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.
For further discussion and analysis regarding our financial condition and results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, refer to “Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 28, 2023.
General Overview
Cryoport is a leading global provider of innovative products and services supporting the life sciences in the biopharma/pharma, animal health, and reproductive medicine markets. Our mission is to enable the future of medicine for a new era of life sciences. With over 50 strategic locations covering the Americas, EMEA (Europe, the Middle East and Africa) and APAC (Asia Pacific), Cryoport's global platform provides mission-critical bio-logistics, bio-storage, bio-processing, and cryogenic systems to over 3,000 customers worldwide. Our platform of solutions and services, together with our global team of over 1,100 dedicated colleagues, delivers a unique combination of innovative supply chain technologies and services through our industry-leading brands, including Cryoport Systems, MVE Biological Solutions, CRYOPDP, and CRYOGENE.
See the “Business” section in Part I, Item 1 of this Form 10-K for additional information.
MVE Biological Solutions Fire
On January 25, 2022, a fire occurred at the MVE Biological Solutions manufacturing facility located in New Prague, Minnesota (“New Prague fire”). The New Prague facility manufactures aluminum dewars and is one of MVE Biological Solutions’ three global manufacturing facilities. There were no injuries reported and damage was limited to a portion of the facility. As a consequence of the fire damage, the New Prague manufacturing operations were curtailed on an interim basis until the necessary repairs were completed. Production was resumed at the facility during the week of February 14, 2022 and ramped up production toward the end of the first quarter of 2022. The Company estimated a revenue impact of approximately $9.4 million, primarily limited to the first quarter of 2022.
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The New Prague fire resulted in a loss of inventory, fixed assets, and other contents at the site. We have adequate property damage and business interruption insurance under which we filed a claim with the insurance carrier. As of December 31, 2023, the Company received a total of $15.1 million in insurance proceeds, of which the final payment of $2.2 million was received in the first quarter of 2023.
For the years ended December 31, 2023 and 2022, the Company recognized a gain of $2.6 million and $4.8 million, respectively, related to business interruption insurance under which we filed a claim with the insurance carrier. Proceeds from insurance settlements, except for those directly related to investing activities, were recognized as cash inflows from operating activities. The losses related to such an event are recognized as incurred. Insurance proceeds are recorded to the extent of the losses and then, only if recovery is realized or probable. Any gains in excess of losses are recognized only when the contingencies regarding the recovery are resolved, and the amount is fixed or determinable.
Impact of Inflation
Inflation generally impacts us by increasing our costs of labor, material, transportation and pricing from third party manufacturers. While the rates of inflation have not had a material impact on our financial statements in the past, we have seen some impact on gross margins in 2023 and 2022. Based on the current economic outlook, inflationary pressures could affect our financial performance in the future if cost increases cannot be offset by net realized annual price increases and productivity gains.
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 and estimates 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, Convertible Senior Notes, Stock-based Compensation, 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
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payment at that time since the Company has satisfied its performance obligations related to the successful delivery. In instances where the customer has elected to use their own freight, revenue is recognized upon delivery of the shipper to the customer.
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.
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 and, therefore, we omit disclosure of the transaction price allocated to remaining performance obligations on open orders.
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 condensed 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.
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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, 2023. The Company has performed a quantitative impairment assessment in the fourth quarter of 2023 and concluded that 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 2023 quantitative assessment, we concluded that goodwill related to the MVE reporting unit is impaired as of December 31, 2023, and recorded an impairment charge of $49.6 million in the consolidated statement of operations for the year ended December 31, 2023 (see Note 8).
Convertible Senior Notes
The Convertible 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 Convertible Senior Notes do contain embedded features indexed to its own stock, but do not meet the requirements for bifurcation and recognition as derivatives, and therefore do not need to be separately recognized. Accordingly, the proceeds received from the issuance of the Convertible Senior Notes were recorded as a single liability on the consolidated balance sheets.
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 our common stock in the foreseeable future.
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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.
