Thanks.

Yeah. No, absolutely. I think, look, if you look at the adjusted EBITDA, you can see that even in our Q2 performance sequentially there was quite a significant improvement in adjusted EBITDA. So, we reduced the EBITDA loss about half sequentially quarter-over-quarter. Now, the measures we've taken both on the products and the services side, we’re taken actually, MVE took some of the measures already last year just in reaction to the slowdown demand. And then we have significant initiatives underway in Q1, Q2. We expect to have those completed globally by the end of the year. In terms of the expectations of positive adjusted EBITDA for 25%, I think in terms of the revenue ramp, that's going to dictate the timing of us reaching that goal. But we do expect to be able to achieve that even with a more modest increase in revenues based on the actions that we've taken. And the actions we've taken related to adjusted EBITDA, that's one part related to the reduction of FTEs in the organization, reduction of consultants that have worked for us full time, in some of the non-critical areas. And then we obviously have, from a cash flow perspective, delayed some of the expected capital expenditures to align them more with the expected growth. So the answer is, yes, we do expect to achieve it. Timing of it will depend on, in part, on the ramp up revenue. And then for the remainder of the year, if you look at Q3 and Q4, I wouldn't expect more than, say, somewhere around $5 million in total to run through the second half. But the fully annualized run rate is expected to be about $22 million. That's a combination of reductions on the cost of sales side, so on the labor and direct cost of sales as well as the SG&A side.

Thanks. And then maybe going back to one of the questions from earlier just in terms of the MVE long term growth rate. Is there any way you can kind of quantify how important or how big the growth rate in China was to that business? And I guess the point behind that is if China going forward is a more mature growth market and maybe it's high singles instead of mid-teens? Just trying to kind of think about kind of a structural headwind to MVE's growth rate from what China attribution had been there historically? Thank you.

Do you want to take that?

Yeah. Look, I think if you look at China is a little bit of a question of when they will come back, how strong they will come back. So if you take that kind of all of the picture and you just expect a very, very modest contribution from China, Looking at the MVE growth rate, yeah, we certainly expect it to be at higher single digit growth rates. Again, if you look at the rationale for acquiring MBE, it was, one the vertical integration and the fact that they're the down and play up for cryogenic systems and the fact that they are cash generating and profitable. We've maintained the profitability as a percentage, both from a gross margin and adjusted EBITDA perspective. We've also retained the strategic global positioning as a leader in the space. So again, as that comes back, so will the further contribution. Ultimately, if you look at our -- if you zoom out, look at our model overall, the overall expectation is that services is going to continue to grow over time much more significantly. So it's MVE is not going to have that same growth rate if you look at 25%, 26% and 27%. But we'll still maintain its leadership, but still maintain its strategic importance in terms of the vertical integration and maintains profitability.

Thank you.

Your next question comes from the line of Yuan Zhi from B. Riley. Your line is now open.

Thank you for taking our questions. I just called the wall. I'm curious to hear any trend you have observed from IVF and fertility clinics. Was there an increased cryo-storage demand from those customers recently? Thank you.

Yeah. We focus around cryo transportation with reproductive medicine, not cryo storage. And we have seen consistent improvement in volumes associated with reproductive medicine over the last 7-8 quarters. And that's largely due to our strategy where we've locked up and established significant relationships with the large clinic networks, in which any action that goes on through them comes through us versus going through intended parents and individuals. And so that will continue to drive volume increases for the foreseeable future there.

Got it. Any chance you can extend the transportation to upstream to have credit storage services to those customers?

It's not something that we're currently evaluating. Our focus in BioServices is really focused around the cell and gene space. And our infrastructure is really built around managing cell and gene product flow, not reproductive medicine material, which is a different strategy and a different approach.

Got it. Thanks for the additional color.

Yeah. Thank you.

Your next question comes from the line of David Saxon of Needham. Your line is now open.

Great. Good afternoon, and thanks for taking my questions. Maybe one for Robert. Just on free cash flow, what was that for the quarter? How should we think about cash burn for 2024 for a year? You do have a net cash position and you've talked here about the restructuring program. But how are you thinking about kind of balancing the investments you've been making and continue to make over the next 12-24 months or so, and then these 2026 converts?

