ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors. See “Forward-Looking Statements” in this Form 10-K.
General Overview
We are redefining the temperature-controlled supply chain for the life sciences industry by providing a unique and evolving platform of critical products and solutions including advanced packaging, informatics, specialty logistics services, biostorage services, and cryogenic life sciences equipment. With over 600 employees in 30 locations worldwide, we are engaged in providing global solutions to the biopharma/pharma, animal health, and human reproductive medicine markets. Our primary focus is on addressing the critical temperature-controlled supply chain needs within the biopharmaceutical space with an emphasis on serving the rapidly growing cell and gene therapy, or C>, market.
See the “Business” section in Part I, Item 1 of this Form 10-K for additional information.
Impact of COVID-19
In late 2019, a novel strain of coronavirus that causes coronavirus disease (COVID-19) was reported to have surfaced in Wuhan, China, which has since spread globally. In March 2020, the World Health Organization declared COVID-19 a global pandemic. Further, the COVID-19 outbreak has resulted in government authorities around the world implementing numerous measures to try to reduce the impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders. Many countries around the world have also implemented the temporary closure of non-essential businesses and other material limitations on the conduct of business. As a provider of life saving therapies, Cryoport is deemed to be an essential business and has remained fully open and operational. However, the full extent and duration of this pandemic is still unknown at this point and the related governmental, business and travel restrictions in order to contain this virus are continuing to evolve globally. Accordingly, there is significant uncertainty related to the ultimate impact that this global pandemic will have on the results of our operations.
For example, several life sciences companies, including some of our clients, announced during 2020 the temporary suspension of clinical studies and trials as well as other COVID-19 related risks that may impact their preclinical and clinical trials, including delays in patient enrollment or difficulties in initiating or expanding clinical trials, interruption of clinical trial activity, and diversion of healthcare resources to focus on COVID-19 activities. While these temporary suspensions and restrictions have been lifted, these may be reinstated, and other measures may be implemented. In addition, with respect to the impact of the pandemic on the human reproductive medicine market, the American Society for Reproductive Medicine (ASRM) and European Society of Human Reproduction and Embryology (ESHRE) both issued recommendations in March of 2020 to temporarily defer fertility treatments and related activities. Both organizations have since updated and recently reaffirmed their recommendation to gradually and judiciously resume activities. While these actions have negatively impacted our revenue in the markets we serve temporarily, we cannot determine the longer-term impact at this point. A number of public announcements by government and clients indicate a regional or partially reinstating of COVID-19 related restrictions and while we have experienced revenue ramping back up gradually over time, this may be curtailed by new restrictions. Further, virus containment efforts as a result of governmental actions or policies or other initiatives could lead to further disruption in the supply chain and as a result, we may have difficulties sourcing raw materials and equipment or may incur additional direct costs to provide our solutions.
While longer-term client demand for our services overall remains strong, the effects of the COVID-19 pandemic, including the measures above taken by some of our clients have adversely impacted our revenue growth. We continue to monitor the evolving situation caused by the COVID-19 pandemic, and we may take further actions required by governmental authorities or that we determine are prudent to support the well-being of our employees, customers, suppliers, business partners and others. The degree to which COVID-19 impacts our business operations, financial performance and results of operations will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted, including, but not limited to, the duration and spread of the COVID-19 outbreak, its severity, the actions to contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume. See “Risk Factors—Risk Related to Our Business—The recent global pandemic caused by COVID-19 has already and may continue to adversely affect our business operations, financial performance and results of operations, the extent of which is uncertain and difficult to predict.”
39
Table of Contents
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. The chief operating decision maker (“CODM”) is our Chief Executive Officer. We previously reported results based on two reportable operating segments: Global Logistics Solutions and Global Bioservices. During the fourth quarter of 2020, our CODM changed how he makes operating decisions, assesses the performance of the business and allocates resources in a manner that caused our operating segments to change as a result of the MVE and CRYOPDP acquisitions. In consideration of the FASB ASC 280, Segment Reporting, we determined that we are not organized around specific products and services, geographic regions or regulatory environments. Accordingly, beginning with the fourth quarter of 2020, we operate in one reportable operating segment.
Critical Accounting Policies and Estimates
Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the U.S., or U.S. GAAP. While our significant accounting policies are more fully described in the notes to our consolidated financial statements, we have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. These policies require management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The impact of and any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and most demanding of our judgment. We consider the following policies to be critical to an understanding of our consolidated financial statements and the uncertainties associated with the complex judgments made by us that could impact our results of operations, financial position and cash flows: Revenue Recognition, Business Combinations, Intangible Assets and Goodwill, Series C Preferred Stock, Stock-based Compensation, Convertible Senior Notes and Income Taxes. See Note 2: “Summary of Significant Accounting Policies” of our accompanying consolidated financial statements for a description of our critical accounting policies and estimates.
Revenue Recognition
Revenues are recognized when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
Performance Obligations
At contract inception, an assessment of the goods and services promised in the contracts with customers is performed and a performance obligation is identified for each distinct promise to transfer to the customer a good or service (or bundle of goods or services). To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Revenue is recognized when our performance obligation has been met. The Company considers control to have transferred upon delivery because the Company has a present right to payment at that time, the Company has transferred use of the asset, and the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset.
For arrangements under which the Company provides biological specimen storage services and logistics support and management to the customer, the Company satisfies its performance obligations as those services are performed whereby the customer simultaneously receives and consumes the benefits of such services under the agreement.
