Cryoport, Inc. (CYRX) Earnings Call Transcript & Summary

Good afternoon, and welcome to Cryoport First Quarter 2025 Earnings Call. [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, sir.

Thank you. 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 to be filed with the Securities and Exchange Commission and those described from time to time in other reports, which we file with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerrell, the floor is yours.

Thank you, Todd. Good afternoon, ladies and gentlemen. 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 first quarter 2025 in review document to our website. It can be found on the main page of the Cryoport, Inc. website. 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. Before I review our results, I would like to highlight that due to our recently announced strategic partnership with DHL and the related sale of CRYOPDP to DHL, CRYOPDP's financials, which were previously a part of Cryoport's Life Sciences Services reportable segment are now presented as discontinued operations. Accordingly, we have provided quarterly historical information on this basis for 2024 in our first quarter 2025 in review document. This information is intended to support financial modeling efforts for those needing this information. Please note that unless indicated, all revenue figures discussed today will refer to continuing operations. This includes our fiscal year 2025 revenue guidance first shared alongside our DHL transaction announcement. Now I'll provide a brief update on our business, and then we will take your questions. Cryoport had a solid start to the year with $41 million of revenue from continuing operations for the first quarter, which represented 10% year-over-year growth and helped drive meaningful adjusted EBITDA improvement. Three things that excited us about the first quarter were: first, client engagement in Life Sciences Services grew substantially, highlighting a new momentum in our business; second, order patterns for our Life Sciences products continued to show signs of stabilization; and finally, our strategic partnership with DHL. Life Sciences Services revenue, in total, increased 17% year-over-year, which included our support of commercial Cell & Gene therapies, which grew 33% over last year. Life Sciences Services now account for 56% of total revenue, and it continues to be driven by the increasing development and commercialization of Cell & Gene therapies, which we believe will persist even in the current economic environment. As of March 31, Cryoport supported 19 commercial therapies and 711 clinical trials, representing approximately 70% of Cell & Gene therapy trials. Subsequent to the quarter end, a new therapy from our customer, Abeona Therapeutics was approved, bringing our total commercial therapies supported to 20. In the first 6 -- in the first quarter, 6 BLA/MAA filings occurred; 3 filings were for new therapies and 3 filings were for geographic expansion. Additionally, BMS received a supplemental approval from the European Commission to expand the label of Breyanzi as a third-line treatment for relapsed or refractory follicular lymphoma. For the remainder of 2025, we anticipate up to an additional 17 application filings, 4 therapy approvals and additional 4 approvals for label or geographic expansions or moves to earlier lines of treatment, all of which give us further confidence in our growth forecast. Our Life Sciences Products business continues to show further signs of demand stabilization and grew 2% year-over-year. We are continuing to expand our product portfolio to capture new revenue streams with innovative products, including the MVE High-Efficiency 800C, which was released in the first quarter and meets the needs of facilities that have limited space yet require high capacity and security. Another key milestone this quarter was the announcement of our strategic partnership with DHL Group. As a part of our strategic partnership, DHL acquired CRYOPDP for an enterprise value of $195 million, which we expect to close in the second or third quarter. We think this arrangement will enhance our positioning in Asia Pac and EMEA and reshape our competitive profile within the industry by leveraging the global scale and capabilities of our new strategic partner, DHL. Our strategic shift in responsive is responsive to market changes driven by the evolution and progress of our industry and provides us with a strong infusion of capital, a substantial return on investment and a strategic partnership that enables us to sharpen our focus on our core of the Life Sciences Service offerings directed toward the rapidly growing regenerative medicine space. Consequently, we're confident in our organic growth outlook for the full year and are confirming our revenue guidance for fiscal year 2025 in the range of $165 million to $172 million, which at the midpoint represents a 7.5% growth relative to fiscal year 2024. Before we begin to take your questions, I want to briefly talk about global tariffs. In situations where tariffs may impact our business, such as potential increases in cost of raw materials such as electronics, aluminum, stainless steel, we have already taken steps to diversify our supply chain. In situations where we cannot mitigate tariff charges, we will implement surcharges. We have successfully taken a similar approach in the past. For example, during the supply chain challenges experienced during COVID, we were able to maintain solid financial margins. To be clear, we are beginning to see impact from tariffs on aluminum, and we will pass those costs through a surcharge as appropriate. We feel confident in our ability to manage potential future cost increases due to tariffs. More broadly, we do not expect tariffs to impact our core support of clinical trials or commercial therapies. Of course, we will continue to assess the situation and keep you updated as more information becomes available. In closing, we made meaningful progress during the first quarter in revenue generation, operational improvements and with the DHL strategic partnership. With this progress to accelerate our growth, we remain focused on supporting the increasing number of commercial regenerative medicine products and the rollout around the world. We are also advancing our key initiatives such as IntegriCell Cryopreservation Solution, our global supply chain center network and introducing new services and products in order to better serve our clients and open up new revenue streams. We remain confident that the actions we have underway and our momentum will lead us to a return to positive adjusted EBITDA during 2025. This concludes my prepared remarks. So now I will ask the operator to open the lines for your questions.

