Cryoport Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 14 speakers on the call.

Operator

Afternoon, and welcome to Cryoport's Third Quarter 2023 Earnings Conference Call. All participants will start in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at the time for you to queue up for the question. As a reminder, this call is being recorded.

Operator

I will now turn the call over to your host, Todd Frommer from KCSA Strategic Communications. Please go ahead.

Speaker 1

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.

Speaker 1

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, elsewhere in our annual report on Form 10 ks filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Mr.

Speaker 1

Gerald Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Speaker 2

Thank you, Todd. Good afternoon, ladies and gentlemen. We appreciate you joining our earnings call today. With us this afternoon is our Chief Financial Officer, Robert Stevanovich, our Chief Scientific Officer Doctor. Mark Sawicki and our Vice President of Corporate Development and Investor Relations, Thomas Heinz.

Speaker 2

As a reminder, we have uploaded our Q3 2023 in review document to our website. It can be found under Investor Relations In the Events and Presentations section, this document provides a review of our financial and operational performance and general business outlook. If you have not had a chance to read it, I would encourage you to go to the website and download it. I will provide a brief update on the business And then we'll move on to answering your questions. Earlier today, we reported 3rd quarter results that were consistent Our expectations as discussed on our last earnings call taking into account current and well known global economic and geopolitical challenges.

Speaker 2

Having said that, we are continuing to see solid and sustained demand from our key life sciences and cell and gene therapy customers despite the current microeconomic climate. What I mean by that is, when you take a close look, You will see that our quarterly results contain some very promising growth points, including a notable increase in commercial and cell and gene therapy revenue. In fact, commercial revenue increased 54% on year over year basis and 52% sequentially.

Speaker 3

At the

Speaker 2

same time, our bioservices revenue increased 26% year over year. Regarding cell and gene therapy, Cryoport Systems grew 10% both on a year over year basis and a quarter over quarter basis. All this growth Was driven by the sustainable demand we saw during the quarter and that we are continuing to see from advanced therapy manufacturers. We also continued to increase the number of clinical trials supported. During the quarter, we added a net 27 trials year over year.

Speaker 2

This brings our global clinical programs to a record total of 670 with 81 of these trials being in Phase 3. A total of 6 Cryoport supported BLA MAAs were filed during the quarter. Looking ahead, during the remainder of 2023, we expect up to an additional 5 anticipated application filings and 1 new therapy approval. We think our NVE Biological Solutions order intake has begun to stabilize. NVE's results This quarter, we're in line with our expectations and our current guidance reflects this.

Speaker 2

During the quarter, MDE And some 70% of with some 70% of the world market continues to produce healthy financial metrics. We remain quite confident about our long term market outlook and the recovery of our China market as the country despite its current economic woes is a hotbed for the Alongside our operating results during the Q3 and in the recent weeks, we have continued to on our corporate strategy to accelerate our long term growth through our innovation, department development projects and small strategic And smart strategic acquisitions and partnerships. For example, this includes our collaboration with the cell and gene therapy Catapult, The premier cell and gene therapy manufacturing innovation center in Europe to provide integrated logistics support for its Stevenage Manufacturing Innovation Center in the United Kingdom. Further, this partnership from its location on the Catapult site We'll provide other opportunities within the Stevenage Bioscience cluster. This collaboration establishes our U.

Speaker 2

K. Logistics center, which will our first U. K. Logistics center, which will further support our European expansion. We recently completed the acquisition of TechforMed Life Sciences, a technology spin off of the Technical University of Darmstadt located in Germany.

Speaker 2

Tech ProMed provides next generation pharmaceutical supply chain visibility by integrating advanced condition monitoring, Cloud and artificial intelligence solutions. We are excited about integrating TechConnect's cutting edge Technology for comprehensive monitoring in real time across all crowdfund companies. By doing so, we will expand our digital supply chain solutions Logistics Management Capabilities and Customer Support. With these latest developments in our leading market positions, we have even greater belief Our long term growth prospects are solid. There is no other organization in the life sciences with the breadth of capabilities Cryoport has in providing robust End to end supply chain solutions.