Yeah. No, it's a good and fairly comprehensive question. But, yeah, I know -- if you look at the initiatives we've taken, they're quite significant in terms of really slimming down the organization. As you know, we've built out very, very aggressively over the last couple of years to really establish both organically as well through acquisitions to establish a global platform, become the leader in space, to really complete our supply chain for cell and gene therapies. So now is the time where we have to really adjust a little bit to the current market, current demand, and that really drove us to implement these initiatives to really drive really profitable revenue, profitable growth. So that's really kind of a main piece. If you look at the cash burn, cash used in operations was about $11.2 million for the first half. CapEx was about $7.8 million So you can already see that we've dialed down the CapEx expenditure compared to last year. Last year, at the same time, we have spent about $18.3 million in CapEx. So we're taking a number of measures to really drive and protect the cash. We're net debt positive about $70 million after this transaction. I think if we look at the buyback of the convert, that gave us an ability to buy back $160 million at 11.5% discount. And that leaves us with significant dry powder approximately $250 million cash and short term investments to operate our business and pursue strategic activities. So we're really well positioned, I think from a balance sheet perspective, from a kind of global operational infrastructure perspective. And it's now on completing the execution of these plans that we have to drive more profitable performance within the organization. And as Jerry and Mark had mentioned, without cutting off any of the key strategic initiatives, growth initiatives that we think will increase our share of wallet with our client base and really further entrench us into the life sciences market and the cell and gene therapy space in particular.

Okay. That was super helpful, Robert. Maybe just a quick follow-up to that. So you said $11.2 million cash used in the first half. You talked in one of your answers to a previous question about maybe seeing around $5 million in savings in the second half. So for the second half burn, should we be thinking kind of mid single-digits? And then I'll just throw my second question, as it relates to guidance. I think the prior guide assumed flat MVE revenue. So I just want to confirm the main driver or even all of the delta from the new guidance is MVE expectations coming down. And then for MVE, I mean, Jerry, you talked about orders stabilizing. So for the third fourth quarters, is kind of this $19 million $20 million range for MVE revenue a good starting point or what's your level of confidence that orders have indeed stabilized? Thanks so much.

David, the numbers you quoted are a little bit high. MVE is running at around an $18 million per quarter run rate right now. We don't anticipate that going up. So it's a little bit high. We do anticipate growth starting in 2025, but we think it's going to be rather stable for the rest of this year. And then we'll see some sequential growth beginning in 2025 as that excess capacity is used up. So the company is prepared for that. And I think that's the way it will look moving forward. But we do have growth in the services business. It's substantial in both CryoPort Systems and CryoPDP, and BioStorage is doing very well as well. So we do have those offsets moving forward.

Yeah. And David, on your question related to cash used in operations and the cash flow, you'll see that once we file the 10-Q tomorrow in more detail on the stable of cash flows. But I would expect that to go down somewhat in the second half. But you have to have in mind, there's going to be some costs related to the restructuring that we have as well, but the outlook expected to come down. So in the second half and then obviously within the second half more significantly in the fourth quarter.

And David, I'll address those in general, those points in my closing comments in a few minutes.

Okay, great. And if I could just sneak a follow-up question in there, Jerry, you just mentioned excess capacity as it relates to MVE, talked about kind of fear buying around the COVID, pandemic. I guess, how do you measure that excess capacity? And I'm really trying to get at, like, how confident are you in kind of calling the bottom here and calling for growth in 2025? Like how do you kind of wrap your head around measuring this excess capacity and kind of working through that? And I'll leave it at that. I'll jump back in queue. Thanks so much.

David, that's a question that we struggle with. It's a very good question and we struggle with it, because it's very hard to do. You would actually have to go out to every customer of the company to see if they had inventory. We do know some that have had inventory. I know some that's still in crates right now that was bought during that period of time. So that's very hard. The way we determine that is by looking at order patterns, we judge then our conversations with our clients and the timing of those. The governmental budgets are really important, so because a lot of institutions are funded from the government, research is funded from the government. These are all users of and many other biological endeavors are funded by the government. So government spending is important. So we look at all of those things and try to determine where we are. But it's an art, it's not this is not a science, it's not absolutely quantitatively driven, because we just don't have the visibility on what that capacity build up is, in fact, in the marketplace. We're trying to read it all the time, but that's the best we can do, but is by continue to probe and put things together, plus looking at the order pattern, plus talking with our clients about their business and about when orders are going to be placed.

Great. Thank you so much.

You're welcome, David.

And speakers, there are no further questions at this time. I will hand over the call to Jerry Shelton, your CEO. Please continue.

Thank you for your questions this afternoon and for our discussions. Our second quarter results showed strong progress in our life sciences business and all businesses and revenue lines improved quarter-over-quarter, in particular cell and gene therapy industry continues to advance as evidenced by in the 51% year-over-year increase we saw in our revenue from the strong demand of these life-saving therapies. I think you can tell from our earlier remarks and our discussions and our quarterly review that we're not just sitting back and waiting for market improvements, we're proactive in taking measures that will keep us in financial trim and at the same time help us move forward as we advance our support of the life sciences. We're serious about reaching our goal of profitability and return to positive adjusted EBITDA in 2025. Profitable growth is not just an aspiration, it's a mandate. Thank you for joining us this afternoon. We appreciate your continued 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.