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 Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022
The following table summarizes certain information derived from our consolidated statements of operations (in thousands):
Year Ended
December 31,
($ in 000’s)
Goodwill impairment (49,569) — (49,569)
Gain on extinguishment of debt, net 5,679 — 5,679 100.0%
Benefit from (provision for) income taxes (239) (2,239) 2,000 (89.3)%
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Total revenues by market
Year Ended December 31,
($ in 000’s)
Revenues. Revenues decreased $4.0 million, or 1.7%, to $233.3 million for the year ended December 31, 2023, as compared to $237.3 million for the year ended December 31, 2022.
Revenues by type
Service revenues increased by $10.2 million, or 7.6%, from $133.9 million to $144.1 million for the year ended December 31, 2023, as compared to the same period in 2022. Services revenue was driven by year-over-year growth in BioStorage/BioServices and Commercial Cell & Gene therapy revenue of 44.7% and 32.5%, respectively, demonstrating strong demand for our services offerings. We also continued to gain clinical trial market share with Cryoport supporting a total of 675 clinical trials globally at year end 2023, of which 82 of these clinical trials were in phase 3, representing an overall increase of 21 clinical trials from 654 clinical trials at year end 2022. Our company continues to lead the way in providing advanced temperature-controlled supply chain solutions designed to support the development of cell & gene therapies and our future growth.
Product revenues decreased by $14.2 million, or 13.8%, from $103.4 million to $89.2 million for the year ended December 31, 2023, as compared to the same period in 2022. This was primarily a result of decreased demand for cryogenic freezer systems that commenced during the second quarter of 2023, particularly in China. This decrease was partially offset by the recovery from the fire at our manufacturing facility in New Prague, Minnesota that negatively impacted the first quarter of 2022 by $9.4 million. Product revenues consist primarily of revenue from our portfolio of cryogenic 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
Revenues from the biopharma/pharma market decreased by $1.3 million, or 0.7%, from $193.9 million to $192.6 million for the year ended December 31, 2023, as compared to the same period in 2022. Revenue was impacted by decreased demand for cryogenic systems, particularly in China, where product revenues through direct and indirect channels decreased by $7.2 million, or 51%, clinical trial start delays; and slower than expected ramps of products from certain clients. This was partially offset by the support of commercially launched therapies and an increase in our BioStorage/BioServices revenue. As of December 31, 2023, we support 675 global clinical trials, of which 519 trials are in the Americas, 112 are in EMEA and 44 are in APAC, compared to 654 clinical trials supported as of December 31, 2022 (502 trials are in the Americas, 110 in EMEA and 42 are in APAC). As of December 31, 2023, we supported 82 Phase 3 clinical trials, of which 58 are in the Americas, 22 are in EMEA, and 2 are in APAC. This compares to 79 Phase 3 clinical trials (55 in the Americas, 22 in EMEA and 2 in APAC) supported as of December 31, 2022. 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 the resulting therapies are commercialized on a global basis.
Our revenues from the animal health market decreased by $3.1 million, or 9.2%, from $33.5 million to $30.4 million for the year ended December 31, 2023, as compared to the same period in 2022. This decrease was result of lower than expected demand for cryogenic systems from breeders.
Revenues in the reproductive medicine market increased by $0.4 million, or 3.6%, from $9.9 million to $10.3 million for the year ended December 31, 2023, as compared to the same period in 2022. This increase was driven by demand for our cryogenic logistics solution and partially offset by a decrease in product revenue as a result of lower demand for cryogenic systems.
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Gross margin and cost of revenues. Gross margin for the year ended December 31, 2023 was 42.6% of total revenues, as compared to 43.8% of total revenues for the year ended December 31, 2022. Cost of total revenues increased $0.5 million to $133.9 million for the year ended December 31, 2023, as compared to $133.4 million in the same period in 2022.
Gross margin for our service revenues was 43.2% of service revenues, as compared to 43.8% of service revenues for the year ended December 31, 2022. 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.
