Good afternoon, and welcome to Cryoport's Third Quarter 2022 Earnings Conference Call. All participants will start in a listen-only mode. As a reminder, this call is being recorded. I would now like to turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead.

Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date we made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors and elsewhere in our annual report on Form 10-K filed with the Securities and Exchange Commission and those described from time to time in other reports which we file with the Securities and Exchange Commission. It is my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerrell, the floor is yours.

Thank you, Todd. Good afternoon, ladies and gentlemen. We appreciate you joining our earnings call today. With us this afternoon is our Chief Financial Officer, Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our third quarter in review document to our website. It can be found under Investor Relations in the Events and Presentations section. This document provides a review of our recent financial and operational performance and a general business outlook. If you've not had a chance to read it, I would encourage you to go to the website and download it. I will provide a brief update on the business, and then we will move on to your answering your questions. Last quarter, I began the call by reflecting on the strong demand across all business units and geographies. We delivered another solid quarter with second quarter revenue increasing 14% or 18% on a constant currency basis. Unfortunately, this quarter, I must report that, like many companies that operate globally, we experienced a convergence of macroeconomic pressures that impacted our third quarter revenue. They were wide-ranging and abrupt in their impact. For the third quarter, we are reporting total revenue of $60.5 million, an increase of 7% compared to $56.7 million for the third quarter of 2021. With all of the aforementioned factors in mind, we have reevaluated our guidance. Our guidance for full year 2022 is now in the range of $232 million to $238 million, with a decrease of approximately 10% from previous guidance. We also are reevaluating our aspirational goal of $650 million to $750 million in total revenue by the end of 2025, given all the changes that have occurred since we provided you with that goal. We reached these conclusions after deliberate consideration of the potential impact of pressures on MVE Biological Solutions and CryoPDP as these business units have greater international exposure than Cryoport systems or Cryogene. Short-term issues aside, the one thing we know is that we have a solid company that is healthy with $530 million of cash and manned by highly motivated people who believe in our mission to serve our target markets, which are dynamically growing and nascent. Despite these headwinds impacting our second half of 2022 performance, we remain positive, given the outlook of our target markets, and we are working diligently to further advance our leadership position as the essential supply chain platform company serving our life sciences market. Cryoport has never been stronger and never had so many business development initiatives underway. The foregoing initiatives and the others that have been publicly disclosed are focused on further strengthening our business and positioning us in the dynamic and growing markets we serve. The commitment of our team is resolute and its commitment to deliver solutions that support our life-saving cell and gene therapy is second to none. Our markets remain solid, and we expect Cryoport to continue to grow and prosper despite any short-term headwinds. We remain confident in Cryoport's long-term growth prospects and our ability to increase shareholder value through good times and bad. As a team, we will continue to move forward. We will not accept excuses for any internal or external issues that affect our performance. We will make the necessary near-term strategic adjustments needed to weather these times and come out a much stronger, more efficient organization because of our efforts. Our attitudes, actions, teamwork, and dedication are of ultimate importance and will see us through any short-term obstacles as we continue to position ourselves to take advantage of opportunities in 2023 and for long-term growth. Now we will be happy to open the lines for any questions you may have.

Of course. And we'll go ahead and take our first question from Puneet Souda with SVB Securities.

Hi, Mark and Shelton, thanks for taking my question. I wanted to start with MVE. I was wondering if you could quantify the impact of the China shutdown and also how you see the growth looking in the future? I know before you talked about mid-teens type growth. I wonder what you're contemplating now.

Well, I'm going to answer part of the question and then turn it to our CFO, Robert Stefanovich. But long term, MVE is solid. It's a solid company and it's in a solid market. There is some variability quarter-to-quarter. And so, of course, that creates variation. If I look at the long-term history of MVE, there is very slight cyclicality, there’s very slight seasonality. So that leads me to the conclusion that there's a concern about our customers. There's a concern about the market conditions and the uncertainty in the economy. I think that short-term will be short-lived. And then for specifically for the financial impact, I'll turn it to Robert.