Speaker 2

Today, Cryo PDP is the world's 3rd largest specialty courier serving the life sciences, covering over 2 20 countries and territories. MVE Biological Solutions is the world's largest manufacturer of vacuum insulated Products and cryogenic systems and is the preferred brand for academic, government and life sciences companies worldwide. Broadport Systems supports approximately 70% of all the cell and gene therapy clinical trial market. And as we continue building our global Supply Chain Solutions that share continues to grow even in a challenging environment. And Cryogen is one of the industry's most trusted And specializing in the secure storage of biological specimens and supporting MD Anderson, Baylor, Texas Children, Atara, Lonza, Start and many others.

Speaker 2

CryoPort is poised to capitalize on the continued growth of the life sciences and especially The cell and gene industry as more therapies make their way toward commercialization over these coming years. Even with today's economic and geopolitical environment, the cell and gene therapy industry is expected to grow at a 10 year compounded annual This concludes our prepared remarks. Now, I'd be happy to take your questions. Operator, please open the lines for questions.

Operator

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. Your first question comes from Paul Knight from KeyBanc. Your line is now open.

Speaker 4

Hi, Jerry. Congratulations on the quarter. The Vertex sickle cell anemia therapy, I think you've mentioned that in the past. What level of involvement Will, you have there is my first question. And then the second question is, If you look back on the NVE, which had its period of softness, but seems to be Stabilizing, was it kind of overstock globally?

Speaker 4

And then what portion was just tighter CapEx budgets? Thanks.

Speaker 2

Paul, I've understood that. I'll take the second question first and then turn the first question to Mark on sickle cell. MBE is in a solid position. I mean, it's hard for us to dissect exactly how much was overshocking and how much we Exactly what happened in the market except for the conservatism and capital expenditures amongst our customer base. And then of course, we have the pullback in China, which we think is stabilized.

Speaker 2

We think we're in a stable position going forward on MDE. Its order intake is stabilized. It looks like it's in good order. And hopefully China has hit its bottom and will be coming back up. There couldn't be much further impact on us.

Speaker 2

Our China revenue in total this year For this quarter rather is around 4%. So it's not going to be any kind of a significant China effect going forward from this point forward. And we think it's stable. So does that answer your question, Paul?

Speaker 4

Yes, very useful. Thanks. I mean, I guess bottom line is, we're getting past it.

Speaker 5

Yes. And maybe let me just add real quick to MBE because I think sometimes people overlook that. Yes. In spite of the revenue level right now in Q2 and Q3, if you look at our product revenue for Q3, The product revenue gross margin is at 45% and the FMEA business has been very profitable driving good positive adjusted EBITDA and cash flow.

Speaker 4

Okay. Yes. Thanks.

Speaker 2

And your first question was on sickle cell, Doctor.

Speaker 3

Yes, Paul. So we actually had 6 BLA filings, the portfolio companies that were completed in the quarter, Which includes Aviara, ImmunityBio, Rocket, the CRISPRVERTEX program as well as the label expansion for Briansy, All of which that we are playing a role in, obviously, if they're approved in the commercial launch activity of it. We can't disclose exactly what we're doing Due to confidentiality, but we will play a role in all of those products assuming that they come to fruition. So the story is even broader than just the Vertex CRISPRVERTEX product, because we're seeing an acceleration in the commercial filing and activity space, which we think is going to Continue to drive that strong performance we had in our commercial revenue for the quarter.

Speaker 4

And is that filing data in the prior press releases, Mark?

Speaker 3

In prior press releases as it relates to

Speaker 6

Paul, that's the answer. We haven't disclosed it until this Report. It's on the in the review that we posted on our website.

Speaker 7

Right. It's

Speaker 3

in the review. Sorry.

Speaker 4

So I'm sorry for saying so questioning so much front end. But so we might we have 6 BLAs in Q3, 5 in Q4. What do you think we'll end up within a range of this year versus last?

Speaker 3

Tom has that data handy. He tracks it really detailed. Tom, do you got those data the stats in front of you?

Speaker 6

Let me make sure I understand your question. Are you asking how many Filings for the year or how many potential approvals for the year?