Gross margin for our product revenues was 41.6% of product revenues, as compared to 43.7% of product revenues for the year ended December 31, 2022. The decrease was driven by unfavorable manufacturing variances during the first quarter of 2023, primarily as a result of inflationary pressures related to certain manufacturing costs and the buildup of safety stock during the second half of 2022, partially offset by favorable product mix. Product revenues, related cost of revenues and resulting gross margins were primarily driven by our MVE Biological Solutions business. Our cost of product revenues was 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 were 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 the year ended December 31, 2023, SG&A expenses increased by $26.8 million, or 22.3% as compared to the same period in 2022. This increase is driven by the further build out of our competencies and infrastructure to support the continuing scaling of our business and demand for Cryoport’s systems and solutions and buildout of new competencies, such as IntegriCellTM platform, a standardized integrated apheresis cryopreservation and distribution solution for cell therapies for which Cryoport is currently building out two centers of excellence located in the Houston, Texas, U.S. and Liège, Belgium which are expected to be fully operational and ready for validation during the first quarter of 2024. Wages and associated employee costs increased $14.2 million from $52.8 million in 2022 to $67.3 million in 2023. Integration and acquisition costs increased $4.8 million, primarily as a result of exploring a strategic business opportunity and acquisitions, stock compensation expense increased $2.4 million, depreciation and amortization increased $2.4 million, primarily due to additional fixed assets purchased or acquired in our recent business acquisitions and the launch of Cryoportal® 2 Logistics Management Platform in May 2023 and facility and other overhead allocations increased $2.1 million, primarily driven by our facility expansions in Houston, Texas and Morris Plains, New Jersey.
Engineering and development expenses. Engineering and development expenses increased by $2.3 million, or 14.7%, for the year ended December 31, 2023, as compared to the same period in 2022. The increase was primarily due to an increase of $1.6 million in wages and associated employee costs to add software development and engineering resources. We continually strive to improve and expand the features of our Cryoport Express®, Cryoport ELITETM Solutions and portfolio of temperature-controlled 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® and shipper fleet. In addition, engineering and development efforts are also focused on MVE Biological Solutions’ 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.
Goodwill Impairment. Goodwill impairment was $49.6 million for the year ended December 31, 2023, as a result of our 2023 quantitative impairment assessment.
Investment Income. Investment income increased by $2.1 million, for the year ended December 31, 2023, 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 decreased by $0.6 million, from $6.1 million to $5.5 million for the year ended December 31, 2023, as compared to the prior year due to interest on the convertible senior notes and amortization of the related debt discount.
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Gain on extinguishment of debt. In September 2023, the Company repurchased $31.3 million in aggregate principal amount of the 2026 Senior Notes for a repurchase price of $25.0 million in cash resulting in a net gain of $5.7 million, which includes the write off of $0.6 million of unamortized debt issuance costs.
Other income (expense), net. The increase in other income (expense), net for the year ended December 31, 2023, as compared to the prior year is primarily due to an increase of $12.7 million in short-term investment net unrealized gains which was partially offset by a decrease in the gain on insurance claim of $2.2 million related to the New Prague fire as compared to prior year.
Provision for income taxes. The provision for income taxes decreased by $2.0 million for the year ended December 31, 2023, as compared to the same period in the prior year, resulting in effective tax rates of negative 0.2% and negative 6.4%, respectively. The decrease in tax expense and the increase in the effective tax rate for the year ended December 31, 2023, as compared to the prior year is due to higher taxable foreign earnings subject to tax at differing rates and an increase in our domestic losses which resulted in no additional tax benefit. The effective tax rate of negative 0.2% for the year ended December 31, 2023, differed from the U.S. federal statutory rate of 21% primarily due to changes in the valuation allowance that we maintain against our deferred tax assets, the impairment of goodwill and the relative mix of income earned by certain foreign subsidiaries being taxed at different rates than the U.S. federal statuary rate.