Yes, maybe just a couple of comments on MVE. So if you look at MVE and our product revenue, really, which is comprised of MVE, we had a 5% year-over-year growth for that business and about 9% on a constant currency. But we have identified, and that did lead us to bring down the revenue guidance for the full year by 10%, identified a specific impact on the MVE business. And there are really a couple of items that really drove that. One, because of the increased economic uncertainties and the disruption in the capital markets, we believe that has curtailed some of the capital expenditures by MVE's customers for the larger cryogenic systems and freezers towards smaller units. For the second half of the year, that probably will have an expected impact of about $15 million for the 2022 second half. The second component is related to the recurring shutdowns in China, which, in fact, impacted our Chengdu manufacturing facility for MVE. The impact for that is expected to be about $2.5 million for the 2022 second half. So we're specifically looking at the impact on Q3 and Q4 of 2022 and not beyond. We will provide additional guidance on that when we report on our full-year results.

Got it. And then my next question happens to do with clinical trials. I see the number of trials continues to grow. I was wondering if, with biopharma being more cautious with their capital spending, you see any future pipeline impacts there? We also heard from another tool company about delays in cell and gene therapy enrollment. I'm wondering if that's something you have any visibility on.

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Hello. Can you hear me?

Yes, I could hear you. Sorry about that. Folks, we're back. We apologize. Our line dropped. How much of that did you catch?

Maybe just to answer your question here, you have to repeat the answer.

Okay. So it was about clinical trials... And if we're seeing any slowdown or any pausing.

Yes. So I apologize; I'll just reiterate here. From a clinical trial standpoint, you still see very, very robust activity. We're up to 643 clinical programs with 80 Phase III projects. Clinical trial activity in the space continues to be very strong. Our portfolio clients have raised a lot of money and are very comfortable from a cash position, and they're not slowing down their investment in their clinical portfolios. At this point in time, we see extremely robust activity.

Yes. And then just to emphasize what Mark said, if you look at the Cryoport Systems revenue, if you look at overall growth year-over-year, it's 25.4%. Clinical trial revenue is in excess of 26% and commercial revenue in excess of 23%. So the core business of Cryoport Systems is very strong. And as a reminder, total revenue, 80% of that is related to biopharma and pharma, and a big portion of that is related to the cell and gene market.

And we'll go ahead and move on to our next question from John Sourbeer with UBS.

I was wondering if you could run through some of the other assumptions in the guidance, maybe the FX outlook for the fourth quarter? And just any additional color you could provide on some of the shifts that you're seeing from customers there to the smaller distributors?

Yes. Maybe just I can add a few comments to it. As I mentioned earlier, a big portion of what we see in the second half, and it started in Q3, I expect that to move into Q4 as well, is that change in customer spending that we think is driven by the current uncertainties in the market and the economy. And so that does certainly impact MVE's freezer business, and we mentioned about $15 million for the second half. If you look at Europe, which is really driven in large part by the Russian invasion of Ukraine, we haven't seen an impact on the general logistics volume, really mostly for non-cell and gene therapy trials, which heavily rely on the Eastern European enrollment as well as delays in new studies and the onboarding of new clients, primarily for our CryoPDP business. The impact there is expected to be about $3.5 million for the second half of the year. And then I mentioned a little bit about the APAC region and the COVID shutdowns in China. One, the impact on MVE's manufacturing plant in Chengdu, China that was shut down for two weeks and, in fact, was more than the two-week shutdown alone, as well as, again, some slowdown for CryoPDP's business in the APAC region related to specific trade lanes there. So that's some of the main pieces. And then obviously, like many companies, we are impacted by negative foreign exchange rates. We have about 37% of our revenue in foreign currencies. We have about a $2.6 million impact or 4.4% on revenue for the third quarter, and we expect to be in around $3 million for the fourth quarter of this year.

