Good afternoon and welcome to Cryoport's Fourth Quarter and Full Year 2023 Conference Call. All participants will start in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. 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 when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include but are not limited to those described in Item 1A, risk factors, 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 the other reports which we file with the Securities and Exchange Commission. With nothing further, it is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining our earnings call today. With us this afternoon is 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 fourth quarter and full year 2023 review document to our website. It can be found under Investor Relations in the News and Events section. This document provides a review of our 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 our website and download it. I'll provide you with a brief update on our business and then we'll move into answering your questions. Today, we reported total revenue of $233.3 million for fiscal year 2023, which was within our guidance range. 2023 turned out to be a challenging global operating environment, which impacted revenue across all of our business units. Product revenue was lower than historical levels, even as MVE revenue began to stabilize in the last quarter of the year. At the same time, in 2023, we saw further growth in service revenue as it became a greater part of our business. Our service business is the core driver of our growth, generating over $144 million in revenue, which represents 62% of our total. As part of this growth, we had a year-over-year growth in BioStorage/BioServices revenue of 45% and Commercial Cell & Gene Therapy revenue of 33%. As of December 31, 2023, we supported a record of 675 clinical trials worldwide, a net increase of 21 clinical trials over last year, with 82 of these in Phase 3, as well as 311 in Phase 2. I think it's important to point out that our clinical trial portfolio constitutes a significant long-term revenue growth opportunity for Cryoport as most therapies proceed through clinical trials toward commercialization. We currently support 14 commercial therapies, up from 10 the prior year. We expect the number to grow again this year, driven by an anticipated 17 application filings and an anticipated nine new therapy approvals. In fact, we have already had two new therapies approved and one BLA filing this year. So we're off to a pretty good start. Product revenue in 2023 was lower than historical levels. As reported previously, our MVE Biological Solutions revenue began to stabilize in the latter part of the year. Putting these short-term anomalies in perspective, MVE is a global leader in the manufacture of cryogenic systems. It is a resilient business, and through cost controls, it has been able to maintain strong margins and generate considerable cash flow for our company. We remain confident in MVE and its future. I think the cell and gene therapy industry is still in a nascent stage that will develop in a way that will transform the way we practice medicine for the betterment of mankind. The actions we take daily are to support that vision, not just for the short term, but for the longer term as well. To that end, a few of the actions we took during 2023 to further position ourselves for continued growth and industry leadership included making targeted investments in our business and forming strategic relationships with respected partners. For example, we acquired Bluebird Express, a provider of time-sensitive domestic and international transportation services with the intent to strengthen CRYOPDP’s USA rollout. We also completed the acquisition of TEC4MED LifeSciences, a technology company that provides next-generation communication and condition monitoring technology for the life sciences. It is through tactical investments with strategic impacts such as these that we have over the years expanded our solutions beyond logistics and transformed our company into a robust platform of temperature control, supply chain solutions for the life sciences, with a focus on cell and gene therapy. We pay attention to the development of our ecosystem, and to that end, we developed additional strategic partnerships in 2023, including forming a new collaboration with Cell and Gene Therapy Catapult network in Stevenage, England, to provide integrated logistic support to its Manufacturing Innovation Center. Through this partnership, we are establishing our first UK logistic center to support cell and gene therapy clinical trials and future commercial growth throughout Europe. Stevenage is located in the center of the Golden Triangle, arguably the most cell and gene therapy concentrated activity in all of Europe. We also expanded our relationship with NMDP BioTherapies, formerly known as Be the Match therapies, in which it will be leveraging our new IntegriCell platform in support of allogeneic donor recruitment, collection, and cryopreservation. In Asia-Pac, we developed a strategic partnership with Nippon Express, headquartered in Tokyo, which will build onto our growing APAC presence and bolster our temperature control supply chain solutions worldwide. Our business development activities included welcoming a number of key new clients from which revenue will ramp up over time. For example, Sarepta's gene therapy, Elevidys, for the treatment of Duchenne Muscular Dystrophy has ramped up treating patients much faster than Wall Street had predicted. By June of this year, Sarepta may receive a label expansion for Elevidys that removes all the current age restrictions. Other positive developments that have continued into 2024 include the FDA's commercial approval of Iovance Biotherapy’s Amtagvi therapy for advanced melanoma, the FDA's commercial approval of CRISPR and Vertex of CASGEVY for the treatment of sickle cell and beta-thalassemia, and the FDA's acceptance for priority review of Adaptimmune’s biological license application for afami-cel and investigational engineered T-cell therapy for advanced synovial sarcoma. As these and other anticipated therapies are introduced into the market and begin to ramp up, our commercial revenue will grow, driving further growth in logistics and bioservice revenue. We continue to set a new standard for the cell and gene therapy industry, as evidenced by the launch of innovative and revolutionary products and services, including the Cryoport Elite line of shippers, which include the Cryoport Elite UltraCold -80 shipper. These cutting-edge shippers are setting a new bar, exceeding industry standards, temperature, hold times, and providing additional risk mitigation. Our advanced integrated technologies enable data management and transparency verified through our training compliance service platform. With product introductions like these, we continue to expand our end-to-end solutions for the care and transport of cell and gene therapies. The developments and actions I've outlined today are just a few examples of the solid foundation Cryoport continues to build to support our long-term growth strategy. Growth in the cell and gene therapy market alone, along with other sectors of the life sciences, paused over the last year or so, but we expect 2024 to show progressive improvement throughout the year. Therefore, we're providing a full year 2024 revenue guidance in the range of $242 million to $252 million. As we move through 2024, we will continue to focus on leveraging our growth drivers and strengthening our industry-leading brands to better serve our clients while capitalizing on the growth of the cell and gene therapy industry as more of these life-saving therapies receive regulatory approval globally. We believe 2024 will be a year of progressive advancement in our business with stronger overall growth in our service business. That concludes my prepared remarks. Now we're happy to take your questions. Operator, please open the lines for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Puneet Souda of Leerink Partners. Your line is already open.