Paid-in-kind dividend on Series C convertible preferred stock. The paid-in-kind dividend relates to the private placement of Series C Preferred Stock with Blackstone.
Non-GAAP Financial Measures
We provide adjusted EBITDA and revenue at constant currency, both non-GAAP financial measures, as supplemental measures to U.S. GAAP measures regarding our operating performance. Non-GAAP financial measures are not calculated in accordance with U.S. GAAP, are not based on any comprehensive set of accounting rules or principles and may be different from non-GAAP financial measures presented by other companies. Non-GAAP financial measures, including adjusted EBITDA and revenue at constant currency, should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
Adjusted EBITDA
Adjusted EBITDA is defined as net loss adjusted for interest expense, income taxes, depreciation and amortization expense, stock-based compensation expense, acquisition and integration costs, investment income, unrealized gain or loss on investments, foreign currency gain or loss, gain on insurance claim, gain on extinguishment of debt, goodwill impairment charge and charges or gains resulting from non-recurring events.
Management believes adjusted EBITDA provides a useful measure of our operating results, a meaningful comparison with historical results and with the results of other companies, and insight into our ongoing operating performance. Further, management and our board of directors utilize adjusted EBITDA to gain a better understanding of our comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Adjusted EBITDA is also a significant performance measure used by us in connection with our incentive compensation programs. Management believes adjusted EBITDA, when read in conjunction with our U.S. GAAP financials, is useful to investors because it provides a basis for meaningful period-to-period comparisons of our ongoing operating results, including results of operations, against investor and analyst financial models, identifying trends in our underlying business and performing related trend analyses, and it provides a better understanding of how management plans and measures our underlying business.
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A reconciliation of adjusted EBITDA to net loss, the most directly comparable U.S. GAAP financial measure, is presented below.
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:
Gain on insurance claim — — (2,642) (4,815)
Gain on extinguishment of debt, net — — (5,679) —
Goodwill impairment 49,569 — 49,569 —
Other non-recurring costs 187 — 437 —
Revenue at Constant Currency
We believe that revenue growth is a key indicator of how our Company is progressing from period to period and we believe that the non-GAAP financial measure “revenue at constant currency” is useful to investors in analyzing the underlying trends in revenue. Under U.S. GAAP, revenues received in local (non-U.S. dollar) currency are translated into U.S. dollars at the average exchange rate for the period presented. As a result, fluctuations in foreign currency exchange rates affect the results of our operations and the value of our foreign assets and liabilities, which in turn may adversely affect results of operations and cash flows and the comparability of period-to-period results of operations. When we use the term “constant currency,” it means that we have translated local currency revenues for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. dollars that we used to translate local currency revenues for the comparable reporting period of the prior year.
Recent fluctuations in foreign currency exchange rates, including the increased strength of the U.S. dollar against the Euro, British Pound, Chinese Yuan, and Indian Rupee has adversely impacted our results of operations and cash flow from our operations in EMEA and APAC. For the year ended December 31, 2023, our revenues would have been approximately $0.5 million higher in constant currency.
However, we also believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated could constitute a significant element of our revenue and could significantly impact our performance. We therefore limit our use of constant currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U.S. dollars. We do not evaluate our results and performance without considering both period-over-period changes in non-GAAP constant currency revenue on the one hand and changes in revenue prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering revenue on constant currency period-over-period changes only in addition to, and not as a substitute for, or superior to, changes in revenue prepared in accordance with U.S. GAAP.
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Cryoport, Inc. and Subsidiaries
Revenues by Market at Constant Currency
(Unaudited, in thousands)
Year Ended December 31, 2023
Biopharma/ Animal Reproductive
Pharma Health Medicine Total
FX Impact [$] $ (198) $ (275) $ 5 $ (468)
FX Impact [%] (0.1) % (0.9) % 0.0 % (0.2) %
Liquidity and Capital Resources
As of December 31, 2023, the Company had cash and cash equivalents of $46.3 million, short-term investments of $410.4 million and working capital of $489.5 million. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make investments in new supply chain initiatives, geographic expansion and technology to support our anticipated growth. Historically, we have financed our operations primarily through sales of equity securities and debt instruments.