40
Table of Contents
Revenue generated from short-term logistics and engineering consulting services provided to customers is recognized when the Company satisfies the contractually defined performance obligations. When a contract includes multiple performance obligations, the contract price is allocated among the performance obligations based upon the stand-alone selling prices. Approved contract modifications are accounted for as either a separate contract or as part of the existing contract depending on the nature of the modification.
Our performance obligations on our orders and under the terms of agreements with customers are generally satisfied within one year from a given reporting date.
Shipping and handling activities related to contracts with customers are accounted for as costs to fulfill our promise to transfer the associated products pursuant to the accounting policy election allowed under Topic 606 and are not considered a separate performance obligation to our customers. Accordingly, the Company records amounts billed for shipping and handling as a component of revenue. Shipping and handling fees and costs are included in cost of revenues in the accompanying consolidated statements of operations.
Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental agencies.
Business Combinations
Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
We use the income approach to determine the fair value of certain identifiable intangible assets such as customer relationships. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, agent networks, software, developed technologies, and trademarks/tradenames so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.
41
Table of Contents
Intangible Assets and Goodwill
Intangible assets
Intangible assets with a definite life are amortized over their useful lives using the straight-line method, which is the best estimate of the value we are receiving over the useful life of the intangible asset and another systematic method was not deemed more appropriate. The amortization expense is recorded within selling, general and administrative expense in the consolidated statements of operations. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for the Company’s products or changes in the size of the market for the Company’s products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its definite-lived intangible assets are recoverable at December 31, 2020. There has been no impairment of our intangible assets for the periods presented.
Goodwill
We test goodwill for impairment on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value. As a result of our 2020 quantitative assessment, we concluded that goodwill is not impaired as of December 31, 2020.
Series C Preferred Stock
On the October 1, 2020 issuance date, the effective conversion price per share was less than the fair value of the underlying Common Stock and, as a result, the Company determined that there was a beneficial conversion feature on that date. Accordingly, the Company recognized the resulting beneficial conversion feature amount of approximately $39.5 million as a deemed dividend, equal to the number of common shares into which the Series C Preferred Stock is convertible multiplied by the difference between the fair value of the Common Stock and the effective conversion price per share on that date. Because the Series C Preferred Stock does not have a stated conversion date and was immediately convertible at the issuance date, the dividend is reflected as a one-time, non-cash, deemed dividend to the Holders of the Series C Preferred Stock on the date of issuance.
Additionally, the Company determined that the nature of the Series C Preferred Stock is more akin to an equity instrument and that the economic characteristics and risks of the embedded conversion options are clearly and closely related to the Series C Preferred Stock. As such, the conversion options were not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.
Since the paid-in-kind dividends are nondiscretionary, the Company measured the beneficial conversion feature in the paid-in-kind dividend on the issuance date of the preferred stock and recorded such amount when the paid-in-kind dividend was accrued. Accordingly, the associated paid-in-kind dividends for the year ended December 31, 2020 generated a beneficial conversion feature amount of $344,000. On February 5, 2021, the Company received a waiver and conversion notice from Blackstone Freeze Parent L.P. and Blackstone Tactical Opportunities Fund – FD L.P. and converted an aggregate of 50,000 shares of the Company’s 4.0% Series C Convertible Preferred Stock, par value $0.001 per share (See Note 18).
42
Table of Contents
The Company evaluated the Series C Preferred Stock for liability or equity classification under the applicable accounting guidance including ASC 480, Distinguishing Liabilities from Equity, and determined that equity treatment was appropriate because the Series C Preferred Stock did not meet the definition of the liability instruments defined thereunder for convertible instruments. Specifically, the convertible preferred shares are not mandatorily redeemable and do not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets. Additionally, the Company determined that the Series C Preferred Stock would be recorded as permanent equity given that they are not redeemable for cash or other assets (i) on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within control of the Company.
The Company also evaluated the embedded put and call options within the Series C Preferred Stock in accordance with the accounting guidance for derivatives to determine if bifurcation is required. The Company determined that the economic characteristics and risks of the embedded put and call options are not clearly and closely related to the Series C Preferred Stock. Therefore, the Company assessed the put and call options further and determined they did not meet the definition of a derivative under ASC 815.
Under the same analysis, the Company determined that the economic characteristics and risks of the embedded participating dividend feature are considered clearly and closely related to the equity host. Accordingly, the participating dividend feature is not required to be bifurcated under ASC 815. Also, the Company determined that the value of the contingent dividend feature is minimal and insignificant relative to the other components of the Series C Preferred Stock due to the circumstances surrounding the scenarios under which the provision would be triggered.
Convertible Senior Notes
The Senior Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or nonbifurcation, if embedded) the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon the Company’s analysis, it was determined the Notes do contain embedded features indexed to its own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the convertible debt was recorded as a liability on the consolidated balance sheet.
Stock-based Compensation
We use the Black-Scholes option pricing model to calculate the fair value of stock option awards on the grant date. The expected option life assumption is estimated based on the simplified method. Accordingly, the Company has utilized the average of the contractual term of the options and the weighted average vesting period for all options to calculate the expected option term. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of our employee stock options. The expected volatility is based on the average of the historical volatility and the implied volatility of our stock commensurate with the expected life of the stock-based award. We do not anticipate paying dividends on the common stock in the foreseeable future.
