Cytek Biosciences Inc (CTKB) 2022 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Cytek Biosciences Second Quarter 2022 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Paul Goodson, Investor Relations. Please go ahead.

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the quarter ended June 30, 2022. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investors@cytekbio.com.

Joining me today from Cytek are Wenbin Jiang, CEO; and Patrik Jeanmonod, Chief Financial Officer.

Before we begin, I'd like to remind you that we will be making statements during this call that are forward-looking statements within the meaning of the federal securities laws, including statements regarding Cytek's business plans, strategies, opportunities and financial projections. These statements are based on the company's current expectations and inherently involve significant risks and uncertainties that could cause actual results or events to materially differ from those anticipated.

Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Cytek issued today and in Cytek's filings with the SEC. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release submitted to the SEC.

Except as required by law, Cytek disclaims any duty to update any forward-looking statements, whether because of new information, future events or changes in its expectations. This conference call contains time-sensitive information and is accurate only as of the live broadcast, August 10, 2022.

With that, I would like to turn the call over to Wenbin.

Thanks, Paul, and welcome, everyone joining the call today. I want to start by again, thanking the incredible Cytek team for their dedication and the execution as we closed out the second quarter of 2022.

On today's call, I will begin with a recap of our progress this year and discuss how Cytek continues to advance towards our mission and vision. And then I will turn the call over to Patrik for a more detailed look at our financial results and outlook.

Cytek continues to stand apart in the field as we provide our customers with an end-to-end solution, consisting of instruments, reagents, software and application services. Since our inception, we have continued to develop and launch new products and services, which have been validated in the field by our robust customer base.

Our unique portfolio of comprehensive solutions positions us as a leader in the sector, and we are proud of the [demonstrated] value we provide to our customers. Beyond our original suite of instruments, which continue to see solid demand, we expect our reagents and recently launched cell sorters to contribute considerably to our future enterprise revenue growth.

We see this further diversification of our revenue stream, including a growing contribution from recurring revenue consisting of services and the reagents playing an important role in Cytek future. I'm pleased to say that our installed base of instruments continues to achieve robust growth in the field.

During the second quarter, we placed 130 instruments, bringing our total installed base to 1,356 instruments as of the end of Q2. These placements are also aligned with our core strategy, and we have continued to achieve solid adoption with high dimensional cell analysis users, while also improve special profiling to entry-level users.

Since first being introduced in 2017, our cell analysis systems have gained widespread adoption across the globe with use in more than 40 countries. As Patrik will discuss later, our efforts have once again translated to strong revenue growth in this quarter, with revenue increasing 32% over the prior year's second quarter. These results reflect strong demand driven by the recognition from customers of the [advantages] of our technology in addressing their needs.

Once again, our team continued to execute well and achieve operational excellence even in the face of various macro pressures. Our dedicated team is able to leverage Cytek's global workforce in order to manage through inflationary and supply chain pressures.

Additionally, our past inventory buffer provides a further mitigation of potential supply chain disruption, insulating our operations from constraint. In all, we continue to be focused on execution, and I remain confident in the [societal] team's demonstrated ability to manage through this environment and continue to succeed despite the ongoing challenges.

I would like to take a moment to highlight some important recent development for Cytek from this past quarter. As a reminder, at the end of April, we announced the appointment of Todd Garland as our Chief Commercial Officer. Since joining, Todd has proven an integral part of our team and has already demonstrated significant value to our organization. And we are pleased to have Todd with us as we continue to execute our mission.

At the end of May, we announced that a series of single-color cFluor reagents and 6-TBNK kit have received CE Marking under the European Union (IVDD) 98/79/EC. Other regions that accept the CE Marking are also included in the certification. With this development, clinical flow cytometry laboratories based in the European Union can now purchase Cytek cFluor CE-IVD certified reagents for their use. This exciting achievement makes the cFluor reagent available for clinical diagnostic use in hospitals, laboratories and the clinics across the EU and positions us on a path to offering a total cell analysis solution to the European market.

In early June, we participated at CYTO, which is one of the premier flow cytometry conferences. At the event, we had the only cell sorter that was actually running on the show floor, which enabled us to perform live demonstrations showing the power of combining analysis with cell sorting.

Dr. Sylvain Simon from Fred Hutch gave a commercial tutorial on running a 59-marker panel using the Aurora system, providing further validation of the transformative power of our technology. Overall, this year's CYTO conference was a very successful event for Cytek as significant customer interest resulted in a record number of sales leads for the company.