And I guess the relationship with Takeda sounds like that's a 2023 opportunity. Any way just to frame kind of the revenue opportunity with that relationship there?

Yes. We're really just getting that established right now. There's build-out that's required. We're actually extremely excited about the overall platform because it really does provide an opportunity for standardized apheresis collection and cryo processing. It also pushes out into the community care setting significantly, and if you look at different studies, many people are saying that upwards of 80% of the eligible patient population is out in that community care setting and do not have access today. So we're quite excited about this, but it will take a little bit of time to get this established. I wouldn't expect too much from a contribution standpoint in the first quarter or two; it will have some impact in Q3 and Q4 next year, though we haven't quantified that at this point.

And maybe just a few things to point out for you when you look at that relationship and the business initiatives, specifically looking at the clinical trials and the Cryo Systems Support. We mentioned there's about 30% of those trials or 190 clinical trials that are allogeneic therapies. That's where we see a huge need for this initiative. Obviously, we will see a need for autologous therapies as well, but the need for the allogeneic is going to be even more significant. Additionally, the cell Matters acquisition that we completed is an integral part of establishing the expanded competencies for Cryoport for this initiative as well as expanding the revenue capture for Cryoport.

And then last one here on my end. You mentioned you're reevaluating the aspirational goal. Any timing on when we could expect an update there on that?

Yes. We'll give guidance on our aspirational goal when we report the fourth quarter, as well as giving you guidance for 2023.

We'll move on to our next question from Brandon Couillard with Jefferies.

This is Brandon, thanks for taking my question. I jumped on a little bit late. I apologize if I missed any. But Jerrell, can you just kind of give us a lay of the land on the M&A landscape? Any assets that might have loosened up over the last few months, and given some of the macro headwinds, any change in your appetite on size or types of deals you'd be willing to entertain?

No. Actually, one of the good things about the environment, if there are any, is that it creates more opportunity. We haven't stopped our intensive effort toward looking at appropriate acquisition candidates. And so we will continue that. We fortunately have $530 million of cash on our balance sheet. We're in a good position to weather this upcoming recession. We continue to have a robust pipeline, and we will continue to sort through it.

And maybe picking up with that last point on kind of impending recession and choppy macro there. Robert, can you kind of talk about any actions you're taking or levers you have to help protect the P&L if we head into even choppier times ahead?

Well, we're certainly prudent in terms of how we utilize our capital. Having said that, I want to redirect to the cell and gene therapy space. We obviously have a lot of transparency in terms of where our customers are going, what the expected BLA and MAA filings are. If you look at the number of clinical trials we're supporting, the 80 Phase III trials that we are supporting, there's going to be a significant demand for Cryoport solutions, and so that's really the main driver for a lot of the business initiatives we have for some of the innovation we have in terms of new technology, software, and shippers. We'll continue to invest in these programs because it's really going to be driving significant revenue for Cryoport. Yes, we will be prudent in terms of how we apply our cash. As Jerrell mentioned, we have a very strong balance sheet. We want to maintain that strong balance sheet, but we also want to leverage the opportunity that lies ahead of us.

