Cytek Biosciences Inc (CTKB) 2024 Q1 法說會逐字稿

Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cytek Biosciences first-quarter 2024 earnings conference call. (Operator Instructions)

Thank you. I would now like to turn the call over to Paul Goodson, Investor Relations. Please go ahead.

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the quarter ended March 31, 2024. If you have not 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 newly appointed CFO, Bill McCombe.

Before we begin, I'd like to remind you that management will make 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 and 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, May 8, 2024.

Before Wenbin speaks, I would like comment that Cytek will be participating in a variety of industry and academic conferences, meetings, and seminars throughout 2024. While these are primarily geared to the scientific community, they may offer an opportunity to interact with users of our technologies to learn why Cytek instruments are so highly valued by our customers. There is a cost to attend most events, and we have a limited number of spaces to accommodate members of the financial community. So if you're interested in attending, please contact me.

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

Thanks, Paul, and welcome, everyone, and thank you for your interest in Cytek on the call today, I will discuss our performance for the first quarter of 2024 and the progress achieved on our strategic objectives to drive sustainable growth and profitability. Then I will turn the call over to Bill for a more detailed look at our financial results and our outlook for 2024. Before we open it up for Q&A.

Our strategic priorities in 2024 are centered on strengthening our competitive position with an eye toward improving operational leverage. We are focused on driving revenue growth, margin expansion and capital efficiencies. These objectives are part of our balanced business strategy to deliver sustainable profitability and maximize free cash flow.

Turning to specifics and our first quarter revenue results, we achieved $44.9 million, representing growth of 21% year over year. Organic revenue grew 11%, excluding acquisition related revenue of $7.6 million. The first quarter of 2024. We began to see improvement in organic revenue growth in the fourth quarter of 2023, which we were pleased to see continue into the first quarter.

Total organic revenue grew 11% in the first quarter, driven by strong growth in our services revenue from our increasing installed base. Organic revenue growth was also driven by continued growth in our product revenue.

Longer term, we expect our recurring services and emerging revenues will be strong growth drivers for Cytek. In the first quarter, we expanded our global footprint with 99 organic sited instruments sold reaching a total installed base of 2,447 instruments. This number does not include the thousands of installed unless required by instruments.

Other trends in the first quarter for both organic and inorganic products were largely within our expectations, but also some MR activity levels by region. Specifically, we experienced increased stress across Europe and China, where Cytek's FSP products are also becoming well established as a market leader in flow cytometry. We are seeing customers gradually returning to their regular buying patterns in these regions.

However, in the US and APAC, excluding China, we continue to see some elongated sales cycles. In the third quarter, we continued to make strategic investments to increase the efficiency and the performance of our operations.

In March, we announced that we opened a new 50,000 square foot facility in Wuxi, China, to meet the rising global demand for our cutting-edge cell analysis solutions. With this facility, we are able to increase our manufacturing capacity and foster unique vendor relationships to drive operational efficiencies and to further our competitive advantage over industry peer.

Turning to bioinformatics. Our primary goal is to enable our customers to streamline their experiment workflows to our software tools, which drive adoption and the utilization of our cell analysis solutions. One way we track our success in bioinformatics is through user engagement and demand for our core bioinformatics offerings, Cytek Cloud.

I'm pleased to report that we now have over 8,500 users, representing an average of more than three Cytek Cloud users per install, Cytek FSP instruments. As a reminder, Cytek Cloud's digital ecosystem offers a comprehensive suite of special panel design tools, seamlessly integrated into a centralized platform forming a unified ecosystem. Our cutting-edge solution empowers researchers to prepare and optimize their experiments remotely, streamlining the process from panel design to data acquisition.

We are also pleased to share that this week at the Stifel conference, (inaudible) the flow cytometry conference worldwide, we launched our special panel software package through an early access program. Special panel is an intelligent design algorithm that automatically can run high-quality panels for optimal multiple resolution and is optimized specifically to use on Cytek FSP instruments.

We expect the special panel tool to make Cytek instruments even easier to use and will save especially time and money by allowing a broader range of reagents to be selected automatically for the design panel to achieve biological objectives to optimize the data quality. We recently announced this solution on our social media channels, and we encourage you to follow the discussion there for more information.