We recognize stock-based compensation cost on a straight-line basis over the vesting period. Stock-based compensation expense is recognized only for those awards that ultimately vest. For the years ended December 31, 2020 and 2019, we recorded stock-based compensation expense of $8.9 million and $16.5 million, respectively, for share-based awards granted under all of the Company’s stock plans.
As of December 31, 2020, there was $21.1 million of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 3.1 years. We expect 1,692,183 unvested options to vest over the next four years.
43
Table of Contents
Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We account for uncertain tax positions using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate our tax position on a quarterly basis. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
Results of Operations
Results of Operations for the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
The following table summarizes certain information derived from our consolidated statements of operations (in thousands):
Year Ended December 31,
Benefit from (provision for) income taxes 45 (62) 107 (172.5) %
Total revenues by market
Year Ended December 31,
44
Table of Contents
Revenues. Revenues increased $44.8 million, or 132%, to $78.7 million for year ended December 31, 2020, as compared to $33.9 million for the year ended December 31, 2019. This increase was primarily driven by revenue from the acquisition of MVE and CRYOPDP on October 1, 2020, which contributed $23.0 million and $12.9 million, respectively, and the increase in revenue by $8.9 million, primarily driven by our biopharmaceutical customers. This includes an increase in revenue of $2.2 million resulting from the acquisition of Cryogene in May 2019. During 2020 we experienced an increase in the number of customers utilizing our services, the number of clinical trials we support and an increase in revenue related to commercialized cell therapies.
Service revenues increased by $21.4 million, or 62.9%, to $55.3 million for year ended December 31, 2020, as compared to $33.9 million for the year ended December 31, 2019. This increase was driven by the acquisition of CRYOPDP on October 1, 2020, which contributed $12.9 million in revenue from temperature-controlled specialty courier services and supply chain services, including packaging, pick-pack kit preparation, the continuing ramp of revenue from our Cryoport Express® solutions, which increased by $6.7 million, or 22%, and revenue from our biostorage services, which increased by $2.2 million, or 74%.
Product revenues were $23.4 million and $0 for 2020 and 2019, respectively, and are primarily a result of the acquisition of MVE on October 1, 2020, representing revenue from the product line of cryonic stainless-steel freezers, aluminum dewars and related ancillary equipment used in the storage and transport of life sciences commodities, which includes the rapidly growing Cell and Gene Therapy market through a global network of distributors and direct client relationships,
Revenues by market
Revenue from the biopharma/pharma market increased $36.4 million, or 121%, to $66.4 million, as compared to the year ended December 31, 2019. This increase was driven by revenue from the acquisition of MVE and CRYOPDP on October 1, 2020, which contributed $15.4 million and $12.9 million, respectively, and the increase in revenue by $5.9 million from clinical trial and commercial revenue. This includes an increase in revenue of $2.2 million resulting from the acquisition of Cryogene in May 2019. We now support 528 clinical trials, of which 419 are in the Americas, 84 are in EMEA and 25 are in APAC, compared to 436 clinical trials supported as of December 31, 2019 (361 in the Americas, 61 in EMEA and 14 APAC). The number of Phase III clinical trials supported increased to 69 trials as of December 31, 2020, of which 49 are in the Americas, 19 are in EMEA, and 1 is in APAC. This compares to 56 Phase III trials (40 in the Americas, 15 in EMEA and 1 APAC) supported as of December 31, 2019. The activity in the clinical trial space, particularly in the Cell and Gene Therapy market is expected to drive future revenue growth as these clinical trials advance and resulting therapies are commercialized on a global basis.
Our revenue from the animal health market increased $6.9 million, or 687%, to $7.8 million for the year ended December 31, 2020, as compared to the same period in 2019. This increase is driven by the acquisition of MVE on October 1, 2020.
Revenues in the human reproductive medicine market increased $1.5 million, or 53%, to 4.5 million for the year ended December 31, 2020, as compared to the same period in 2019. This increase was driven by a 31.3% increase in revenues in the U.S. market through continued success of our CryoStork®-branded offering and a 43.5% increase in revenues in the international markets, which was primarily a result of our marketing initiatives and growing brand recognition.
Gross margin and cost of revenues. Gross margin for the year ended December 31, 2020 was 46.2% of total revenues, as compared to 51.1% of total revenues for the year ended December 31, 2019. The decrease in gross margin is primarily a result of the lower margin contributions from the acquisitions of MVE and CRYOPDP . Cost of total revenues increased $25.7 million to $42.3 million for the year ended December 31, 2020, as compared to $16.6 million in the same period in 2019. The increase in cost of total revenues is commensurate with the increase in business volume and the addition of cost of revenue from the acquisitions of MVE and CRYOPDP for the fourth quarter of 2020.
Gross margin for our service revenues was 46.7% of service revenues, as compared to 51.1% of service revenues for the year ended December 31, 2019. This decrease is a result of the lower margin contribution from the acquisition of CRYOPDP during the fourth quarter of 2020. Our cost of revenues is primarily comprised of freight charges, payroll and associated expenses related to our global logistics and supply chain centers, depreciation expenses of our Cryoport Express® Shippers and supplies and consumables used for our solutions.