We believe 2024 will be a year of progressive advancement in our business with stronger overall growth in our service business. That concludes my prepared remarks. Now we're happy to take your questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Puneet Souda of Leerink Partners. Your line is already open.

Puneet, you're not coming through clearly. I can't understand your question.

Hopefully, there are no technical difficulties.

Operator, why don't you go to the next question? Puneet, why don't you try to fix your situation and hop back in?

Your next question comes from David Saxon of Needham. Your line is already open.

Great. Hi, everyone. Good afternoon. Thank you for taking my questions. I hope you can hear me better now. I wanted to ask about the comments regarding MVE stabilizing in the fourth quarter, and it seems like the overall portfolio is experiencing growth. Can you provide insights into the revenue progression throughout the year? Historically, you have shown sequential growth after the fourth quarter. Based on what you observed in the fourth quarter, should we expect this trend to continue with growth in the first quarter? Additionally, what are your thoughts on the consensus estimate of around $62 million for the first quarter? I have a quick follow-up after that.

David, we don't provide quarterly guidance, but your assumption about the trend seems reasonable. I aimed to convey that we anticipate continuous improvement throughout the year. The industry faced challenges in funding and growth over the past couple of years, but we believe recovery is underway. Funding appears to be at a solid level. We already have a couple of therapies approved, indicating a strong start. Therefore, we expect to see consistent progress this year. Additionally, services revenue is a key driver of growth. In 2023, commercial revenue grew by 33% year-over-year, with a 36% increase in Q4. The BioStorage/BioServices revenue also saw a significant 45% year-over-year growth. We expect these service revenues to continue growing in 2024. Furthermore, we anticipate steady improvement in MVE. MVE is a strong business, holding the dominant market share and being the leading cryogenic systems manufacturer globally, with a significant demand for biological storage internationally. This segment will recover over time.

Okay, all super helpful. So thank you for that. And then I wanted to ask on the P&L, specifically the gross margin. It was fairly stable through the third quarter and then came down a bit in the fourth. So, what happened during the quarter to cause that sequential contraction? And then for 2024, how should we think about the gross margin for this year? Thanks so much.