The Company’s management recognizes that the Company may need to obtain additional capital to fund its operations and potential acquisitions 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. The Company’s management believes that, based on its current plans and assumptions, the current cash and cash equivalents on hand, short-term investments, together with projected cash flows, will satisfy our operational and capital requirements for at least the next twelve months.
Cash flows Summary
For the Year Ended December 31,
(in thousands)
Operating activities
For the year ended December 31, 2023, our operating activities used $0.8 million of cash, reflecting the net loss of $99.6 million offset by non-cash expenses of $100.0 million primarily comprised of $49.6 million of goodwill impairment, $27.5 million of depreciation and amortization, $22.8 million of stock-based compensation, $5.1 million of non-cash operating lease expense, which was partially offset by a gain on the extinguishment of debt of $5.7 million and the gain on the insurance settlement of $2.6 million related to the fire at our New Prague, Minnesota manufacturing plant in January 2022. Also contributing to the cash impact of our net operating loss, excluding non-cash items, was a decrease in operating lease liabilities of $4.6 million, a decrease in accounts payable and other accrued expenses of $2.8 million, and a decrease in net deferred tax liability of $2.0 million, which were partially offset by a decrease
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in accounts receivable of $3.7 million, an increase in accrued compensation and related expenses of $2.9 million, and a decrease in inventories of $1.5 million.
Investing activities
Net cash provided by investing activities of $36.0 million during the year ended December 31, 2023 was primarily due to the $130.0 million maturity of short-term investments. These proceeds were partially offset by the purchase of short-term investments of $42.7 million, facility expansions (including leasehold improvements, furniture and equipment) and additional purchases of Cryoport Express® Shippers, Smart Pak IITM Condition Monitoring Systems, freezers and computer equipment for $38.8 million, the acquisitions of Bluebird Express, Tec4med and SCI JA8 for $7.3 million, and software development costs for our Cryoportal® Logistics Management System of $5.2 million.
Financing Activity
Net cash used in financing activities totaled $23.8 million during the year ended December 31, 2023, was primarily as a result of $25.0 million paid for the repurchase 2026 Senior Notes, partially offset by proceeds of $1.5 million from the exercise of stock options.
Convertible Senior Notes
2026 Convertible Senior Notes
In November 2021, the Company issued $402.5 million aggregate principal amount of its 0.75% Convertible Senior Notes due 2026. The Company received $390.4 million in net proceeds from the offering, after deducting underwriting discounts and commission of $12.1 million and incurred approximately $0.6 million of third-party offering related costs. The 2026 Convertible Senior Notes bear cash interest at a rate of 0.75% per annum, are payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2022, and will mature on December 1, 2026, unless earlier repurchased, redeemed, or converted in accordance with the terms of the 2026 Convertible Senior Notes.
2025 Convertible Senior Notes
In May 2020, the Company issued $115.0 million aggregate principal amount of its 3.00% Convertible Senior Notes due 2025. The Company received $111.3 million in net proceeds from the offering, after deducting underwriting discounts and commission of $12.1 million and incurred approximately $0.3 million in third-party offering related costs. The 2025 Convertible Senior Notes bear cash interest at a rate of 3.00% per annum, are 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 2025 Convertible Senior Notes. On November 9, 2021, the Company entered into separate, privately negotiated note purchase agreements with a limited number of holders of the 2025 Convertible Senior Notes pursuant to which the Company repurchased approximately $100.7 million principal amount of 2025 Convertible Senior Notes for an aggregate cash repurchase price of approximately $351.1 million, which includes accrued and unpaid interest on the repurchased 2025 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. As of December 31, 2023, approximately $14.3 million aggregate principal amount of the 2025 Convertible Senior Notes remain outstanding and approximately $371.2 million aggregate principal amount of the 2026 Convertible Senior Notes remain outstanding. See Note 10: “Convertible Senior Notes” of our accompanying consolidated financial statements for additional information.