45
Table of Contents
Gross margin for our product revenues was 45.1% of product revenues. Product revenues, related cost of revenues and resulting gross margins are primarily a result of the acquisition of MVE during the fourth quarter of 2020. Our cost of product revenues is primarily comprised of materials, direct and indirect labor, inbound freight charges, purchasing and receiving, inspection, and distribution and warehousing of inventory. In addition, shop supplies, facility maintenance costs and depreciation expense for assets used in the manufacturing process are included in cost of product revenues.
Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our products and services and costs required to support our marketing efforts including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
For 2020, SG&A expenses increased by $25.6 million, or 81.7% as compared to 2019. The increase is primarily due to the addition of $11.5 million of SG&A expenses from the acquisition of MVE and CRYOPDP effective October 1, 2020, as well as the continued expansion of our infrastructure to support the acquisitions and expected future growth. Intangible asset amortization expense is included in SG&A and consists of charges related to the amortization of intangible assets associated with the acquisitions of CRYOPDP and MVE in 2020 and Cryogene in 2019, in which we acquired definite-lived intangible assets. Intangible asset amortization expense increased by $6.3 million, from $0.3 million in 2019, to $6.6 million in 2020. SG&A also includes acquisition and integration costs related to MVE and CRYOPDP acquisitions in 2020 of $11.1 million, compared to $0.4 million related to the acquisition of Cryogene in 2019. Stock compensation expense decreased by $6.4 million in 2020 compared to 2019, primarily resulting from accelerated vesting of certain stock option awards as a result of meeting defined financial targets in the amount of $8.4 million in 2019, which did not occur in 2020.
Engineering and development expenses. Engineering and development expenses increased $5.7 million, or 153.6%, for year ended December 31, 2020, as compared to the same period in 2019. The increase is primarily due to an increase of $4.2 million in consulting costs directed at further enhancing our logistics and supply chain solutions and $1.6 million in wages and associated employee costs to add software development and engineering resources. These increases were partially offset by a decrease in stock-based compensation expense of $0.5 million which was driven by $0.9 million in accelerated vesting for certain stock option awards during 2019 as a result of meeting defined financial targets. We continually strive to improve and expand the features of our Cryoport Express® Solutions and portfolio of services and products. Our primary developments are directed towards facilitating the safe, reliable and efficient transport and storage of life science commodities through innovative and technology-based solutions. This includes significantly enhancing our Cryoportal® Logistics Management Platform and related technology solutions as well as developments to expand our Cryoport Express® Shipper fleet, such as the CryosphereTM shipper, a cryogenic dry-vapor shipper utilizing patent pending technology that passively stabilizes the payload through an internal gravitational sphere, thereby further mitigating transport risks. In addition, engineering and development efforts are also focused on MVE’s portfolio of advanced cryogenic stainless-steel freezers, aluminum dewars and related ancillary equipment used in the storage and transport of life sciences commodities. We supplement our internal engineering and development resources with subject matter experts and consultants to enhance our capabilities and shorten development cycles.
Investment Income. Investment income increased by $0.2 million, from $0.6 million to $0.8 million for the year ended December 31, 2020, as compared to the prior year as a result of higher average invested cash balances offset by lower interest rates on such invested cash balances.
Interest expense. Interest expense increased by $1.2 million, from $1.4 million to $2.6 million for the year ended December 31, 2020, as compared to the prior year primarily as a result of the issuance of $115.0 million aggregate principal amount of 3.00% convertible senior notes in May 2020 and amortization of the related debt discount.
Other income, net. The increase in other income, net for the year ended December 31, 2020 is primarily due to realized and unrealized gains and losses on short-term investments and foreign currency fluctuations.
Dividends on Series C preferred convertible stock. The dividends in the aggregate amount of $42.3 million for the year ended December 31, 2020 represent a non-cash deemed dividend in the amount of $39.5 million resulting from a beneficial conversion feature and a paid-in-kind dividend of $2.8 million, both from the private placement of Series C Preferred Stock with Blackstone.
46
Table of Contents
Non-GAAP Financial Measures
We provide adjusted EBITDA as a supplemental measure to GAAP measures regarding our operating performance. This financial measure excludes the impact of certain acquisition related items and other expenses and, therefore, has not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of this non-GAAP financial measure to its most comparable GAAP financial measure is described below.
We include this financial information because we believe this measure provides a more accurate comparison of our financial results between periods and more accurately reflects how management reviews its financial results. We excluded the impact of certain acquisition related items because we believe that the resulting charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Cryoport, Inc. and Subsidiaries
Adjusted EBITDA Reconciliation
(Unaudited, in thousands)
Three Months Ended Year Ended
December 31, December 31,
Non-GAAP adjustments to net loss:
Inventory step-up charges 727 — 727 —
Other non-recurring charges 225 — 225 —
Adjusted EBITDA is measured by taking net income/loss as reported in accordance with GAAP, excluding depreciation and intangible amortization expenses, acquisition and integration costs, inventory step-up charges, other non-recurring charges, stock-based compensation expense, investment income, interest expense and taxes included in the consolidated statements of operations.
Liquidity and Capital Resources
As of December 31, 2020, the Company had cash and cash equivalents of $36.9 million, short-term investments of $56.4 million and working capital of $112.1 million. Historically, we have financed our operations primarily through sales of equity securities and debt instruments. We believe that our pre-existing cash and cash equivalents and short-term investments, together with the net proceeds of approximately $265.4 million raised through an underwritten public offering in January 2021 will be sufficient to fund our operations, including capital expenditures and absent any acquisitions, for at least the next three years.