Yeah, again, on gross margin, you're right. You look at overall gross margins, we landed Q4 at 42.6% versus a 43.8%. And we've seen services revenue being relatively flat year-over-year and then seen a little bit more of a dip on the product side. In some instances, you'll have in Q4 additional kind of cost increase to the amount of initial true-ups. So I would expect some of that to alleviate going forward in Q1 and beyond. But I would expect for modeling purposes more of a stabilization of gross margin, again, also with an increase in our business, increasing progressively throughout the year.

Great. Thank you so much.

Your next question comes from Tejas Savant from Morgan Stanley. Your line is already open.

Hey guys. Good evening. Jerry, one for you on the guidance. Just curious about what exactly are you baking in for the biopharma funding recovery? Are you essentially assuming current demand conditions continue through the rest of the year, or are you baking in something like a recovery in the back half beyond just easier comps? And then a similar sort of question on the China situation as well. I mean, clearly it was a weak geography for you in ‘23, as it was for a lot of other life science companies. Are you baking in some sort of a recovery there in MVE into the guide in the back half?

Tejas, regarding the overall funding for biopharma, biotech, and especially cell and gene therapy, we expect gradual improvement throughout the year. This outlook remains despite any geopolitical tensions. Currently, we believe the situation will continue to progress positively. Concerning China, the country is in a recession and is likely to stay in that state for some time. Our dependence on China is minimal, making up less than 4% of our total revenue, though it is a more significant portion of MVE's revenue. We are taking steps at MVE, including the domestic manufacturing of freezers in China, which will take about a year to implement in line with President Xi's 2025 initiative of "Make in China, Buy in China." We are prepared for this since we have previously produced freezers at that plant and have the capacity to increase manufacturing. While this should help mitigate some challenges, the pressure on China will persist for a while, and we do not expect China to recover this year.

Hey Jerry, I just have one thing on the BioServices or the biopharma funding situation. So I just want to make sure everybody's aware. Obviously, the improvement in funding for the biopharma space is a long-term benefit for us because it recapitalizes a lot of the portfolio and allows them to reinitiate clinical programs. But that's not an instantaneous benefit. The benefit is really focused around what Jerry had mentioned in his opening comments is all of the new and the approval activity. We see upwards of another nine therapies that may be approved this year. And so that's where you're going to start to see that significant improvement and contribution later in the year, as well as the diversification of revenue into the BioServices space, as we had already mentioned, as well as that commercial revenue piece.

Got it. That's super helpful. And then just speeding back to layers at MVE a little bit, Jerry. Can you share some color on what the order book sort of looks like, how month over month things have trended there? You've consistently talked of margins holding up really well in that business, even with the top line headwinds. Do you envision a situation where you need to perhaps lean in on that pricing lever a little bit more in ‘24 to help nudge, high-end freezer sales and then any color on that $50 million non-cash impairment on MVE in the quarter? Thanks.

Well, yeah, I'll ask the first part and Robert can answer the latter question. We don't actually comment on details on any of our business units, so I don't really want to comment on those. I can tell you that the margin has to do with superlative management. Our management team at MVE does an incredible job of managing manufacturing operations and the cost to be in line more with revenue. And so in terms of leaning on a price lever, we are always looking at our pricing. We annually, we look at our pricing and we look at it more frequently if we have need to. But I don't think we'll be leaning on that lever in any disproportionate way. MVE is a healthy business. It's doing well even under these conditions. It continues to generate cash flow. It's a strong business. And it is the dominant player in cryogenic systems manufacturing, controlling some 65% to 70% of the market. And so we're very confident in MVE. I'm not concerned. We're in this business for the long term. We're not in it for the short term. Now, Robert can comment on your question regarding goodwill impairment.

Yeah, absolutely. Obviously, this is your standard accounting approach. So when you look at the non-cash impairment charge and the reduction in goodwill related to MVE Biological Solutions, the acquisition that we completed in Q4 of 2020, this is really based on the drop in revenue that we've seen in Q2 of ‘23, which continued kind of more or less flat for Q3 and Q4 because it was leveled out. And with that, we had to adjust our financial modeling and do a quantitative impairment assessment. And that led to that one-time charge reducing the goodwill. No other goodwill or intangible assets were considered impaired. So that's really the explanation.