No, Brandon, we could just add to that a little bit too. We have a lot of initiatives that we've been working on. We've reported in previous calls, and they'll be coming to fruition by the end of this year and the first quarter of next year. One is the cryo Portal 2.0 logistics management system; that's an upgrade of the software that you've seen, and it gives us an edge over the rest of the world on any competition. It's complemented by Scouttrax, which is a revolutionary radio that is a condition monitoring system, collecting extensive data that is fed back into CryoPortal 2.0. The third thing is Cryosphere, which is going through its final validation. As soon as that's completed, it will be announced to the market, and we expect a nice uptake on CryoSPHERE. Then we have two new models of Verio and Fusion at MVE. These are Vario, which is a variable rate freezer. In other words, you can dial that freezer up from -196 degrees Celsius up to -80 degrees Celsius, giving great flexibility to our customers. The Fusion is a unit that does not require liquid nitrogen feeds from tanks and plumbing and so forth; you charge it with liquid nitrogen one time, and it continues to operate for a long time. We suggest checking it every five years, but Fusion and then we have another Fusion model coming out that will go through single doors, and that model will open up a whole new segment of the market throughout the world because many laboratories in EMEA and Asia Pacific are on second and third and fourth floors. In the United States, they're hospital pharmacies that are going to need this product as allogeneic products come to market. We have a direct-to-patient initiative going on to cryoPDP in Europe that's in its alpha stage, and we expect that to be successful and to play a role in allogeneic delivery as well as perhaps autologous, certainly more so with allogeneic. Then, of course, we have the Takeda BioLife initiative that is just being undertaken. It's not as mature as the first two or three I mentioned, but that one has huge promise for us. I mean, I can't tell you how excited we are about that operation, and that gives us the ability for apheresis collection and leukopak production, given the industry pressure for better starting material, which they are looking for vociferously. We're rolling out CryoPDP in the U.S. with cell and gene therapy. CryoPDP has been a biopharma operation; it's the third most important in the world, and we're moving that to cell and gene therapy, displacing some of the other couriers. We're building out in the U.S., which is the biggest market; historically, CryoPDP has not been strong and has been developed here. So we have a lot going on that gives us great confidence.

Yes. Let me just add. I mean, we've already put the necessary equity and resources into these initiatives over the last couple of years. We will benefit from the outcome of these, and the reason that we've made those investments is that the cell and gene space continues to accelerate. There’s a robust pipeline for early line indications and product expansions with another two potential approvals this year and upwards of another 26 filings next year, which portend obviously a tremendous opportunity for our organization as a whole.

Thank you. I appreciate all that color.

We'll move on to our next question from David Larsen with BTIG.

Can you please remind me how much revenue roughly is coming from MVE, CryoPDP, Cryoport systems, and then also Cryogene? It sounds to me like the headwinds you're facing are limited to MVE, which I think is where the large capital purchases occur. That kind of makes sense to me. But if you could just sort of run through the dollars coming from each of those divisions, that would be really helpful because it sounds to me like the growth rates are pretty good in some of these other divisions.

David, I'm going to turn that over to Robert in just a moment. But the headwinds we're facing are more the global headwinds that we put in the press release and in the briefing. Those headwinds include things like the Ukraine War. That affected one of our top 10 lanes for CryoPDP; in fact, we lost that lane because there's no volume in it right now, and that affected our trials conducted in that part of the world. The broader headwinds, the economic conditions in Europe are worse than they are actually today in the United States, the oncoming recession that people are thinking about but not knowing how to approach. Those are some of the bigger headwinds. And Robert, I'll turn that over to you for specificity.

Yes. Just, I mean, you're right in terms of your initial statement about MVE and that shift from the larger freezers, so that certainly has a significant impact in Q3, and we expect that to continue into Q4 as well. However, CryoPDP was also impacted. As you may recall, CryoPDP has a very strong infrastructure and presence in Europe and in Asia Pacific. Certainly, because of COVID and because of Russia and Ukraine, their business has been impacted by those, but to a much lesser extent than Cryoport systems and really no notable impact on the Cryogene business. Now we don't break the revenue down into business units, but what I can provide you is if you look at the services revenue and the product revenue, product revenue is really the vast majority for MVE and MVE only, and service is a combination of CryoPDP, Cryoport Systems, and Cryogene. So if you look at the services revenue of $33.3 million for the quarter, it's up year-over-year, 8%. It's down sequentially. But if you look at year-over-year constant currency, it's actually up 14%. So you have the increase of Cryoport systems of roughly 25% or a little bit over 25%, which is somewhat offset by some of the impacts the CryoPDP experienced in the third quarter.