Later in June, we also hosted our inaugural analyst and investor day. In addition to our executives providing a deep dive into flow cytometry, we showcased 4 key opinion leader users of our products and services who illustrated the power of our solutions and the important value we bring to our customers. For those who may not have attended the event, we invite you to (inaudible) the replay of the webcast on the Investors section of our website.

The KOLs who spoke are scientists and physicians in the research and the clinical field who both largely on oncology, but also HIV, diabetes, information aging and the multiple aspects of the COVID pandemic, demonstrating the breadth of Cytek technology. These experts spoke to the dramatic expansion in capabilities, sensitivity and accuracy they have achieved from Cytek's machines, reagents and software as well as the consistency of results and the significant cost savings they have obtained. One KOL who operates the core clinical laboratory said that Cytek machines face from 50% to 200% in cost for running samples which is due to being 300% faster than competing technology.

We observed that Cytek's ability to run more samples in fewer tubes produces results in less time and faster diagnosis allows treatment to begin sooner, allows a more specific therapeutic approach, consumes fewer resources, costs less and allows hospitals to make patient discharge decisions more quickly, thus saving further costs.

As I commented that advanced capabilities of Cytek analyzer and the groundbreaking nature of Cytek's new cell sorter creates new opportunities in research and clinical practice. Two KOLs said that Cytek's flow cytometers have become the default tool for special analysis, simplifying the technical skills needed and unleashing the power that artificial intelligence can offer. We are gratified that our work at Cytek is enabling such significant scientific and clinical advancements.

As we continue to grow our offerings and the base of instruments, reagents and services, our technology has now been validated by 768 peer reviewed publications as of the end of the quarter. This quarter alone there were 116 peer reviewed publications mentioning Cytek. I'm very proud of this accomplishment, which speaks to the momentum of our platform and validates the use of our offerings in the scientific community. A notable publication was from (inaudible) cancer center in (inaudible). Development of a 27-color panel for the detection of measurable residual disease in patients diagnosed with acute myeloid leukemia in which the researchers use only one tube, reducing costs and improving workflow. This exemplifies our mission at Cytek and the technology we bring to the field as we continue to demonstrate proven real-world results.

In all, I'm pleased with the progress our team has made this quarter and expect to make throughout the remainder of the year as we continue to establish ourselves as a leading cell analysis solutions company. As we continue to push forward a cadence of the new products and applications, we remain deeply focused on providing a complete cell analysis solution to our customers. We look forward to continuing to provide our novel SSC platform to these customers as they push the balance of scientific discovery and clinical progress.

With that, I will now turn the call over to Patrik for more details around our financials.

Thanks, Wenbin. Total revenue for the second quarter of 2022 was $40.2 million, a 32% increase over the second quarter of 2021. Gross profit was $24.6 million for the second quarter of 2022, an increase of 24% compared to a gross profit of $19.7 million in the second quarter of 2021.

Gross profit margin was 61% in the second quarter of 2022 [covered] to 65% in the second quarter of 2021. Adjusted gross profit margin in the second quarter of 2022 was 64% compared to 65% in the second quarter of 2021 after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles.

Operating expenses were $25.5 million for the second quarter of 2022, a 60% increase from $15.9 million in the second quarter of 2021. The increase was primarily due to expenses to support continued growth of the business, including further investment in sales and marketing, R&D and costs related to operating as a public company.

Research and development expenses were $8.4 million for the second quarter of 2022 compared to $6.2 million for the second quarter of 2021. Sales and marketing expenses were $8.4 million for the second quarter of 2022 compared to $5.6 million in the second quarter of 2021.

General and administrative expenses were $8.6 million for the second quarter of 2022, an increase from $4.2 million in the second quarter of 2021. Adjusted EBITDA in the second quarter of 2022 was $4.8 million compared to $4.7 million in the second quarter of 2021, after adjusting for stock-based compensation expense and foreign currency exchange impacts.

Turning to our guidance. We continue to expect full year 2022 revenue to be closer to the high end of the range of $160 million to $168 million. While we have seen an increase in foreign currency exchange headwinds, namely through the euro, the growing momentum in our business gives us the confidence and ability to maintain our full year guidance. We have taken and will continue to take action to address this ongoing challenge and our sales pipeline provides us visibility into future revenue expectations.

I'm pleased to say that our organization is in a strong position financially, continues to see solid demand and is committed to remaining profitable on an EBITDA and net income basis annually as well as achieving our long-term growth targets and objectives.