Got it, that's super helpful. And then one final one for you, Jerry. I know you were at the Advanced Therapy Week conference in Miami. Just any color on just customer feedback and traction there? And as you talk to them about perhaps some of your upcoming products or recently launched products, whether it's the HV3 Shipper or perhaps the Fusion 2.0, et cetera, where do you sense the most unmet need and excitement, and where do you see the most traction over the next couple of years for you guys?

Tejas, it's a really good question, but it's a very complicated answer in the sense that we have 20 some odd initiatives going on inside the company right now, building out for the future. And we are constantly re-prioritizing to meet market needs as they come up. The HV3 Shipper is going to be a fantastic addition to our product line because it will reduce the total cost of shipping for the manufacturers. The Fusion line, as it's developed, especially as we develop the 800 series, the smaller series will open up markets that we've never been in. It'll open up second and third floors. The Broad Institute, for example, to cite just one customer that I think we can cite, bought Fusions because of the plumbing issues; they could use it flexibly on higher floors. And so that's a very exciting product. The Vario, which is an energy-efficient unit, can be dialed up and down for different temperature ranges from minus 20 all the way up to cryogenic temperatures. We have IntegriCell coming on where we're going to be furnishing optimized cryoprocessed apheresis, which will be standardized and it will be producing more robust material; it will be cryopreserved to allow manufacturers to insert the materials when they want to as opposed to when they have to from being fresh material; it will be cryopreserved. It'll expand manufacturing capacity, improve the quality of the therapies, and will be more consistent. This is another standard-setting thing that we're doing. We're opening up this gene therapy business minus 80 with the Cryoport Elite UltraCold. So it goes on and on, and we just bought TEC4MED, which I mentioned in my comments, is an incredible communications and temperature monitoring system that will start over time to tie all of our companies together and give us the most complete chain of compliance in the world. It'll be terribly exciting as it gets into that process. So those are just a few of the things. We have levels of priority; it's not just one priority. It's levels of priority as we serve the industry. We're rolling out, of course, CRYOPDP in the United States. It already has a number one footprint in Asia-Pac and also in EMEA, and we're just now rolling it out in the United States. It's been underway for a while. We acquired Bluebird to accelerate that. We're opening up operations to supplement that and to build out that operation. So we have a host of things going on that are meeting and anticipating where the industry will be and help enabling it to grow and to prosper, and that's both in cell and gene therapy.

Got it. Appreciate the color, guys, and best of luck with the year.

Thank you very much, Tejas.

Your next question comes from Puneet Souda of Leerink Partners. Your line is already open.

Hi guys. Hopefully you can hear me okay.

Much better, Puneet.

All right. So, just if you can help me a little bit on the guidance. I mean, it came in on the lower end of the guide itself that was flat for the year. You are seeing some improvement in MVE, as you pointed out, in sequential improvement, but China is still not improving. So, sort of taking all that in, I guess, my main question is, you're implying about a 6% growth this year in ‘24. What is actually sort of embedded in that guide? What are the levers that you think push that 6% growth potentially higher and is there or is there enough sort of, for lack of a better word, conservatism baked into that?

Well, we did take a conservative approach, Puneet. We looked at all of our business units and we built our forecast from the ground up. And certainly, we think that there are some upsides that could happen this year. There could be more therapies approved. Our existing therapies could ramp quicker, both of which I alluded to a little bit earlier. Some of our introductions of products this year could be adopted much quicker than we forecast. So we definitely have upside, but we wanted to be conservative. We're not interested in disappointing anyone, and our business plan is around that. Robert, would you like to comment any further on that?