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November 2021 Registered Direct Placement and Stock Purchase Agreements
Concurrent with the issuance of the 2026 Convertible Senior Notes in November 2021, the Company conducted a registered direct placement of 3,072,038 shares of its common stock at a price of $81.10 per share (“Concurrent Placement”). The Company used the net proceeds from the Concurrent Placement, together with a portion of the net proceeds from the issuance of the 2026 Convertible Senior Notes, to repurchase approximately $100.7 million principal amount of the 2025 Convertible Senior Notes as discussed above. The remainder of the net proceeds of approximately $288.4 million, after deducting banker fees, are used for general corporate purposes. See Note 10: “Convertible Senior Notes” of our accompanying consolidated financial statements for additional information.
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, on the other hand, 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 $269.8 million from the offering after deducting underwriting discounts and commissions and offering expenses paid by the Company.
Repurchase Program
In March 2022, the Company announced that its board of directors authorized a repurchase program (the “Repurchase Program”) through December 31, 2025, authorizing the repurchase of common stock and/or convertible senior notes in the amount of up to $100.0 million from time to time on the open market or otherwise, in such quantities, at such prices, and in such manner as determined by the Company’s management at its discretion. The size and timing of any repurchase will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal requirements. The Company purchased 1,604,994 shares of its common stock under the Repurchase Program during the year ended December 31, 2022, at an average price of $23.63 per share, for an aggregate purchase price of $37.9 million. These shares were returned to the status of authorized but unissued shares of common stock. All share repurchases were made using cash resources and are reported in the period based on the settlement date of the applicable repurchase. There were no shares repurchased during the year ended December 31, 2023.
In September 2023, the Company repurchased $31.3 million in aggregate principal amount of the 2026 Convertible Senior Notes for a repurchase price of $25.0 million in cash. The Company recorded $5.7 million as a gain on extinguishment of debt on its condensed consolidated statement of operations for the year ended December 31, 2023, which includes the write off of $0.6 million of unamortized debt issuance costs.
As of December 31, 2023, the Company had $37.1 million remaining under the Repurchase Program.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and changes in the market values of our investments.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our debt, which pays interest at a fixed rate, will generally fluctuate with movements of interest rates, increasing when interest rates are declining and declining when interest rates are increasing. We invest our excess cash in high investment grade money market funds and investment grade short to intermediate-term fixed income securities. Fixed income securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses if forced to sell securities that have declined in market value due to changes in interest rates. As of December 31, 2023, the estimated fair value of the Convertible Senior Notes was $319.8 million. For additional information about the Convertible Senior Notes, see Note 10 in our accompanying consolidated financial statements.
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Foreign Exchange Risk
We operate in the United States and other foreign countries, which creates exposure to foreign currency exchange fluctuations. Net sales and related expenses generated from our international business are primarily denominated in the functional currencies of the corresponding subsidiaries and primarily include Euros, British Pounds, Chinese Yuan, and Indian Rupee. The results of operations of, and certain of our intercompany balances associated with, our internationally focused business are exposed to foreign exchange rate fluctuations. Upon consolidation, as foreign exchange rates vary, revenues and other operating results may differ materially from expectations and we may record material gain or losses on the remeasurement of intercompany balances. For example, for the year ended December 31, 2023, revenues from our international business, which accounted for 38.0% of our consolidated revenues, decreased by $0.7 million in comparison with the same period in the prior year as a result of fluctuations in foreign exchange rates. The impact of fluctuations in foreign exchange rates is derived by applying the average currency rates for the same period of the prior year to the current period revenues.
We have foreign exchange risk related to foreign-denominated cash and cash equivalents. Based on the foreign-dominated cash balance as of December 31, 2023, of $28.6 million, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in declines of $1.4 million, $2.9 million and $5.7 million, respectively, reported as accumulated other comprehensive income (loss) and included as a separate component of stockholders’ equity.