Okay. So looking at the product revenue, these large freezers, they've shifted to purchasing the smaller freezers. There's likely a lower price point? I'm assuming these are mainly hospitals that are buying these solutions to put in their facilities, so they can store the product there and inject the member or the patient with the Cell and Gene therapy at the hospital? Like I mean we saw—no, okay.

That's David, no. We sell in MVE; we sell through a distributor network. We don't have absolute visibility. But what we can tell you is that skewing toward the smaller units is we think is most likely a control of capital expenditures and capital spending by our clients. So when they can shift more to a smaller unit than a larger unit, we think they're doing that. We also know that there are a number of start-ups, and start-ups usually use the smaller freezers, but we think those are the two primary drivers.

Let me just add that the larger units that are purchased, which are the stainless steel units, which are long-term storage, predominantly go into large academic institutions, governmental institutions, large pharma, biotech, and contract manufacturing assets. That's where the vast majority of these get placed. They don't go into hospitals unless it's a teaching hospital with a research and development arm, but they're largely going into those other environments.

Okay. My only thought there is this is consistent with what we've seen elsewhere. CapEx has been under pressure across the channel, so this is consistent with what we've seen. And then it looks like the clinical trial volumes are actually fine. They're up more than 10% year-over-year, right?

Yes. So the clinical trial number is up 10% year-over-year. But in terms of volume from a revenue perspective, the clinical trial revenue is actually up 26%.

We'll take our next question from David Saxon with Needham & Company.

I hopped on late from another call, so I apologize if any of my questions have been asked. But the first question, David Larsen asked, the headwinds you described, I mean, these don't sound like short-term challenges. I get that the underlying business is showing strong fundamentals. But how should we think about growth into 2023? I mean, the fourth quarter seems to be low single-digit growth. So help us out with kind of a framework on how we should think about 2023% revenue growth.

Yes, David, that question has been answered. We will give guidance when we report our fourth quarter. A lot's happening right now. We need to take into consideration. We'll also give you guidance on our aspirational goal revision at that time.

Okay. And then hopefully, this hasn't been asked. But the skewing to smaller units that you're seeing, I guess, can you point to anything that gives us confidence that that dynamic is in competition coming to a greater degree and it's really customers just worried about their budgets and saving money on smaller units?

David, I'll give you an analogy, and it's not a perfect analogy, but it's an analogy. If you think about consumers and what they're doing, and this isn't consumers but it's like when the gas prices go up, people stop buying the VMWX7 and they go to the three series or they quit buying an escalade and they go into a Chevy sedan. So here, you have customers going from larger capital purchases with us to smaller units. They're still buying from us. It's just that they're buying a smaller unit. So if you look at units, it's okay. But when you look at revenue per sale, it's down. Does that make sense?

Hi, that does. And maybe I can squeeze a third one in. Maybe just an update on the new Prague facility MVE and then also the Chengdu facility, where production levels are at for those two facilities? And I'll leave it there.

Okay. In terms of financial impact, Robert can comment on that, but I can tell you that we've had rolling shutdowns in China. We have a number of our folks coming from various districts, and there's been recurring shutdowns that have lasted over a couple of weeks in China, which certainly has affected us in our manufacturing there. New Prague is well recovered. It's doing well. I mean, I don't have any issues with that at all. We do have a backlog that continues at New Prague, and we're working vigorously to reduce that backlog. It's sizable.

We'll take our next question from Yuan Zhi with B. Riley Securities.

We have a couple of them. So first, on the commercial cell and gene therapies, we saw that the revenue of those products increased year-over-year by about 50% compared to the third quarter of 2021. However, Cryoport's revenue from this segment from the commercial therapy part was up 23%. Can you help us understand what's missing between these two numbers? Is it because Cryoport doesn't capture everything from that market?

Sorry, guys. I missed part of that. Can you repeat it? You dropped that a little bit on me.