On the clinical front, we had previously reported our success at obtaining the IBDR components for our single laser six-color TBNK panel in the EU markets. I'm pleased to report that just last week, our application for this six-color TBNK panel and our single laser NLCLC instruments was approved in China. This approval is unique to Cytek, and here's an important development as previous regulatory approvals for TBNK analysis have been based on using two laser instruments. We believe Cytek one laser system will provide important advantages to our users in the form of lower cost, more reliable operation, and a more consistent results to support biotech standardization.

Overall, the start to 2024 was encouraging with an assumption of organic growth and the improved customer purchasing patterns trends that we began seeing in the fourth quarter that continued through the balance of the first quarter. It is a testimony to our position as an industry leader in comprehensive cell analysis solutions and the clear underlying demand for our products. We are purpose-built to advance next-generation cell analysis with our end-to-end platform, addressing the diverse needs of our customers to advance their research. And we believe this continues to be a valuable asset, important differentiator for Cytek.

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

Thanks, Wenbin. Before reviewing more details around our financials, I wanted to express my gratitude for the opportunity to join this innovative company and play a meaningful role in charting the next chapter of Cytek's continued success. I believe there's tremendous growth potential at Cytek, and I look forward to working alongside this team to drive sustainable growth and long-term value creation.

Total revenue for the first quarter of 2024 was $44.9 million, a 21% increase over the first quarter of 2023. The first quarter of 2024 included $7.6 million of revenue acquired in the Luminex transaction, which closed on February 28, 2023, and contributed $3.5 million of revenue to that quarter.

Organic revenue, which excludes revenue from the acquired Luminex business, was $37.3 million in the first quarter of 2024, an increase of 11% compared to the first quarter of 2023. Beginning in the second quarter and going forward, the acquired Luminex business will have been owned for the full prior-year quarter, so we will no longer break out this revenue separately.

Gross profit was $23 million for the first quarter of 2024, an increase of 9% compared to a gross profit of $21 million in the first quarter of 2023. GAAP gross profit margin was 51% in the first quarter of 2024 compared to 57% in the prior-year quarter.

Inventory adjustments of a one-time nature arising from the integration of the Luminex inventories into the Cytek system contributed 2% of the margin deterioration. Higher overhead expenses, which were lower than the fourth quarter of 2023, but higher relative to revenue in the first quarter drove the remainder of the margin decline. We expect overhead expenses will remain fairly constant over the balance of the year and will gradually decline as a percentage of revenue.

Adjusted gross profit margin, which excludes stock-based compensation expense and amortization of acquisition-related intangibles, was 55% in the first quarter of 2024 compared to 59% in the prior-year quarter. Operating expenses were $33.7 million for the first quarter of 2024, increasing 1.6% from $33.2 million in the first quarter of 2023, driven primarily by an increase in headcount and personnel-related expenses. Notably, operating expenses increased at a substantially lower rate than our revenue growth in the same period, demonstrating our focus on operating leverage.

Research and development expenses were relatively flat at $9.8 million for the first quarter of 2024 as compared to $10 million for the prior-year period. Sales and marketing expenses were $12.5 million for the first quarter of 2024 as compared to $11.1 million for the prior-year period. The increase of $1.4 million was primarily due to increased headcount and related expenses.

General and administrative expenses were $11.4 million for the first quarter of 2024 as compared to $12.1 million for the prior-year period. The decrease of $0.7 million was driven by acquisition-related legal expenses in the prior-year period, not reoccurring, offset by higher consulting expenses.

Loss from operations was $10.7 million for the first quarter compared to a loss from operations of $12.2 million for the first quarter of 2023. Net loss in the first quarter of 2024 was $6.2 million as compared to $6.8 million in the prior year. This was primarily due to a lower loss from operations, offset by lower other income, which was due to unrealized foreign exchange losses.

Adjusted EBITDA, which excludes stock-based compensation expense and foreign currency impacts for the first quarter of 2024 was a reduced loss of $0.7 million compared to a loss of $2.5 million in the first quarter of 2023. This was due to higher revenue and gross profit. We are committed to continuing to improve our profitability going forward by driving revenue growth and controlling costs.

Cash from operations for the first quarter of 2024 was a positive $4 million and total cash and marketable securities increased by $7.7 million in the quarter to $270.4 million. With healthy cash reserves, no meaningful debt, and positive operational cash flow, we continue to operate from a position of strength and can fully support our global growth initiatives.