Cash flows
For the Year Ended December 31,
(in thousands)
Effect of exchange rate changes on cash and cash equivalents 1,231 8 1,223
Net change in cash and cash equivalents $ (10,362) $ 9,908 $ (20,270)
47
Table of Contents
Operating activities
For the year ended December 31, 2020, we used $14.9 million of cash for operations primarily as a result of the net loss of $32.7 million adjusted for non-cash expenses of $20.1 million comprised of $8.9 million of stock-based compensation, as well as $10.3 million of amortization of debt discounts, depreciation and amortization. Also contributing to the cash impact of our net operating loss, excluding non-cash items, was an increase in accounts receivable of $2.6 million, an increase in prepaids and other current assets of $7.5 million and an increase in net deferred tax assets of $0.5 million, which was partially offset by a decrease of $1.3 million in inventory and an increase in accounts payable and other accrued expenses of $4.2 million and an increase in accrued compensation and related expenses of $3.1 million.
Investing activities
Net cash used in investing activities of $382.3 million was primarily due to the $314.5 million and $48.6 million acquisitions of the MVE and CRYOPDP businesses, respectively, on October 1, 2020, $158.7 million purchases of short-term investments, and $8.9 million for the capitalization of software development costs for our CryoportalTM Logistics Management Platform, and additional purchases of Cryoport Express® Shippers, Smartpak IITM Condition Monitoring Systems, freezers and computer equipment, partially offset by the maturity of short-term investments of $149.2 million.
In 2019, net cash used in investing activities of $62.9 million was primarily due to the $20.3 million acquisition of the Cryogene business on May 14, 2019, $43.2 million purchases of short-term investments, and $5.3 million for the capitalization of software development costs for our CryoportalTM Logistics Management Platform, and additional purchases of Cryoport Express® Shippers, SmartPakTM Condition Monitoring Systems, freezers and computer equipment, partially offset by the maturity of short-term investments of $6.0 million.
Financing Activity
Net cash provided by financing activities totaled $385.6 million during the year ended December 31, 2020, primarily as a result of net proceeds of $111.3 million from the issuance of 3% convertible senior notes issued in May 2020 and $265.4 million as a result of the net proceeds from the private placement of common stock and issuance of the Series C Preferred Stock. Proceeds from stock option and warrant exercises during 2020 were $9.4 million. Offsetting these activities were the payment of deferred financing costs and finance lease obligations of $4.2 million.
In 2019, net cash provided by financing activities of $74.2 million was primarily as a result of $68.8 million in net proceeds from our June 2019 public offering of common stock and $5.4 million in proceeds from the exercise of stock options and warrants.
January 2021 Public Offering
On January 25, 2021, the Company completed an underwritten public offering of 4,356,059 shares of its common stock. The shares were issued and sold pursuant to an underwriting agreement, dated January 20, 2021, by and among the Company, on the one hand, and Morgan Stanley & Co. LLC, Jefferies LLC, SVB Leerink LLC and UBS Securities LLC, as representatives of certain underwriters at a public offering price per share of $66.00, before deducting underwriting discounts and commissions. The shares include 568,181 shares issued and sold pursuant to the underwriters’ exercise in full of their option to purchase additional shares of common stock pursuant to the underwriting agreement. The Company received net proceeds of approximately $269.7 million from the offering after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. See Note 18: “Subsequent Events” of our accompanying consolidated financial statements for additional information.
48
Table of Contents
Blackstone Private Placement
In connection with the MVE Acquisition, on October 1, 2020, the Company completed a private placement with an investment vehicle of funds affiliated with The Blackstone Group Inc., consisting of (i) 250,000 shares of a newly designated 4.0% Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”), at a price of $1,000 per share, for $250.0 million, and (ii) 675,536 shares of common stock of the Company, par value $0.001 per share for $25.0 million, for an aggregate purchase price of $275.0 million. The net proceeds of this transaction were $263.6 million. The Series C Preferred Stock ranks senior to the shares of the Company’s common stock, with respect to dividend rights and rights upon the voluntary or involuntary liquidation, dissolution, or winding up of the affairs of the Company. On February 5, 2021, the Company received a waiver and conversion notice from Blackstone Freeze Parent L.P. and Blackstone Tactical Opportunities Fund – FD L.P. and converted an aggregate of 50,000 shares of the Company’s 4.0% Series C Convertible Preferred Stock, resulting in the issuance of an aggregate of 1,312,860 shares of Common Stock. See Note 15: “Stockholders’ Equity—Blackstone Private Placement” and Note 18: “Subsequent Events” of our accompanying consolidated financial statements for additional information.
Convertible Senior Notes
In May 2020, the Company issued $115.0 million aggregate principal amount of 3.00% convertible senior notes due in 2025, which includes the initial purchasers’ exercise in full of their option to purchase an additional $15.0 million principal amount of the Convertible Senior Notes, in a private placement exempt from registration under the Securities Act. The Company received $111.3 million from the offering, net of underwriting discounts and commissions of $3.7 million, and incurred approximately $345,200 in third-party offering related costs. The Convertible Senior Notes bear cash interest at a rate of 3.00%, payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2020 and will mature on June 1, 2025, unless earlier repurchased, redeemed, or converted in accordance with the terms of the Convertible Senior Notes. The Convertible Senior Notes comprise the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Convertible Senior Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. See Note 10 : “Convertible Senior Notes” and Note 18: “Subsequent Events” of our accompanying consolidated financial statements for additional information.