We have foreign exchange risk related to our long and short-term foreign-denominated intercompany loan balances. Based on the long-term intercompany loan balances as of December 31, 2023, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $4.3 million, $8.6 million, and $17.1 million, respectively, recorded to “Accumulated other comprehensive income (loss)”. Based on the short-term intercompany loan balances as of December 31, 2023, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $2.7 million, $5.3 million, and $10.7 million, respectively, reported as “Other income (expense), net”.
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) and 15d-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, 2023. 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, 2023.
(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.
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Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) as of December 31, 2023, as stated in its attestation report included in Part II, Item 8. “Financial Statements and Supplementary Data” included elsewhere in this Form 10-K.
(c) Changes In Internal Control Over Financial Reporting
During the quarter ended December 31, 2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
Insider Trading Arrangements and Policies
During the three months ended December 31, 2023, none of our directors or officers (as defined in Exchange Act Rule 16a-1(f)) adopted or terminated a “Rule 10b5–1 trading arrangement” or a “non-Rule 10b5–1 trading arrangement,” each as defined in Item 408 of Regulation S-K of the Securities Act.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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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 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, 2023.
By: /s/ JERRELL W. SHELTON
Jerrell W. Shelton,
President and Chief Executive Officer
By: /s/ ROBERT STEFANOVICH
Robert Stefanovich,
Chief Financial Officer
March 13, 2024
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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.cryoportinc.com on the “Investor Relations: 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 2024 Annual Meeting of Stockholders, or the Proxy Statement, to be filed with the SEC within 120 days of our fiscal year ended December 31, 2023.
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.
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PART IV
Item 15.Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42) F-5
Consolidated Balance Sheets as of December 31, 2023 and 2022 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.
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Index to Exhibits
Exhibit No. Description
59
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Exhibit No. Description
60
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Exhibit No. Description
21+ Subsidiaries of Registrant.
97+ Cryoport, Inc. Clawback Policy
101.SCH+ Inline XBRL Taxonomy Extension Schema Document.
101.CAL+ Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF+ Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB+ Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE+ Inline 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.
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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
President and Chief Executive Officer
Date: March 13, 2024
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
Jerrell W. Shelton (Principal Executive Officer)
/s/ ROBERT S. STEFANOVICH Chief Financial Officer March 13, 2024
Robert S. Stefanovich (Principal Financial and Accounting Officer)
/s/ RICHARD BERMAN Director March 13, 2024
Richard Berman
/s/ DANIEL M. HANCOCK Director March 13, 2024
Daniel M. Hancock
/s/ ROBERT HARIRI, M.D., PH.D. Director March 13, 2024
Robert Hariri, M.D., Ph.D.
/s/ RAMKUMAR MANDALAM, PH.D. Director March 13, 2024
Ramkumar Mandalam, Ph.D.
/s/ RAM JAGANNATH Director March 13, 2024
Ram Jagannath
/s/ LINDA BADDOUR Director March 13, 2024
Linda Baddour
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Cryoport, Inc. and Subsidiaries
Consolidated Financial Statements
As of December 31, 2023 and 2022
Years Ended December 31, 2023, 2022 and 2021
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Financial Statements
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42) F-5
Consolidated Balance Sheets as of December 31, 2023 and 2022 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 sheet of Cryoport, Inc. and subsidiaries (the "Company") as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for the year ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also 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, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
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 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 the financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit 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 audit provides 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 critical audit matters does not alter in any way our opinion on the 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.