Speaker 4

I think filings is a common terminology you use, Tom, right. So the 11 we will have here in Q3 and Q4 and then the question really is the number of BLAs and MAAs Total this year versus last?

Speaker 6

It is higher, although it is to be candid lower Then what we are forecasting at mid year, a few filings have slipped out into 2024, where we expect 20 filings now that we have Visibility on in 2024. So there were about 4 or 5 if I remember correctly that slipped from 2023 into 2024. This is on the approval side for those in 2024, we do have 4 already that have PDUFA dates or FDA dates for decisions in early 2024. Okay. Thanks.

Operator

Your next question comes from David Saxons from Needham.

Speaker 8

I did want to just ask a follow-up on the NPE order comments. So what exactly are you seeing Stabilize, like are the orders looking to be flat more sequentially? Are you saying things Have improved to be flat on a year over year basis. And then is this worldwide, including China or specific to certain regions?

Speaker 2

David, thanks for the question. I mean, we monitor a lot of metrics at MBE and what I was referring to is the order intake is stable out, is flattened out and we think that it will continue to be stabilized.

Speaker 1

Okay.

Speaker 8

All right. So I guess Stable, flattened out from the 2nd quarter into the 3rd, into the 4th. That's

Speaker 1

correct. That's correct.

Speaker 8

Okay. Okay. That's perfect. Thank you. And then you obviously noted strength in commercial revenue that was up Fairly significantly in bioservices solutions.

Speaker 8

And you said in the document you posted that it's Continuing into the Q4, so can you characterize what you're seeing? Are trends accelerating into year end? Are they Just kind of stable, but continuing to be strong. And then are there any reasons why that won't continue into at least the first half of next year? Thanks so much.

Speaker 3

Go ahead. Yes. So I'll comment on that. On the bioservices So things are very, very consistent and strong. We obviously opened the 2 new facilities In Houston and New Jersey last year, we've actually on boarded 29 new clients into those facilities over the last 18 months, which is a very, very strong base.

Speaker 3

And this is in addition to very, very strong demand from the cryogene So that's very, very positive. On the commercial side, as Tom had mentioned, filing activity is very strong. We see line of sight on a significant increase in the number of approvals and multiple of these products should be Fairly decent volume, which will continue to contribute to obviously our contribution from a commercial revenue standpoint in 24.

Speaker 5

And maybe just to add, if you look at the Q3 performance in commercial revenue, We'll always have some timing where you have a little bit more revenue in 1 quarter than the other. But we do expect to see growth overall Ongoing in commercial revenue. With that in mind that you'll have some quarters that are higher just because of maybe a greater portion of Product related sales versus service related sales.

Speaker 8

Okay, great. Thanks so much for taking my questions.

Operator

Your next question comes from Jon Sarbier from UBS. Your line is now open.

Speaker 9

Good evening. Congrats on the quarter and thanks for taking the question. Just maybe to dive in a little bit more on the commercial revenues, nice growth in the quarter, Over 50% year over year. I guess any additional details, I guess, you can provide there on this? Is this additional services you have with some of

Speaker 6

the previously approved product?

Speaker 9

Or is there a ramp Some of the newly approved products here. Just any additional color you can provide on that?

Speaker 3

Yes. The bottom line is we saw contributions from Toll. You're seeing additional uptake in revenue acceleration out of our portfolio of existing products. And Obviously, our support of the Sarepta product has also been a nice contributor to that number for the quarter.

Speaker 9

Thanks. And then I guess just any color on cryo PDP in the quarter and how the rollout is going there in the U. S?

Speaker 2

The crowd PDP is doing well. The rollout is we had And to make some adjustments in the U. S. And we've made those adjustments and we foresee that rollout being a continuous new rollout.

Speaker 9

Thanks. And I guess last one here on my end. Just any additional color you provided on Demand trends across large pharma, maybe emerging biotech. I know the total clinical trials are up year over year, but have you noticed any just Changes in customer behavior then given some of the funding environment or just broader macro pressures?

Speaker 2

As I said during our last I think that the development of this industry is similar to biologics. And if you look at Biologics in the way it has since butters in the beginning and then leveled out and everyone today would want to be in Biologics It's in the pharmaceutical business. It's a fantastic business and a larger business. And we're on the same track. We're in the Beginning phases of this development of this industry, we're developing solutions to answer questions in this industry, to answer needs in this And to help it propel and move forward and we think we're in the same track as biologics, if not better than that track.