[Operator Instructions] Your first question comes from Kyle Crews with UBS.

Could you give us a brief update on the launch of IntegriCell how the -- and how client adoption is going there? And could you touch upon CGP trial growth? And specifically, I think I calculated around high single-digit growth there. Could you speak to the health of the market given some of the negative news flow that we're hearing?

First of all, I'll speak to the market, and then I'm going to turn it to Dr. Sawicki, who can answer your questions about the market and especially IntegriCell and our advancements. But we see the market very positively. We see all those things that I mentioned to you in my opening remarks. We see commercial revenue continuing to ramp with the growth of number of commercial therapies continuing to grow, the growth in the addressable market of our customers therapies and the growth in the number of clinical trials we support. So we're bullish, and we are well on our way to building our company to that profitable growth bridge that I've mentioned several times. Mark, would you take the rest of the questions?

Sure. Happy to do so. Yes. Just to further with Jerry, '24 was a decent year from a financing standpoint. Cell & Gene therapy space grew about 30% from a financing standpoint, which is obviously stabilizing the market and providing a significant fund for these -- for our companies to continue to progress their clinical and commercial portfolio. And commercial therapies are continuing to progress nicely. We're up to 20 approved therapies that we support at this point in time, and there continues to be a robust pipeline overall, which is very exciting. We anticipate, as Jerry said in his opening remarks, up to 17 additional filings this year, potentially another 4 therapy approvals and 4 label expansion. So that's a very robust year and will be consistent with the record year that we saw last year from an approval standpoint. So it continues to be very nice and robust. Turning to IntegriCell. So IntegriCell is progressing very, very nicely. As we had mentioned previously, both facilities in Houston, Texas and Liege, Belgium are open, and we also have and already have multiple commercial contracts and are currently onboarding multiple programs into those facilities. So it's progressing nicely.

The next question comes from Richard Baldry with ROTH Capital.

[Audio Gap] for contingent consideration that changes it -- is there a reason that isn't backed out as sort of a onetime event? Because I think if my math is right, without that, it'd be moderately positive on adjusted EBITDA.

Sorry, Rich, we were cut off from you. Can you please restate your question?

When I look at the adjusted EBITDA loss, it's sort of a minor amount, but it's including a drag, it looks like from contingent consideration. I'm just curious why that as a onetime event wouldn't have been backed out of that number? Because it's -- if my math is right, it looks like you'd be positive EBITDA without that drag.

No, we did back it out. It goes the other way. So we had a contingent consideration in -- at year-end that we released in Q1 related to one of the acquisitions. So we did back that out. But having said that, obviously, the adjusted EBITDA did improve significantly over Q1 of last year based on the initiatives that we took in 2024.

And post the divestiture, whenever it closes, you'd have a pretty disproportionate now amount of net cash versus your market cap. Can you talk about what you think the appropriate steps to bolster shareholder value would be given that very large cash reserve versus pretty modest adjusted EBITDA losses?

Yes. Rich, we will be prudent in the way we allocate that cash, the use of that cash and so forth. Of course, we're living in some times that are -- have a fair amount of uncertainty in them, but we'll be prudent. We'll be opportunistic, and we'll be careful about the way we allocate that cash. One of the things we will consider is the fact that our stock is highly, highly undervalued, and we certainly will -- we have an authorization for stock buyback. And so that will be a consideration at the time we look at that -- the uses of the cash.

The next question comes from Puneet Souda with Leerink Partners.

You have Michael on for Puneet. My first one has to do with the service gross margins. I'm getting about like a 500-basis point year-over-year expansion. So I'm curious if -- like what's driving that growth? And also if we should expect a similar year-over-year expansion in the balance of the year?