Now turning to our outlook for the full-year 2024. Today, we are reiterating our 2024 revenue guidance, which we expect to be in the range of $203 million to $213 million, representing 5% to 10% growth over our 2023 total revenue and this assumes no changes in currency exchange rates.

We started the year with the first-quarter results showing a continuation of improvement in ordering trends, which support our full-year outlook. As we look ahead, we continue to expect modest growth across all our product and service lines, with most of that growth being weighted towards the second half of the year, consistent with historical spending patterns of our customer base.

We expect that our 2024 revenue growth, combined with our ongoing cost control efforts, will position us to report positive GAAP net income for the full-year 2024.

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

Thanks, Bill. I want to express my gratitude to our exceptional Cytek team for their dedication to driving our mission forward. It is their unwavering belief in our mission coupled with the effective execution of our business strategy that positions Cytek as a frontrunner in advancing the next generation of cell analysis.

The increasing application of cell analysis in fields across healthcare, including immuno-oncology, infectious diseases, and immunology has led to rising need for advanced cell analysis solutions. We are uniquely positioned to serve these attractive end markets as an industry leader in next-generation cell analysis solutions, underpinned by long-term recurring growth subscribers in services and the reagents.

I'm excited for our roadmap ahead to address this demand as we build comprehensive and competitive solutions and empower scientists directly with the tools and the support they need to advance their research.

I want to thank everyone for joining today's call, and we will now open it up for questions. Operator?

(Operator Instructions)

Tejas Savant, Morgan Stanley.

Good evening, and thanks for the time here. Wenbin, looks like a decent start to the year on both product and service revenue and placements as well. I wanted to ask you on your comments on China and Europe to start with. Could you just elaborate on what you're seeing there across your academic and pharma customer base, especially in China?

And then in light of that recent stimulus program that's about to be rolled out over the next three years or so, is that starting to show up in your early customer conversations in the funnel just yet? And any anecdotal color you can share on a potential benefit, perhaps not in '24, but into '25 and beyond would be great. Thank you.

Actually, in China today, our current primary growth is at the organic space, mostly universities and research institutions.

Now with regarding to your question on the incentive program, it's coming. But we haven't seen the benefits yet. We expect probably will help for the second half of the year.

Got it. That's helpful. And then I wanted to ask you on reagent rentals during the quarter. In terms of just the order book, what fraction of the orders this quarter were reagent rentals versus upfront purchases? Any color on that?

They do tend to diminish our portion of our overall business. And of course, going forward as we continue with -- regarding to our clinical business, we might see (inaudible) impactful revenue to Cytek, mostly on the reagent side, but just like most in early stage.

Perfect. And last one for me on just the competitive dynamics here. Are you seeing any heavier sort of price discounting from your next-gen flow peers, Sony, BT, et cetera? As you know, the industry grapples with instrument purchasing headwinds and elongated sort of purchasing cycles, as you called out, at least in North America and Asia Pac ex China.

We do start to see new players in this space. This is a reflection of our success with regarding to driving the flow cytometry industry towards the full spectrum of technology, which we pioneered several years ago.

So previously, we probably more trying to convert conventional into special. And now, the whole industry is truly convinced this is a direction, this is the future. Cytek is clearly a leader in this space in this technology. This is also the (inaudible) that you just are finishing a cycle, meaning adding book. It's very exciting and we are very encouraged what we have seen over there.

Got it. Super helpful. Thanks, guys. Appreciate the time.

Mathew Sykes, Goldman Sachs.

Hello. Thank you for taking my question. This is Jake on for Matt. So you saw a sequential step-down in organic revenue, can we attribute that to seasonality in the quarter? And then can you also talk about how you're thinking about the pacing of growth throughout the rest of the year? Thank you.

I will let Bill handle that question.

I am not sure I understood it, but our organic revenue actually increased substantially in this quarter compared to Q4 sequentially. It was increased from, I believe, around 1% to 11%. So we saw a meaningful improvement in organic revenue growth.

As far as -- did I understand your question correctly?

Yes. Yes, you did.

Okay. So that's the answer there: a meaningful uptick in organic revenue growth. And as far as revenue staging is concerned, look, I think we are still comfortable with the revenue guidance that we gave for the year. Obviously, that implies it was some quarterly revenue growth during the balance of the year, and we would expect that to follow similar pattern to recent years.