As such, we do not anticipate the need for future capital raise to meet operating needs. Our strong balance sheet, including a solid cash position and no debt, underpinning the strength of our healthy organization. We will continue to invest in our core business as it relates to new projects and innovation while remaining opportunistic in the M&A environment and focusing on growth in all key areas.

With that, I will turn it back over to Wenbin.

Thanks, Patrik. Again, this quarter, Cytek has continued to demonstrate our commitment to developing tools, reagents and the software to advance the next generation of cell analysis.

I would like to express my deep gratitude for the team we have here at Cytek. Their excellence, hard work and shared (inaudible) in this important mission drives our progress. I would like to again remind anyone who did not attend our Analyst and Investor Day that a replay is available on our website.

Thank you, everyone. And we will now open the call up for questions. Operator?

(Operator Instructions) Our first question comes from the line of Max Masucci from Cowen and Company.

So you set some targets, some near term, some longer term, just for the percentage of total revenues that could be generated from reagent kits a few months ago. And clearly, there's a lot of macro factors and other regional dynamics in play that are impacting both supply and demand for life science research tools products. So would just be curious to hear how the demand for the reagent offerings has trended over the course of 2022. And then maybe more specifically during Q2.

Yes. So Max, maybe I can take that first question. So we had another very solid quarter on the reagent obviously up from last year just because we had a small base from last year. Very pleased with where we are. So overall, the -- it's in line with our expectation. We've seen a little bit of a I would say, headwind on the (inaudible) side. So we were impacted with the -- I would say, we have impacted adversely with some maybe 3% to 5% on the total revenue. But outside of that, I think it's marching towards our expectation. I think the business is performing very well, considering the macro environment.

I would say that we delivered another quarter of very solid financials and I think it's positioned us very well for another great year.

Okay. Great. And then another insight from the Analyst Day is the evaluation of clinical flow cytometry labs in terms of the performance of instruments that are supporting clinical application along with their operational efficiency, turnaround time, et cetera.

Just curious if there are similar standards in place for European flow cytometry labs. And then if so, we saw the CE Mark announcement, how much -- how should we be thinking about how much you're prioritizing a commercial push in the clinical setting in Europe?

Yes. I'll pick up that question. In fact, the CE Marking provides us a new opportunity to serve the clinical tenders in Europe and Europe, that's including our CE-approved certified instrument as well as the reagents.

So certainly, it's still new to us, and we have just got our reagents cleared. But again, there will be new opportunities for us going forward.

Our next question comes from the line of Matt Sykes from Goldman Sachs.

Maybe just first at -- I guess, at a high level because I know you don't necessarily break out the different instruments. But I know last year, towards the latter half of the year, you were generating a decent amount of traction within Aurora relative to Northern Lights. It's been a year since you've launched the cell sorter. And just given the ASP of the cell sorter and the potential impact on margins. Maybe just kind of give us an update on the progression of each instrument category. Or maybe just specifically, I'm interested in the cell sorter as well and the progress given the time that the lab since launched.

So on the cell sorter, what I can say though we don't really break out our information, but we have a record number of cell sorters this quarter. And we continue to see demand for every instrument type, the Aurora, the Northern Light. But yes, this quarter, we had a very strong quarter on cell sorters.

Great. And then just maybe another one for you, Pat, just on the adjusted gross margin came in above where we were somewhat on par with last year, very high level. Can you just maybe talk about some of the drivers of gross margins this quarter? And then what your expectations are for gross margin trends -- adjusted gross margin trends for the balance of the year?

Yes. So the expectation is that the gross profit margin will stay or will gradually improve over time, especially as we roll out the reagents that typically have a higher gross profit margin. And as we also continue to globalize our processes, we have seen, as I said earlier, a little bit of a headwind on the FX position. But I think we've been able to manage that quite well in this quarter.

Our next question comes from the line of David Westenberg from Piper Sandler.

Congrats again, on all the progress. I want to actually start with probably a question probably more for Patrik because it's on inventory. We're picking up a lot of companies -- I mean you've talked about supply chain on the call. We appreciate the color there. We're picking up from a lot of companies that they're having to be opportunistic with supply chain and parts. And when things become available, there they're kind of just buying right then and buying in big numbers. Should we expect free cash flow due to the fact that inventory maybe you'll have to build a lot of inventory over the next few quarters in order to kind of keep a lot of the parts on hand. I mean just how should we think about inventory free cash flow that you'll probably have to do over the next 6 to 9 months?