Yes. If you look at the gross margin for the company and services and products, you're absolutely right. We saw a significant increase in the services gross margin for Q1 year-over-year. And we do expect to see more leverage from our core services in the Cell & Gene therapy space for our services. So over time, you will see an expansion of the gross margin for the services side. We do, however, also have a couple of newer initiatives that will still depress somewhat that growth in gross margins, such as IntegriCell that is just starting to ramp. So we do expect strong gross margins to continue throughout '25. And certainly, as we look into '26, '27, we expect margin improvements beyond what you're seeing today.

And then on the clinical trial starts, I was wondering if you could offer any color about how small versus large pharma is performing. We've heard comments from the broader tool space that SMID caps have been kind of pulling back and large pharma has been a bit healthier. I was wondering what your view on the market is?

Mark, why don't you take that?

Sure. Yes. We've seen it be very balanced. We're seeing contribution on the ads from both the biotech as well as the large pharma environment. What we're seeing overall is those biotechs that have promising pipelines are seeing additional interest from the large pharma where they're continuing to resource and put money into and purchase licensing agreements for a lot of these product lines. So it's maintaining a robust flow from both.

Maybe to add into that, in Q1, we did have 32 ads and 22 removes from our -- so we reported a net up 10, but it was a strong amount of adds in Q1 for our clinical trial.

Yes, very strong. Correct. Yes, correct.

The next question comes from David Larsen with BTIG.

Congratulations on the good quarter. 10% year-over-year revenue growth looks pretty good to me. Jerry, you already mentioned some of this on your prepared comments, but can you talk about just the broader macro environment? How are your clients responding to the potential 25% tariffs? There was this executive order for drug pricing signed on April 15. There's the ongoing impact from the Inflation Reduction Act. IQVIA had a year-over-year decline in their services bookings. The CROs are under pressure. Are you seeing -- like what is the response from your clients and demand, the demand side of your business, if any?

Well, David, we really don't have any significant tariff impact on Cell & Gene therapy. So we're moving along pretty well. And Mark, you may wish to add to that.

Yes. So the positive thing is the vast majority of those actions that you talked about from a government standpoint are really, really focused around small molecule and biologic drug product, which has high volume, large revenue streams. The vast majority of the Cell & Gene therapies out there are for very specific indications, and they are the only product available to address that, the particular etiology based on the fact that they've already gone through all the alternatives or many of the alternatives. So the pressure there is, I think, a lot different. We're not seeing a lot of concern. I'm actually down at ISCT right now, which is the International Society of Cell & Gene Therapy conference and the mindset here has been pretty positive. So we're not seeing a lot of concern.

So David, we're continuing to see the commercial revenues ramp, and we're continuing to -- as we forecasted, continuing to see commercial therapies maturing and coming to market. So we're very optimistic.

So a lot of the source materials come from the United States, so they wouldn't be impacted by tariffs. Is that correct?

Correct.

Yes, David, most of the product, if you will, the therapies are -- the cells are taken right from the sick patients. So the patients are in the same countries where it's, I'll call it, manufactured and then sent back to the patient on the autologous side.

Okay. And you also answered this already, but I'm going to ask again, in terms of like your own cost of goods, it seems like there's a lot of technology you're working with. You got the doers, you got the technology on the doer, all those electronic components, there's transport costs. And I heard you say that those tariffs, if they happen, you're going to pass them through to your clients through surcharges. So you're not expecting any increase in cost or margin pressure. Is that correct?

That's correct. Yes.

Partially correct, David. We have an incredibly able sourcing team, and we've already worked on mitigating tariffs by changing supply chain routing or supply chain sources and so forth. And as I mentioned in the opening comments, those that are passed on to us through components or those that we cannot mitigate we will put into surcharges because we don't think this will be permanent. We think that -- and surcharges we can extract at the time that they're not. But so we will protect our margins. And I don't think this is unusual for anyone. But -- so we feel like we have this under control for sure.

One last quick one, please. Product revenue grew year-over-year. Just any color there in terms of ongoing demand. It looks like it's not only bottomed, but it's coming back up. Is that...

Yes. I mean the demand did grow 2% in products year-over-year. And the revenue, and particularly from North America improved -- has improved over the past 3 quarters, and we expect that trend to continue as our products are made in America, and they won't be subject to tariffs. So while global markets have been disrupted somewhat, the Americas are showing resilience and incremental revenue growth as they have for the last 3 quarters, and we predict that will continue.