Speaker 9

Got it. Thanks for taking the questions.

Operator

Your next question comes from Jacob Johnson from Stephens. Your line is now open.

Speaker 10

Hey, thanks. Good evening. Congrats on the quarter. Thanks for taking the question. Maybe not to belabor the point, but just one more follow-up On the commercial revenue, really strong growth.

Speaker 10

Doctor. Sawicki, if I heard you correctly, it sounds like Sarepta was some portion of that. At the risk of asking a question, you may not want to answer, but any way to tease out how much Sarepta was a contribution to growth underscore?

Speaker 3

Yes, we don't break it out on a client specific basis, but it was a meaningful contribution. I'll leave it at that.

Speaker 10

Okay. That's helpful. And then maybe a bigger picture question just on EntegraCell. I think that's a platform you guys have continued to build Out over the last year, I'm just kind of curious where that stands on a revenue basis and as we head into next year, what's the opportunity around that offering?

Speaker 2

I'm going to start and let Doctor. Saligu then take over. But the Entegrucel was started during the last year And it's progressing. But these are the this is a novel solution for the cell and gene therapy industry. It's something that's needed in the industry.

Speaker 2

It will have to be, not only, the plants built, out and finished and Mark can comment on that. But then they will have to be validated and customers will then do their audits. But We have we already are seeing demand coming in. This is a customer driven endeavor. So we know it's going to be successful.

Speaker 2

Mark?

Speaker 3

Yes, just to add on that. So the site in Houston is construction complete. We're just going through all the validation activities as we speak. The site in Belgium It's nearly construction complete. We'll be running a couple of months behind the site in Houston.

Speaker 3

As Jerry mentioned, we're already seeing very strong interest. We've already had a significant number of clients come through the facility, even during construction. And we also have a Already have a robust pipeline as it relates to folks that are evaluating it to be able to step into their clinical and commercial opportunities. So when these come online in 2024, we believe that there'll be a very, very nice and quick uptake With that asset as it comes online. Got it.

Speaker 3

I'll leave it there. Thanks for taking the questions. Thank you, guys.

Operator

Your next question comes from Tia Savant from Morgan Stanley. Your line is now open.

Speaker 7

Hello. This is Yuko on for Tejas. Thank you for taking our question. You talked about MBE demand starting to stabilize in China. Are you seeing effects of anti corruption initiatives still continuing in the region?

Speaker 7

And what do you think needs them?

Speaker 2

I'm sorry, you're coming through on the phone very weak. I didn't really get your options in China.

Speaker 7

Sorry about that. Is that a little bit better?

Speaker 2

Yes, that's better. That's better. Thank you. Okay.

Speaker 7

You talked about MBE demand starting to stabilize in China. Are you seeing effects of anti corruption initiatives still continuing in the region? And What do you think needs to ultimately happen to begin seeing recovery of that market?

Speaker 2

We're not experts on the internal workings of China and what's on the administration's mind. But what we can tell you is that there has been some reserve as a result of the Foreign Corrupt Practices Act. And so People are lying low. They don't want to get caught in investigations and that sort of thing. So it is suppressing the market and hopefully that will open up very shortly.

Speaker 2

And Yes. President Xi is taking initiatives within the economy to stimulate it, but it's not It's hard to predict exactly when that when those initiatives will have some impact. We know one thing, we can't discount China because it is a hotbed of activity for the life sciences and We intend to participate there.

Speaker 7

Great. Thank you for that color. And then a separate follow-up. Could you elaborate more on the Tech How does their condition monitoring with AI differ from capabilities offered by cryoport? And how do you envision incorporating Their condition monitoring capabilities into cryoportal and SmartPak II condition monitoring system.

Speaker 2

I'll start and then I'm going to turn it over Mark for further comment, but Tech For Med is truly a potential acquisition with true strategic impact. The technologies that's been developed by TechPreMed over the last 8 years of its existence It's fantastic technology. It's complementary to much of the technology that we have within Cryoport or have underway at Cryoport And it is, it will boost it. It will actually boost it. It will have synergistic value.

