Cryoport: A Niche Player That Doesn't Know It
Jun. 15, 2015 4:00 PM ET | 1 comment | About: CryoPort, Inc. (CYRX)
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Summary
The company has either over estimated its market or a poor job of spreading awareness.
A mostly unsubstantiated 300% increase in revenue is being projected for this coming year.
Past increases in revenue have provided zero progress toward profits.
Cryoport (OTCQB:CYRX) specializes in cryogenic transportation and logistics. The company can, using what are known as dry vapor shippers, provide much colder and much more consistent temperatures for highly sensitive materials used in the fields of scientific research, in vitro fertilization, stem cell therapy, and animal husbandry. They also have an all in one solution for initiating shipments, tracking, and trouble shooting which can be especially helpful when biological materials are being moved across multiple international borders.
Over the past year, the company has signed several key agreements with both shippers, such as UPS (NYSE:UPS) and DHL, and science companies like CombiMatrix (NASDAQ:CBMX) and NeoStern.
It's hard to argue that Cryptoport doesn't have some momentum behind it, but there are a few things which give me serious concern when evaluating this business. First, there is the purported size of the market vs. Cryoport's current revenue. On the 2015 Q3 conference call CEO Jerrell Shelton asserted that the industry comprised a robust $1.7 billion. An investor on the call balked at this number leading to the following exchange:
What would you think would be the market is now obviously it's not that big today?"
Jerrell Shelton - President and CEO: It's about $1.7 billion today.
The incredulity of the investor makes sense. If true, then Cryoport's share of the market is only slightly bigger than 1/1000th. Shelton is spinning this as a good thing as it leaves enormous room for growth, but it seems more likely that it's a sign that either the company or the product has major issues.
When asked about why Cryoport had achieved such a small portion of that 1.7 billion, all Shelton could say was:
The answer is generally it's unfamiliarity. People just don't know about our capabilities or CryoPort. It's amazing when I talk with scientists and our companies around the world they're just are unfamiliar with us with our capabilities and the company.
So, the best case scenario is that Cryoport is horrible at marketing. Their product is not brand new. It is several years old, so there's been plenty of time for companies and laboratories to hear about their solution. Additionally, in that time, it is not like items needing to be shipped at -150 degree temperatures were simply not sent, laying waste to the claim that, "there is no head to head competitor in the marketplace today to our knowledge. That's why we think that we are considerably ahead of the curve."
Maybe Cryoport has a marginally better product, but there must be an alternative out there that people are satisfied with. Otherwise, their market share would be significantly more than the rounding error that it is today.
Despite the industry's ignorance of Cryoport's products, Shelton is expecting massive growth for the company in the coming year. The guidance that he gave in February was, "I am pleased to give you our fiscal year 2016 revenue guidance of $12 million," which entails a 300% increase.
Later, he explained the methodology behind that number stating:
the way we look at our forecast, is we break it down into two large buckets. One is projection and that's of the existing customer base and the second part of that is prediction. And this is a large increase. So there is going to be more based on prediction and simple projection. We will grow in our existing customer base significantly, but most of the forecast is based on prediction based on the pipeline and the level of activity that we are currently experiencing and that will result in sales.
Notably, this prediction was made a the end of the third rather than fourth quarter, so Cryoport didn't even have the advantage of relying on a couple months of activity to base their projections on.
Essentially the company has given guidance despite the fact that, what sounds like the vast majority of their anticipated sales, are dependent on people they have never conducted business with before. This wouldn't be a big issue were it not for Cryoport's inability to capture market share to date or their suspect claim about having no viable competitor.
Exacerbating this concern was the response Shelton gave when asked about what might cause the company to fall short of its lofty goals. Shelton stated, "the biggest risk is really one thing and it's one thing only and it lies with us and it's a matter of execution. ...So I think execution is our biggest risk." I totally agree with that assessment. It's just that with the industry remaining unfamiliar about an alleged nonpareil product, flawless execution seems unlikely.
Even assuming that the market is as big as advertised and that $12 million in sales is achieved, the company is still not in the clear. If there is one thing that the company has shown over the past three years, it's that they are spectacularly good at losing between $1 million and $1.5 million per quarter. It's almost uncanny. As the three charts below illustrate, revenues have increased, gross margins have increased, but the losses stay the same.
For every push the company has made to increase revenue, there has been a corresponding increase in SG&A. Headcount hasn't exploded, but it creeps enough to beat back any chance of turning a profit on operations. And it continues. To reach the $12 million level, management is touting, the "recently enhanced sales and marketing team," and "new global operation centers in Europe and Asia."
Cryoport has an impressive list of business partners, and a growing revenue stream. However, it seems highly likely that they are offering a product that is much more of a niche solution that the company is willing to admit. This makes me suspicious of their expectation of three fold growth in the coming year. Add to that their inability to progress whatsoever toward operating profitability and you have a company that, until they can provide evidence for their extraordinary claims regarding market size or revenue growth, I would stay away from.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
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laser777
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Guess you're on the short side of this one, or maybe need to slam the price down before the S1 is effective. Oh, have you ever heard of this new thing in oncology called immunotherapy? Probably don't know all this stuff is cryopreserved, do you, because you fail to mention it.
15 Jun, 09:23 PMReply! Report AbuseLike0
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CYRX VS. ETF ALTERNATIVES
ETFs TODAY 3 MTHS 1 YR YTD
CYRX 0% -90.0% -89.4% -88.6%
SLY -0.2% 2.9% 10.3% 5.2%
EES -0.2% 3.8% 6.9% 4.0%
IPS -0.5% 4.2% 0.6% 8.7%
UWM -0.6% 5.4% 17.7% 9.9%
RWJ -0.6% 3.9% 9.2% 4.4%
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