June 2019 Public Offering
In June 2019, the Company completed an underwritten public offering of 4,312,500 shares of its common stock. The shares were issued and sold pursuant to an underwriting agreement, dated June 19, 2019, by and among the Company, on the one hand, and Jefferies LLC and SVB Leerink LLC, as representatives of certain underwriters at a public offering price per share of $17.00, before deducting underwriting discounts and commissions. The shares include 562,500 shares issued and sold pursuant to the Underwriters’ exercise in full of their option to purchase additional shares of common stock pursuant to the Underwriting Agreement. The Company received net proceeds of approximately $68.8 million from the offering after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
The Company’s management recognizes that the Company may need to obtain additional capital to fund its operations until sustained profitable operations are achieved. Additional funding plans may include obtaining additional capital through equity and/or debt funding sources. No assurance can be given that additional capital, if needed, will be available when required or upon terms acceptable to the Company. See “— Risks Related to Our Financial Condition — We may need to raise additional capital in the future, and if we are unable to secure adequate funds on terms acceptable to us, we could be unable to execute our business plan” in the “Risk Factors” section in Part I, Item 1A of this Form 10-K for additional information.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of Regulation S-K.
49
Table of Contents
Impact of Inflation
From time to time, Cryoport experiences price increases from third party manufacturers and these increases cannot always be passed on to Cryoport’s customers. While these price increases have not had a material impact on Cryoport’s historical operations or profitability in the past, they could affect revenues in the future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8.Financial Statements and Supplementary Data
Our annual consolidated financial statements are included in Part IV, Item 15 of this Form 10-K and are incorporated into this Item 8 by reference.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020.
(b) Management’s Report on Internal Control Over Financial Reporting.
Management’s Report on Internal Control Over Financial Reporting which appears on the following page is incorporated herein by reference.
As permitted by SEC guidance for newly acquired businesses, management’s assessment of our internal control over financial reporting (as defined in Rule 14a-15(f) and 15d-15(f) under the Exchange Act) did not include an assessment of internal control over financial reporting of MVE and CRYOPDP, which were acquired October 1, 2020. MVE and CRYOPDP accounted for 60% and 19% of total assets 84% and 9% of net assets, respectively, as of December 31, 2020 and 29% and 16% of revenues and (5%) and 5% of net loss, respectively, for the year then ended.
Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in its attestation report included in Item 8. “Financial Statements and Supplementary Data” included elsewhere in this Form 10-K.
50
Table of Contents
(c) Changes In Internal Control Over Financial Reporting
During the fourth quarter ended December 31, 2020, we began the process to extend our oversight and monitoring processes that support internal control over financial reporting to include the operations of MVE and CRYOPDP in order to assist us in the preparation and disclosure of financial information associated with these acquisitions. We are continuing to integrate the acquired operations of MVE and CRYOPDP into the Company’s overall internal control over financial reporting process. However, we have excluded MVE and CRYOPDP from our assessment of internal controls over financial reporting as set forth above. There were no other changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
None.
51
Table of Contents
CRYOPORT, INC.
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) and for the assessment of the effectiveness of internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting is supported by written policies and procedures that:
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of the Company’s annual consolidated financial statements, management of the Company has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of the Company’s internal control over financial reporting.
Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020. The Company acquired MVE Biological Solutions and CRYOPDP on October 1, 2020. MVE Biological Solutions and CRYOPDP constituted 60% and 19% of total assets and 84% and 9% of net assets, respectively, as of December 31, 2020 and 29% and 16% of revenues and (5%) and 5% of net loss in our consolidated financial statement for the fiscal year ended December 31, 2020. As these acquisitions occurred in the fourth quarter of 2020, the scope of management’s assessment of internal control over financial reporting does not include MVE Biological Solutions or CRYOPDP. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition.
By: /s/ JERRELL W. SHELTON
Jerrell W. Shelton,
Chief Executive Officer and Director
By: /s/ ROBERT STEFANOVICH
Robert Stefanovich,
Chief Financial Officer
March 1, 2021
52
Table of Contents
PART III
Item 10.Directors, Executive Officers and Corporate Governance
A list of our executive officers and their respective biographical information appears in Part I, Item 1 of this Form 10-K.
We have adopted a corporate code of conduct that applies to our directors and all employees, including our Chief Executive Officer and Chief Financial Officer. We have posted the text of our corporate code of conduct on our website at www.cryoport.com on the “Investor Relations: Corporate Governance” page under the heading “Governance Documents”. We intend to satisfy the requirement under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our corporate code of conduct by posting such information on our website.
The other information required under this item is incorporated by reference from our definitive proxy statement related to our 2021 Annual Meeting of Stockholders, or the Proxy Statement, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2020.
Item 11.Executive Compensation
The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
Item 14.Principal Accountant Fees and Services
The information required by this item can be found in our Proxy Statement and is incorporated herein by reference.
53
Table of Contents
PART IV
Item 15.Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements:
Page
Reports of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019 F-6
Notes to Consolidated Financial Statements F-11
(a)(2) Financial Statement Schedules: All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits.
54
Table of Contents
Index to Exhibits
Exhibit No. Description
4.1+ Description of the Company's securities.
55
Table of Contents
Exhibit No. Description
21+ Subsidiaries of Registrant.
56
Table of Contents
Exhibit No. Description
101.SCH+ XBRL Taxonomy Extension Schema Document.