Goodwill — Valuation for two Reporting Units — Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. The Company compares the fair value of the reporting unit with its carrying amount and then recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit. The Company’s goodwill impairment test was performed using a combination of both an income and a market approach to determine the fair value of the reporting units. The income approach utilized the estimated discounted cash flows for the reporting units while the market approach utilized comparable peer group information. Estimates and assumptions used in the income approach included projected cash flows for the reporting units and a discount rate determined using a weighted average cost of capital for risk factors specific to the reporting units and other market and industry data. The other key estimates and assumptions used in the discounted cash flow method include, but are not limited to, sales and expense growth rates, and a terminal growth rate. As a result of the Company’s 2023 quantitative assessment, the Company concluded that goodwill related to the MVE reporting unit is impaired, and recorded an impairment charge of $49.6 million in the consolidated statement of operations for the year ended December 31, 2023.
F-2
Table of Contents
We identified goodwill for the MVE and CRYOPDP reporting units as a critical audit matter because of the significant judgments made by management to estimate the fair value of these two reporting units that are affected by future market and economic conditions. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of revenues, EBITDA margins, discount rates, and selection of market multiples.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s significant assumptions and estimates for these two reporting units included the following, among others:
– Historical revenues and EBITDA margins
– Internal communications to management and the Board of Directors
– Forecasted information included in Company press releases
/s/ Deloitte & Touche LLP
Nashville, Tennessee
March 13, 2024
We have served as the Company's auditor since 2023.
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 the internal control over financial reporting of Cryoport, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023 of the Company and our report dated March 13, 2024, expressed an unqualified opinion on those financial statements.
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.
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/ Deloitte & Touche LLP
Nashville, Tennessee
March 13, 2024
F-4
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 sheet of Cryoport, Inc. and subsidiaries (the Company) as of December 31, 2022, 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, 2022, 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, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
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.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2019 to 2023.
Irvine, California
February 28, 2023
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 10,077 9,317
Operating lease right-of-use assets 32,653 26,877
Deferred tax assets 656 947
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and other accrued expenses $ 26,995 $ 28,046
Accrued compensation and related expenses 11,409 8,458
Current portion of operating lease liabilities 5,371 3,720
Current portion of finance lease liabilities 286 128
Current portion of notes payable 149 60
Current portion of contingent consideration 92 —
Operating lease liabilities, net of current portion 29,355 24,721
Finance lease liabilities, net of current portion 954 216
Deferred tax liabilities 2,816 4,929
Other long-term liabilities 601 451
Contingent consideration 9,497 4,677
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.001 par value; 2,500,000 shares authorized:
Accumulated other comprehensive loss (26,065) (34,549)
Total liabilities and stockholders’ equity $ 957,744 $ 1,038,746
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
Cryoport, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended
Operating costs and expenses:
Goodwill impairment 49,569 — —
Other income (expense):
Gain (loss) on debt extinguishment 5,679 — (251,754)
Net loss per share - basic and diluted $ (2.21) $ (0.93) $ (6.18)
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:
Foreign currency translation adjustments (1,266) (9,821) (2,634)
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
Other
Class A Class B Class C Comprehensive Total
Net loss — — — — — — — — — (275,528) — (275,528)
Net loss — — — — — — — — — (37,333) — (37,333)
Net loss — — — — — — — — — (99,587) - (99,587)
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:
Goodwill impairment 49,569 — —
Non-cash operating lease expense 5,103 3,645 3,367
Realized loss on available-for-sale debt securities 67 102 81
Loss on disposal of property and equipment 954 800 542
(Gain) loss on extinguishment of debt, net (5,679) — 251,754
Gain on insurance settlement (2,642) (4,815) —
Change in expected credit losses 822 234 26
Excess and obsolete inventory — 651 —
Insurance proceeds for operations 1,212 9,883 —
Change in contingent consideration (890) 216 —
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (103) (1,598) 3,056
Operating lease liabilities (4,595) (3,076) (2,805)
Accounts payable and other accrued expenses (2,766) (6,483) (398)
Accrued compensation and related expenses 2,884 (1,569) 2,522
Net deferred tax (asset) liability (1,979) (411) 231
Net cash provided by (used in) operating activities (757) (1,851) 8,126
Cash Flows From Investing Activities:
Insurance proceeds for loss of fixed assets 976 3,000 —