Speaker 2

It has a number of features that are going to have significant impact certainly on CloudFort and we think on the market and the future. So with that, I'll turn it over to Mark to make further comments.

Speaker 3

Yes. Thanks, Jerry. Yes, Jerry is exactly right. It's a very complementary product to our existing SmartPak II condition monitoring platform. It will provide us more depth with different service levels and competencies from obviously high end Real time monitoring, as well as all the way down to a disposable data loggers for 1 way or unidirectional transit Packaging.

Speaker 3

So it's a very complementary product for us. The product suite itself We'll dovetail very nicely into what we've built within our existing portfolio of services. I'll just add just a couple

Speaker 2

of things. Just a couple of things on that. Look, you asked about AI. We've been using AI for a number of years. AI is an important technology.

Speaker 2

It's advancing very quickly. They have that capability. And the other thing is Tech ProMed is very communications friendly. It's enhanced beyond anything on the market today and we'll be taking advantage of that and you'll see it.

Speaker 7

Great. Thank you.

Speaker 3

Thank you.

Operator

Your next question comes from Yuan Shi from B. Riley. Your line is now open.

Speaker 11

Thank you for taking our questions. Great to see the strong revenue from commercial cell and gene therapies. We heard some of the Cell and gene therapy manufacturers signaled weakness in 4Q. How do you see this trend so far in this quarter And the next couple of months is and then I have a follow-up question.

Speaker 3

I'm sorry, you've seen some of the commercial manufacturers or CDMOs doing what?

Speaker 6

Yes. I'll take it, Mark. You're right. There were mixed quarters from the commercial Our commercial customers, some of them had revenue below Street expectations, others exceeded it by a lot, namely J and J Legend and Sarepta. It is going to be a mixed bag in Q4 based on what they're telling The Street.

Speaker 6

So we can't really comment more on their forecast.

Speaker 11

Got it. And then a follow-up question is related to the Techformad acquisition. Does it mean now cryoport Would expand the capability to provide logistics to pharmaceuticals outside of the cell and gene therapy?

Speaker 3

Yes. The short answer is yes, it's complementary to our cryo PDP logistics offering and it will provide them Additional and enhanced competencies as it relates to data monitoring for areas outside of the cell and gene space.

Speaker 11

Got it. Thank you.

Operator

Your next question comes from David Larson from BTIG, your line is now open.

Speaker 12

Hi. Can you talk about large freezer shipments within MVE? How is that progressing? Has growth ticked back up or is it steady, stable?

Speaker 2

Yes, David. The orders for freezers are back on trend. And said on a stabilized basis, it's on and there was a clarifying question asked earlier about second, third, first and second quarter. And so orders have stabilized across the board, the patterns are stable.

Speaker 12

Okay. And then how many Therapies, cell and gene therapy products, would you expect to get approved each year, roughly speaking? I think you were supporting around 15 Last quarter and I mean your commercial revenue, it's pushing 10% of total revenue, I think. Just trying to get a sense for how much of your total revenue you think that could become, like into next year and the following years? It seems like Growing pretty rapidly.

Speaker 2

All right. I was here to answer the question, David, but then Mark and Tom Should have should add their comments as well. Look, the whole this is no surprise. I mean, commercial therapy is what it's all about and we support the most trials, but that's in order to get to the commercial, get these therapies to the commercial arena. And as we start to improve through 10 therapies per year, it's certainly commercial the commercial revenue is going to dwarf Depending on the number of patient potential for the indication, but it's going to dwarf the Revenue from clinical trials and that's coming.

Speaker 2

So it's coming. That's what we're building the company for. That's why we're investing in the future, in all of these Initiatives for the future because we have to be there ready to support the industry as it commercializes. Mark, do you

Speaker 3

want to add Yes, yes. The numbers actually we're currently supporting 12 commercial products. And Jerry is exactly right. Our entire strategy has been to capture the clinical space and retain it during commercialization. Gottlieb said back in 2019 that he anticipated by By 2024 to 2025, 20 commercial approvals a year and we're actually starting to see line of sight on that number.