101.CAL+ XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF+ XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB+ XBRL Taxonomy Extension Label Linkbase Document.
101.PRE+ XBRL Taxonomy Extension Presentation Linkbase Document.
˄Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) or Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish copies of such omitted materials supplementally upon request by the SEC.
* Indicates a management contract or compensatory plan or arrangement.
+ Filed or furnished herewith.
Item 16.Form 10-K Summary
None.
57
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Cryoport, Inc.
By: /s/ JERRELL W. SHELTON
Jerrell W. Shelton
Chief Executive Officer and Director
Date: March 1, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ JERRELL W. SHELTON Chief Executive Officer and Director March 1, 2021
Jerrell W. Shelton (Principal Executive Officer)
/s/ ROBERT S. STEFANOVICH Chief Financial Officer March 1, 2021
Robert S. Stefanovich (Principal Financial and Accounting Officer)
/s/ RICHARD BERMAN Director March 1, 2021
Richard Berman
/s/ DANIEL M. HANCOCK Director March 1, 2021
Daniel M. Hancock
/s/ ROBERT HARIRI, M.D., PH.D. Director March 1, 2021
Robert Hariri, M.D., Ph.D.
/s/ RAMKUMAR MANDALAM, PH.D. Director March 1, 2021
Ramkumar Mandalam, Ph.D.
/s/ EDWARD ZECCHINI Director March 1, 2021
Edward Zecchini
/s/ RAM JAGANNATH Director March 1, 2021
Ram Jagannath
58
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Financial Statements
As of December 31, 2020 and 2019
Years Ended December 31, 2020 and 2019
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019 F-6
Notes to Consolidated Financial Statements F-11
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Cryoport, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cryoport, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Table of Contents
Business Combinations
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Irvine, CA
March 1, 2021
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Cryoport, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Cryoport, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cryoport, Inc. and subsidiaries’ (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of MVE Biological Solutions and CRYOPDP, which are included in the 2020 consolidated financial statements of the Company and constituted 60% and 19% of total assets and 84% and 9% of net assets, respectively, as of December 31, 2020 and 29% and 16% of revenues and (5%) and 5% of net loss, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of MVE Biological Solutions or CRYOPDP.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-4
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Irvine, California
March 1, 2021
F-5
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
December 31,
ASSETS
Current Assets:
Prepaid expenses and other current assets 11,928 1,097
Operating lease right-of-use assets 14,044 4,460
Other long-term assets 794 —
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued expenses $ 24,844 $ 2,498
Accrued compensation and related expenses 7,441 1,904
Operating lease liabilities 2,231 666
Finance lease liabilities 59 25
Convertible senior notes, net of discount of $3.7 million 111,344 —
Note payable 4,912 —
Operating lease liabilities, net of current portion 12,261 4,101
Finance lease liabilities, net of current portion 112 9
Deferred tax liability 5,882 21
Other long-term liabilities 176 —
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.001 par value; 2,500,000 shares authorized:
Accumulated other comprehensive income (loss) 5,376 (45)
Total liabilities and stockholders’ equity $ 552,405 $ 135,873
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended
December 31,
Product revenues 23,397 —
Cost of product revenues 12,841 —
Operating costs and expenses:
Selling, general and administrative 56,860 31,286
Engineering and development 9,484 3,741
Total operating costs and expenses 66,344 35,027
Other income (expense):
Investment income 761 583
Other income (expense), net (929) 189
Total other expense, net (2,728) (595)
Loss before provision for income taxes (32,738) (18,270)
Benefit from (provision for) income taxes 45 (62)
Deemed dividend on Series C convertible preferred stock (39,492) —
Paid-in-kind dividend on Series C convertible preferred stock (2,844) —
Net loss attributable to common stockholders $ (75,029) $ (18,332)
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(in thousands)
Years Ended
December 31,
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on available-for-sale debt securities 161 (28)
Foreign currency translation adjustments 5,263 3
Other comprehensive income (loss) 5,421 (48)
See accompanying notes to consolidated financial statements.
F-8
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Accumulated
Class A Class B Class C Additional Other Total
Net loss — — — — — — — — — (18,332) — (18,332)
Net loss — — — — — — — — — (32,693) — (32,693)
See accompanying notes to consolidated financial statements.
F-9
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
Cash Flows From Operating Activities:
Depreciation and amortization 9,869 2,415
Amortization of debt discount 437 288
Unrealized (gain) loss on investments in equity securities (845) 102
Realized loss on investments in equity securities 1,090 —
Realized (gain) loss on available-for-sale debt securities 32 (82)
Stock-based compensation expense 8,916 6,962
Accelerated stock-based compensation expense — 9,562
Loss on disposal of property and equipment 384 274
Provision for bad debt 197 42
Prepaid expenses and other current assets (7,520) (345)
Accounts payable and other accrued expenses 4,245 570
Accrued compensation and related expenses 3,143 641
Deferred revenue (309) 81
Net deferred tax (asset) liability (499) 21
Net cash used in operating activities (14,866) (1,324)
Cash Flows From Investing Activities:
Purchases of property and equipment (8,918) (5,336)
Purchases of short-term investments (158,736) (43,196)
Sales/maturities of short-term investments 149,233 5,995
Patent and trademark costs (200) (73)
Software development costs (551) —
Net cash used in investing activities (382,312) (62,927)
Cash Flows From Financing Activities:
Proceeds from exercise of stock options and warrants 9,388 5,363
Proceeds from issuance of common stock, net of issuance costs 28,160 —
Proceeds from public offering, net of offering costs — 68,811
Repayment of finance lease liabilities (70) (23)
Proceeds from issuance of convertible senior notes 115,000 —
Payment of deferred financing costs (4,118) —
Net cash provided by financing activities 385,585 74,151
Effect of exchange rate changes on cash and cash equivalents 1,231 8
Net change in cash and cash equivalents (10,362) 9,908
Cash and cash equivalents — beginning of year 47,235 37,327
Cash and cash equivalents — end of year $ 36,873 $ 47,235
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 1,823 $ 707
Cash paid for income taxes $ 60 $ 14
Purchase of equipment through finance lease obligations $ 205 $ —
Common stock issued for conversion of debt and accrued interest $ — $ 15,418
See accompanying notes to consolidated financial statements.