Yes... Sorry. So for the commercial cell and gene therapies, they increased 50% year-over-year compared to the third quarter of 2021. Cryoport's revenue from this segment, the commercial therapy was up 23%. Can you help us understand what's missing in between these two numbers? Is it because Cryoport didn't capture everything of the commercial product?

Yes. So yes, our commercial revenue, you're right, from cell and gene therapy did raise 23% year-over-year. We do have significant confidence that our commercial revenue will continue to ramp as our customers continue to ramp their therapies on a global basis, as well as introduce earlier lines of therapies and new therapies to the market. As we outlined in our Q3 review, our customers are making significant progress. We've got six BLA and MAA filings that made the first nine months of this year and seven more commercial filings this year. We also expect potentially two more commercial approvals in the fourth quarter. So we actively work on forecasts directly received from our customers and a lot of internal forecasting. We do continue to see and anticipate significant growth and progress in the commercial space in the coming quarters.

Okay. Got it. So maybe ask it in a different way. Can you guys comment on the market share change in the cryogenic logistics services and in MVE segment?

Yes. Well, just to go back to that one second. Just to let you know, we have a 100% track record on converting all of our clinical pipeline to commercial, and every single commercial client that we have, we still support.

Yes, thanks for taking our questions.

Thank you.

And we'll go ahead and take our next question from Jacob Johnson with Stephens.

Maybe first, kind of a higher-level strategic question. As I think about legacy Cryoport in the history of the Company, a lot of what you were focused on was transporting final drug product with this Takeda partnership and some of the other things you've done. It seems like you're starting to move into the drug substance manufacturing workflow. Should we think about, as we think about M&A or maybe partnerships going forward, that's an area you'll continue to add capabilities in?

No. Our strategy is not to be in the manufacturing. It's not to be a CDMO or anything of that nature. Our strategy is to build the essential supply chain platform supporting the life sciences.

Yes. Let me just add to that. The entire focus around building out the collection and processing end of the business is what Jerrell described; it's all around patient accessibility and standardized product as it relates to collection activity on a global basis. This is a huge headache for the industry. We view both of these elements of supply chain as considerations around supporting our partners from a contract manufacturing and/or an internal manufacturing basis. We're trying to provide them the vehicle by which to optimize their manufacturing paradigm to reduce the number of slots that are missed due to scheduling considerations and other things along those lines—to improve product quality, to better manage cost of goods, and most importantly, to extend patient access out into the community care setting. The problem is that the vast majority of these programs right now are pushing through the same teaching centers. They're competing for the same patients and infrastructure. Thus, us building this infrastructure out in conjunction with the Takeda team provides a vehicle to standardize and extend that ability. We view it as a supply chain extension.

Okay. That makes sense. And then just on MVE, there have been a number of moving pieces there. Just a couple of questions, if you can. When should we think about that asset returning to more normalized growth? And what do you think that growth looks like? One more thing: you noted a lot of that is through distributors. Given some of the moving pieces there this year, just how much visibility do you think you have into that business maybe versus other areas?

Our visibility is limited because of the distribution network. We also know that many other things are impacting the market that we outlined in our documentation. I don't have visibility on when that business returns to the mix changes and that sort of thing. We'll just keep you apprised as we move along. We are working through it, and we'll gain more intelligence and insight as we move along.

Got it, thank you.

And with that, we have no further questions. I would like to turn the call back over to our management for any additional or closing remarks.

Thank you, operator, and thank you for your questions and our discussion. In summary, the third quarter was a challenge where we experienced a plethora of economic pressures that impacted revenue. Despite these short-term external issues, we continue to see solid demand in our target markets from primary cell and gene manufacturer customers, evident by Cryoport Systems growth and continued momentum as evidenced by the increased number of clinical programs we support. We want to thank you for joining us this evening. We appreciate your continuing interest in our company, and we look forward to updating you again on our progress next quarter when we report the 2022 results. We hope you have a good evening, and thank you very much.

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.