Speaker 3

And so we're very excited by that, especially because we're supporting such a large percentage of the clinical space. We wholeheartedly anticipate and expect Retained the vast majority of those through commercial and we're building out our infrastructure to support that scale.

Speaker 12

Okay. And just a little

Speaker 6

bit for you. So, yes, it's 12 commercial today. Hopefully, 2 more will get approved before the end of the year. That would bring us to 14. Those 2 do have PDUFA dates or FDA dates before the end of the year.

Speaker 6

And then we have It's more we're forecasting to commercialize next year. That would bring us to 20 total if we're right. Of those 6 We're forecasting for next year, 4 already have PDUFA dates in the first little over the 1st 4 months of the year. And hopefully that number will grow above 6, but that's what we're seeing today.

Speaker 12

How much revenue do you think those 6 could contribute to the business?

Speaker 3

We have all over. What the anticipated number is, but obviously we expect The commercial growth number to be disproportionate to our overall growth number over time.

Speaker 12

Okay, great. Thanks very much. Congrats on a very good quarter.

Speaker 3

Thank

Operator

you. Your next question comes from Brandon Couillard from Jefferies. Your line is now open.

Speaker 13

Thanks for taking the question. Maybe for Robert, circling back to the comment that you guys said you saw the Strong cell and gene therapy demand continue here into 4Q. Is it fair to assume that commercial revenues will be up sequentially in 4Q versus 3Q?

Speaker 5

No, I think the way you have to look at it is really obviously longer term we expect to see very solid growth on the cell and gene therapy side for commercial revenues As we add more commercial therapies to the portfolio. If you look at quarter and sequential growth just because of the early Stage of this revenue stream, you will have just timing wise different revenue streams. So we expect to see growth year over year clearly, but Sequential growth really depends a little bit on the type of services we provide, the type of accessories we provide. So that may vary Between quarter to quarter sequentially, but ultimately, again, we look at growth year over year ongoing.

Speaker 3

Yes, that's why we always say to you guys, look at commercial on a rolling basis. We recommend 4 quarter rolling average and that's where you should see very consistent growth, as we look at that because there is some volatility quarter to quarter based on the timing of Certain products and services that we're doing from a commercial standpoint.

Speaker 13

Got it. Appreciate it. And then I guess, any more color you guys can add on the 27 new trial adds, pretty impressive just given kind of all the headlines around there of funding, is this healthy clip for you guys? Is that Mostly existing customers building up the portfolio, anything competitive wins, maybe I haven't talked about this in a while, but maybe folks shifting from Homebrew on the earlier stage side, do you guys just kind of talk about who is kind of driving those 27 net new ads for you guys? Thanks.

Speaker 3

Yes. So, I can do it, Tom. That's fine. Yes. So, of those, We're still seeing above average volatility on removals.

Speaker 3

So that we're actually seeing net increases that are higher than that. But with the volatility in the space, we're seeing still a fair deal of trials that are either being completed or Terminated or suspended on a quarter by quarter basis. So for Q3, we added 28, we had 20 6 that wound down of those 15 were completed, 9 were terminated, 2 were suspended. A fairly large percentage of those and I don't have the number in front of me, are our new clients. So we've been very successful pulling share on the new client basis as well as retaining in our Just in trial base with our existing clients.

Speaker 3

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

Speaker 6

You covered it, Mark. Thank you.

Speaker 13

Great. Thank you.

Operator

Your next question comes from Richard Baldry from Roth and Kilometers. Your line is

Speaker 11

now open. Thanks. You had a spate of new product and service sort of upgrades enhancements and rollouts lately. So I felt like a lot of your R and D projects sort of come to fruition, but this quarter R and D is up about 21% sequentially. Can you talk about sort of where those incremental investments are going?

Speaker 11

Is this was there anything one time in there? Is this sort of a new sustained or extensible level? How do we think about that?

Speaker 2

Robert, do you want to take that?

Speaker 5

Yes, absolutely. Look, if you look at our R and D expenditures, we have a number of initiatives that are ongoing. Some of the have come to fruition such as the cryoport elite shipper that's being used for Sarepta and ultimately available to other Clients in the cell and gene therapy space. Others are still ongoing. We recently launched the cryoportal 2.