F-10
Table of Contents
Cryoport, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of the Business
Cryoport, Inc. (“Cryoport”, “we”, or “our”) is a life sciences services company that is an integral part of the temperature-controlled supply chain supporting the biopharma/pharma, animal health, and human reproductive medicine markets. We are redefining logistics for the life sciences industry by providing a unique platform of critical solutions including highly differentiated temperature-controlled supply chain solutions, which include advanced packaging, informatics, specialty logistics services, biostorage services and cryogenic life sciences equipment. Through our products, services and expertise, we enable our clients to ship, store and deliver cellular-based materials and drug products as well as other life sciences commodities in a precise, defined temperature-controlled state.
Cryoport’s advanced platform, comprised of comprehensive and technology-centric systems and solutions are designed to support the global high-volume distribution of commercial biologic and cell-based products and therapies regulated by the United States Food and Drug Administration (FDA) and other international regulatory bodies for distribution in the Americas, EMEA (Europe, the Middle East, and Africa) and APAC (Asia-Pacific) regions. Cryoport’s solutions are also designed to support pre-clinical, clinical trials, Biologics License Applications (BLA), Investigational New Drug Applications (IND), New Drug Applications (NDA) and Commercialized Products with the FDA, as well as global clinical trials and commercialized products initiated in other countries, where strict regulatory compliance and quality assurance is mandated. Our industry standard setting Chain of ComplianceTM solutions, which include vital analytics, such as ‘chain-of-condition’ and ‘chain-of-custody’ information in a single data stream, empower our clients’ continuous vigilance over their respective commodities. In addition, our Chain of ComplianceTM standard ensures full traceability of all equipment used and the processes employed, further supporting each client’s goal of minimizing risk and maximizing success of their respective biologics or other products and therapies as they are introduced into the global markets.
On August 21, 2020, the Company entered into a Securities Purchase Agreement to acquire CRYOPDP, a leading global provider of innovative temperature-controlled logistics solutions to the clinical research, pharmaceutical and cell and gene therapy markets, headquartered in Paris, France. Under the terms of the Securities Purchase Agreement, the Company acquired 100% of the equity interests in Advanced Therapy Logistics and Solutions, a company organized under the laws of France, which is the holding company that owns CRYOPDP (the “CRYOPDP Acquisition”). The base purchase price under the Securities Purchase Agreement was €49 million (approximately $58.0 million) and is subject to a cash, net debt, working capital and other adjustments.
On August 24, 2020, the Company entered into a Purchase Agreement with Chart Industries, Inc. (“Chart”) pursuant to which the Company acquired Chart’s MVE Biological Solutions’ cryobiological storage business (the “MVE Acquisition”) for a cash purchase price at closing of $320 million, subject to customary closing working capital and other adjustments. The MVE Acquisition was structured as the acquisition of certain equity interests and assets and the transfer of certain liabilities in connection therewith.
On October 1, 2020, the Company completed both the MVE Acquisition and the CRYOPDP Acquisition, which are further discussed in Note 3.
On May 14, 2019, the Company acquired substantially all of the assets of Cryogene Partners, a Texas general partnership doing business as Cryogene Labs (“Cryogene”). Cryogene operates a temperature-controlled biostorage solutions business in Houston, Texas (See Note 3).
The Company is a Nevada corporation and its common stock is traded on the NASDAQ Capital Market exchange under the ticker symbol “CYRX.”
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
F-11
Table of Contents
Change in Segment Reporting
The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. The chief operating decision maker (“CODM”) is our Chief Executive Officer. Up until the fourth quarter of 2020, we managed, reported and evaluated our business in the following two reportable operating segments: Global Logistics Solutions and Global Bioservices. During the fourth quarter of 2020, our CODM changed how he makes operating decisions, assesses the performance of the business and allocates resources in a manner that caused our operating segments to change as a result of the MVE and CRYOPDP acquisitions. In consideration of Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”), 280, Segment Reporting, we determined that we are not organized around specific products and services, geographic regions or regulatory environments. Accordingly, beginning with the fourth quarter of 2020, we realigned our reporting structure, resulting in a single reportable segment. The Company has adjusted its financial statements for historical periods to reflect this change in segment reporting and show its financial results without segments for all periods presented.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cryoport, Inc. and its wholly-owned subsidiaries, Cryoport Systems, LLC, Cryogene, Inc., MVE Biological Solutions US LLC, and Cryoport Netherlands B.V. and subsidiaries (collectively, the “Company”). All intercompany accounts and transactions have been eliminated.