No, no, I just echo what Jerry said. If you look again at the outlook for 2024 and you look at what we've achieved in some of the key areas in ‘23, you can see the continuum of services revenue growing, in particular, the commercial revenue, in particular, the BioStorage/BioServices revenue, and those are really some of the leads. Like Jerry mentioned, there are a few new initiatives that are coming online this year, and if they ramp faster, that can contribute more revenue. Again, we certainly took a conservative look. If you talk to other companies in the life science tool space, you'll hear them say they're being cautiously optimistic, and we are as well. But that's kind of where we stand.

Okay, that's helpful. Following up on CRYOPDP, I believe that the combined revenue from CRYOPDP and MVE is still more than 60% of your total revenue. Could you elaborate on whether we should consider the normalized growth rate for MVE to be similar to what it was at the time of acquisition, which I believe was in the low single-digit to maybe mid-single-digit range, and CRYOPDP was close to that as well? Could you help us understand the normalized growth rate we should expect for these two businesses?

Once MVE begins to recover, I view these businesses as distinct, each targeting different market segments with unique missions. I plan to assess them individually. Regarding MVE, I anticipate that once it emerges from this downturn, growth rates could improve to low double digits, possibly even exceeding single digits. The current lull can be attributed to several factors. One known factor is the decrease in capital expenditures, which has been affected by the cautious economic climate we have experienced globally for more than a year. Additionally, I have a theory, although it's not confirmed, that there was an accumulation of capacity during the COVID period, and that capacity is now being utilized. Once this utilization occurs, we expect to see normal growth rates. Biological materials are continuously produced in large quantities, necessitating their storage, which is fundamentally reliant on cryogenics. Therefore, we are optimistic about MVE's market position, its product offerings, and its long-term potential, which we believe is exceptional. New products and services, as well as diversification in revenue streams, will emerge from MVE over time. As for CRYOPDP, it stands as the third-largest specialty courier for the biotech and biopharma sectors and is currently expanding in the U.S. We have been working on this initiative for some time and acquired Bluebird Express to expedite growth. Our decade-long experience with Bluebird Express assures us of its quality and positive impact on our growth trajectory. As we expand in the U.S., I believe we will see increased momentum, although growth rates may still initially be in the low single digits until we establish a stable footing in that market. Other regions globally are performing well.

You mean low double digits, Jerry, not low single digits.

Sorry, just clarifying. He said low single digits and that's what he meant, Mark.

Sorry, just clarifying. That's low single digits for the US part of the business and double digits for international?

Yes, exactly.

Okay. Just one last question if I may, regarding the Alabama IVF decision, can you explain the impact for you and what changes you need to implement in your network for that?

Alabama did not significantly impact us. We received more publicity than anything else from Alabama, but we do ship in and out of the state. After the Supreme Court's ruling, we halted shipments until we could assess the situation. We paused our business there for both MVE and Cryoport systems along with Cryo and CRYOPDP. We only resumed operations after a new law was enacted that allowed us to reopen in Alabama. Currently, everything is operating normally, and we're keeping an eye on the situation in case of any changes in state policy. However, it certainly generated significant publicity.

Thank you. There are no further questions at this time. I would hand over the call to Jerry Shelton, the CEO. Please go ahead.

Thank you for your questions and our discussions. In closing, our 2023 results were within our guidance range and our expectations. While product revenue was lower than historical levels, MVE revenue began to stabilize in the latter part of the year and that has continued into early 2024. Services revenue continued to become a larger part of our business led by growth in BioStorage/BioServices and Commercial Cell and Gene Therapy. We think 2024 will be a year of progressive advancement as more therapies move toward commercialization. In addition to our operating results in 2023, we continue to make strategic investments and establish important relationships to drive our long-term growth. We signed a number of new clients and bought new products and services to market. All of these actions continued to expand our ability to serve the cell and gene therapy industry globally and open up new revenue streams. Barring any geopolitical breakdown, we think our outlook of a progressively improving market in 2024 is well founded. As an established industry leader that leads the way in providing vital supply chain support to the life sciences industry, we intend to continue to grow in importance and to benefit from the growth of the cell and gene therapy industry as it becomes an even greater proportion of our business. Thank you for joining us today. We appreciate your continuing support and interest in our company. We look forward to updating you on our progress again next quarter. We hope you have a good evening.

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