Speaker 5

We have some additional activities related to that cry portal to logistics management system. We're also working on condition monitoring systems, Sky Correct. So there are some ongoing investments in R and D activities related to those initiatives that we expect to complete Yes, during 2024.

Speaker 2

And in addition, Rich, we have the Global supply chain network, which continues to progress nicely, but it certainly is not up to its full maturation.

Speaker 3

And so all in all, it's progressing the way we expected, but it is robust. Yes. We're actually seeing a very nice Theization of the services that have launched, I mean, you guys have seen that the 2 new facilities, the one in New Jersey and the one down in Houston, Texas, Those facilities are now averaging 1.5 audits a week. We put 29 new bioservices clients in those facilities over the last year. I mean, so it's substantial.

Speaker 3

And that's modification of those investments.

Speaker 11

And there's a lot of talk about the Private equity, NBC is pulling back on their portfolios. Can you maybe talk broadly about the acquisition environment? Are you seeing more opportunities? Do you think Valuations are finally coming into better zones for you to go after?

Speaker 2

No, Rich, we actually don't look at it that way. We look at things that fit in our strategy and fit to Where we're going and we don't see any big change in that area.

Speaker 11

Okay. And Lastly, looking at the balance sheet, you took out some of the convertibles early and had a gain on that And did buybacks at the same time. How do you think about the capital structure as it sits today? Was it just opportunistic on the convert side? Do you think that's Strategic, you want to keep that up if at all possible.

Speaker 11

How or how what level of cash would you be comfortable with aside from doing the buybacks?

Speaker 2

Rich, in today's environment, it's a question that we constantly are asking ourselves and we're constantly monitoring. But we have the geopolitical situation. We have an industry that's developing very rapidly. We have a lot of things are going on. There's a lot of dynamics.

Speaker 2

We do have acquisition opportunities that come up occasionally. We want

Speaker 3

to be prepared with to move

Speaker 2

on those when they do come up. So managing the cash and managing the buybacks is An artful thing and it's one that we do look at on a constant basis, but we're measured in that. We are open and we're very open to all the information that comes in and we make our decision. So there's not much else I can say about that except we're constantly looking at it.

Speaker 5

Yes. Maybe I can just add some data points to it. If you look at you're absolutely right, we did buy equity in the past. And then in this just recent Q3, We did repurchase some of the convertible debt, some of the 2026 convertible debt. So we have actually a gain of about $6,200,000 in the income statement, the gross gain from that repurchase really buying the converts at about $0.80 on the dollar.

Speaker 5

So we are monitoring that. And with the repurchase program, we still have about $36,000,000 remaining to deploy under that program. And we have some of the ability to repurchase some digital convertible debt or equity, if we think the timing is right and it's warranted.

Speaker 11

Great. Thanks.

Operator

Next question comes from Puneet Souda from Leerink Partners. Your line is now open.

Speaker 9

Hi, guys. Thanks for taking the questions. So first one, wondering if you're getting any feedback from some of the commercial providers, I mean, so commercial therapies capacity, we're hearing sporadically and different with different drugs that the supply is constrained on the cell therapy side. I'm sure you have seen that So just sort of trying to get a sense of is that gating some of the growth in the near term and how do you see what are you hearing from on your end?

Speaker 3

Yes, I actually think we're getting over the hump on that, to be honest, Puneet. I mean, the nature of conversation is Shifting from manufacturing capacity now to patient accessibility. And that's one of the reasons that we look upstream of the IntegraCell platform that we're building out To really drive that patient accessibility and help facilitate scalability as it relates to ensuring that The patients that want the therapy can get the therapy. So I think that's going to become a smaller issue. A lot of the contract manufacturers We don't have these 2 3 year backlogs on product requirements or manufacturing Backlog.

Speaker 3

So I think the manufacturing capacity issues, we've largely caught

Speaker 9

up to it, I think. Okay. And then on cryo PDP and MVE, obviously, large portion of your revenue is still. So just wondering if you can provide some guideposts as you're thinking about sort of 2024 in those businesses, Anything you could provide would be helpful. Thank you.