Right. And -- so we haven't waited this quarter to build our inventory. So -- and you'll see that looking at the balance sheet, our inventory level is now at the highest it's been, $45 million, up from $32 million. So substantially higher if I look at last year. And I think what we're doing here is we -- to your point, I mean, we try to ensure that we have sufficient part in stock in inventory so that we can continue to deliver and provide the best service to our customers. So I think we've done a pretty good job, which has a cost slightly which is having a slightly higher inventory.

So we will probably continue -- I'm expecting the inventory to continue to build a little bit over time, but it should not be as dramatic that we've seen since December.

Got it. Okay. And then probably this one is more of a question for Wenbin. We did see a partnership between BD and Labcorp using flow cytometers in a potential for CDx. Now I think on the Analyst Day, you did show a lot of indications around -- or usage around minimal residual disease. Is -- are there any other maybe clinical applications that you see as being a particularly interesting from full-spectrum flow cytometry. And maybe anything outside of minimal residual disease. Or how do you think some of those CDx kind of partnerships could look in the future, if you ever did plan on doing some of those?

Yes. In addition to the MRD, which we have talked about, in fact, we have quite a few collaboration partnerships ongoing today with the clinical (inaudible) in the world across many -- several countries. So that includes applications in such as immuno profiling and other type of research projects as well as the clinical activities.

Got it. okay. Okay. All right. And then just maybe for the last one, this one should be nice -- Sorry, I cut out. Can you guys hear me okay?

Yes, we can hear you.

Okay. Perfect. And then maybe just one last question, if I can. Patrik, on the guidance, there was one -- is still that $160 million to $168 million. You did mention kind of the high end of guidance. Is there a reason why you didn't just bring up the low point of guidance? I will accept the answer of it's just a [stylistic] thing versus -- I just was wondering if maybe there is some things that could happen that would still hit the low end of guidance, for example, maybe supply chain recession in Europe. Again, I'm just trying to get some color whether that's stylistic or because this is the first time I've worked with you as a CFO and you guys are only about 1.5 years out from IPO-ing. So anyway.

Yes. It might be statistic. But no, I think we feel pretty good about the -- I mean we're reiterating our guidance despite the -- some FX headwind, if I can call it this way, and it will be on the higher end. Yes. I don't understand the question.

Our next question comes from the line of Tejas Savant from Morgan Stanley.

So Wenbin, I want to start with Europe. I mean I know you mentioned sort of FX and exposure there. But outside of that, curious if you're seeing any elongation of sales cycles or tighter scrutiny of CapEx purchases among your customers? And if you're not, any color on that? Because we're starting to pick up sort of signs of that happening with some of the other instrument-focused life science plays out there. So just curious as to what you're seeing and why.

Actually, it really depends on the [region creditors]. I think U.S., APAC, especially China, we have been very well, okay? And -- but in Europe, we do see some delayed process takes longer time to close. But the business is still there, and we expect all of those business will continue to come back maybe towards the second half of the year.

Got it. That's helpful. And then, Patrik, one for you. I mean, implicit in the guide, what are you assuming for a budget flush this year? And is, I guess, a normalized budget flush essential to the 4Q uplift that you are I'm assuming you're modeling into your projections?

Yes. So I mean, currently, as I said, I mean we -- I mean we came with our guidance. We've seen a little bit of a headwind, especially coming from Europe on the FX side. I mean, the euro against dollar has weakened substantially. So for us, we feel good about the second half to be in that $168 million range. And I don't know if that answers your question.

Got it. Okay. And just given your manufacturing facility and Shanghai office. You've got, I think, about 200 employees on the ground in China. Any color on current operating conditions? And what are your sort of assumptions around the recovery in the region?

Our manufacturing is actually outside of Shanghai in Wuxi. And the impact is very minimal. And plus, we, as Patrik earlier mentioned, and we have been building inventory not only on the product side as well as on the instrument side to make sure we will be able to serve our customers.

Got it. Okay. And then finally, last one for me here. In terms of the next-gen clinical flow instruments that you're working on, can you just give us an update? I know you mentioned at the Analyst Day being in contact with the FDA for system requirements, et cetera. Just curious as to any color on how those conversations went and a progress update on the development.

Clinical process takes a couple of years, that's why we don't really have much new updates.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. The conference will begin shortly.