Some days, absolutely nothing works right.
For your humble Foolish writer, two such days arrived this week. Specifically, Tuesday and Wednesday, when the twin publicly traded storers of umbilical-cord blood, Cryo-Cell (OTC BB: CCEL.OB) and ViaCell (NASDAQ:VIAC) reported their respective Q4 and full-year 2006 numbers. Putting the larger company, ViaCell, on a shelf for a moment, let's focus on Cryo-Cell, which I may have prematurely called "the more worthy investment for investors' cash." The reason for my conclusion, you may recall, was that for most of the past year, Cryo-Cell had generated positive free cash flow, in contrast to ViaCell's consistent negative free cash flow. Wednesday's results, however, put an end to that relationship.
Oh, I know what you're thinking. Free cash flow? Everyone on Wall Street got upset over Cryo-Cell's GAAP results. What's with the cash-flow theory? We'll get to that in a moment, but first, the GAAP results.
Cryo-Cell put in a pretty strong performance for the year, growing its revenues 19% on the back of a 51% increase in licensing revenues from abroad, an expanded client base, and a hike in its storage rates for new clients. Unfortunately, the firm's expenses grew even more quickly. Rising cost of sales, increased spending on marketing, and heavier investment in R&D drove the firm into a $0.24-per-share loss for the year, as compared with last year's $0.09-per-share profit.
Perhaps worse, the firm did the precise opposite of what the single analyst following it had expected. Rather than accelerate its rate of sales growth to 28% as predicted, sales growth hit the brakes and fell to 14%. Rather than earn three times more than in Q4 2005, the firm booked a sizeable net loss.
Certainly worse, Cryo-Cell reversed its history of generating cash profits. In contrast to the $2.4 million in cold, hard cash added to its coffers in 2005, the firm burned through about $71,000 in 2006. In this Fool's mind, that makes CEO Mercedes Walton's assertion -- "Cryo-Cell's demonstrated history of sustainable profitability along with the Company's positive cash flow performance ... reflect Cryo-Cell's potential to achieve higher levels of success moving forward" -- seem a bit misleading.
Two final notes: Not meaning to quibble, but it would be easier to see the logical disconnect if Cryo-Cell had included a cash-flow statement in its earnings release. In fact, the firm included no financial statements whatsoever, requiring investors to visit the SEC's site to find the numbers within its 10-KSB. And it didn't inspire a whole lot of confidence to see that Cryo-Cell's cash flow statement contained an obvious typo, with both columns of results apparently showing results from the same "Year ended November 30, 2006."
Find further reading material on the twin near-homonyms of biotech in the science lab:
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Fool contributor Rich Smith does not own shares of any company named above.