Speaker 2

Yes. Robert, do you want to take that?

Speaker 5

Yes. Look, just in terms of the 2024 outlook, we will provide guidance and a more detailed review of the 2024 outlook Yes. At our year end earnings call, look, we've talked about the cryo PDP business. They have expanded their geographic platform. They've been very strong in Asia, PAC and Europe.

Speaker 5

We fell a little bit short on the U. S. Side in terms of driving the revenue synergies Crime PDP, that is advancing and we have taken steps to really enhance that and you'll hear more about that over the next weeks months. So that's how far we can go at this point in time, but we'll certainly provide a little bit more of a detailed outlook for 2024 at our year end earnings call.

Speaker 9

Okay. And then, if I could ask about, there is Some companies are seeing more expansion in EU versus U. S. In terms of therapies. I'm just wondering If you're seeing any logistical challenges with all the obviously, there's the war in Europe then now the Israel Gaza situation.

Speaker 9

So just wondering if you're seeing any disruptions in logistics on that front?

Speaker 2

Nothing of significance right now. We've had disruptions in the past with, but they were minor and there's nothing of any significance whatsoever At this point.

Speaker 9

Got it. Okay. Thanks guys.

Speaker 3

Thank you.

Operator

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

Speaker 12

Hi. One more. It looks like your SG and A costs came in maybe up 20% year over year. All the companies that I cover have talked about sort of paying aggressive attention to their cost structure. Do you have any thoughts there, Robert or Jerry?

Speaker 12

And it just seems to me like there's a lot of EBITDA potential In the business as it stands now, just any thoughts around cost containment efforts that I think A lot of folks have been sort of seeing recently. Thanks very much.

Speaker 2

Yes, I'll begin and then Robert can conclude on that question, David. But you're right. There is a lot of, a bit of potential in the SG and A and that SG and A Is inflated because of the number of projects that we have going on. These are all customer driven, market driven projects with great potential. And but they do have an impact as they're under development on the SG and A, but the potential is enormous.

Speaker 2

Robert?

Speaker 5

Yes. I will say, Minh, start May 1 with some of the earlier investments we've made that we talked about. Some of those investments are starting to pay off now. We talked about the BioStorage bioservices revenue that grew 26%. And then also obviously building our core solutions in terms of the revenue growth On the commercial side, noteworthy there is the initiative that we have related to our cryoported lead shipper supporting Sarepta's Does commercial launch.

Speaker 5

So these are initiatives that you've seen over the last years in terms of building out some of these competencies. And then we talked about building out the overall global infrastructure. And really if you look at the market that we're in, in the expected growth that we're seeing Just based on discussions with the clients that we're currently serving in clinical trials and commercial launches, we do know that This will ultimately drive significant revenue and you're absolutely right. As you see that revenue grow and as you see us leveraging The assets and the capabilities, specifically in the cell and gene therapy space, you'll see that EBITDA margin grow with that as well. So we are very mindful of cash.

Speaker 5

We're very mindful of spending and ensuring that we have the right ROIs. It's on our minds and certainly on the investors' minds as you stated. But at the same time, we see a significant opportunity for us Really to further bolster our leadership position and to capture more wallet share from these customers that are poised Yes, to grow quite significantly over the next years.

Speaker 12

Thanks very much.

Operator

There are no further questions at this time. Jerry, please proceed with the closing remarks.

Speaker 2

First of all, I want to thank all of you for your joining the call today and the robust Question and answer period, they were good questions and they gave us a chance to talk about some very important things. In closing, Our Q3 results were in line with our expectations, showing some growth aspects, particularly in commercial revenue. At the same time, Crop Board has continued to execute on its corporate strategy, increasing its market presence and capabilities through meaningful partnerships and acquisitions. By continuing to execute on this strategy, we believe CropWort will emerge as an even stronger company that is well positioned to achieve long term profitable growth. We thank you for joining us today.

Speaker 2

We appreciate your continuing support and interest in our company. We look forward to updating you on our progress again for the Q4 very soon. So have a good evening. Thank you very much.

Operator

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

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Earnings Conference Call
Cryoport Q3 2023
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