I think we're ready for the next question, operator.

David Westenberg, Piper Sandler.

Hi, and thanks for taking the question. So welcome, William, and I'll just go ahead and pick on you since this is your first earnings call. The margins missed the Street by a little bit. This is probably a lot to do with services mix. Is some of this potentially also you'd have just the way customers are buying the instrument on more services contracts?

And then with all that in mind, how should we think about gross margins the rest of the year just in terms of pacing? And could we be seeing as we go into '25, '26, maybe this reset to this level of gross margin? Thank you.

Thank you for the welcome and for the questions. The decline in gross margin was due to a couple of very specific things. It did not because there's no change in the way that customers are buying our product. It's not related to product mix or anything like that.

It's two very specific factors. One of which was an unusual inventory adjustment. And as we mentioned in the press release or in the prepared remarks, this is something that was caused by the integration of Luminex inventories into the Cytek system. That had to be done; the inventories post-acquisition were a significant portion of them were held in a third-party warehouse and third-party ERP system.

And when those were finally integrated into our system, that was a manual process. There were literally thousands of SKUs and there were just a few areas, like a small handful of those made. So it's a unique set of circumstances that we wouldn't expect to recur in the ordinary course. And so that accounted for about 2% of the margin decline.

The balance related to overhead absorption, although overhead expenses were -- it's a little bit less than Q4, but broadly comparable, revenue was lower than Q4. So we had less overhead absorption and that had a negative impact on margin.

And as we mentioned, we would expect that to revert over the course of the year as quarterly revenue increases. And so yes, the one-timer on inventory, we would expect that that was a one-timer. And then the overhead impact, we would expect that that would ameliorate over the course of the year.

Got it. So the real way to think about the rest of the year is that 55% kind of number and maybe take it off from there or March --?

You know, I don't want to be specific about margin guidance.

Okay.

It's not something that we've done. I would just say that we're certainly -- our goal is to get back to our historic gross margins.

Perfect. All right. Well, thank you on that. Lots of great detail there. And so, Wenbin, I think you said Asia and in Europe, you're seeing some of the return of capital cycle purchases. I just want to make sure I heard that correctly.

And I think you were saying you maybe this could be an analogue to the US and what might be happening in the US or North America. But just wanted to confirm if I heard that correctly. And can you elaborate a little bit on what you're seeing there and why you're optimistic in terms of that?

what we are saying is particularly in Europe and China, we are seeing the purchasing coming back to returning to normal. This actually started in Q4, which continued in Q1. On the other hand, we do see continued elongated purchasing cycle in the US as well as APAC, excluding China. But we are going -- those order will return and it's not lost a minimal share and they will come back and they will close -- we expect them to close that gap.

Got it. Just on my last one, just in terms of customers using larger or the full spectrum flow cytometry, are you seeing an increase of that usage? And when you are seeing an increase of that, are you seeing them order Cytek specific reagents? And just in a little bit more color on how you're seeing adoption in terms of reagents there? And that will be my last one. Thank you.

We are definitely seeing encouragement across the industry, especially with pharma, and they start to validate our instruments and harmonize our instrument across the organization. And they are continuing to come back to expand the number of instruments they have across their organization.

And so we are talking about user as well -- or actually there are a few, the whole organization, even hundreds of users of Cytek instruments today. So in some organizations, that is encouraging.

Thank you.

Andrew Cooper, Raymond James.

Hey, everyone. Thanks for taking my question. This is Noah on for Andrew. So my first question is you talked about instrument sales coming in where you thought they'd come in on. Where are you seeing any particular strength across particular instruments? So would that be the (inaudible) and the higher end products? Or is that mostly from other places within the portfolio?

Our strength continues to be our flagship product, which is Aurora. We see continuing to grow. Of course, in the meantime, we are going to focus more and more towards entry level and to drive adoption across our product portfolio.

Awesome. Thank you so much. And one more question, you guys launched the Orion reagent mixer in 4Q of '23, and I understand that the dollars are going to be minimal. But have you seen any new doors open for the rest of the business? Because now you've had a full quarter selling and possibly seen any reagent pull-through on that end?

When our new instrument was launched, the first thing you have to do to work with customers is to validate the instrument before we actually put it into production on the customer side. And we have seen very encouraging trends right now under the interest our customer base.

Thank you.

Mason Carrico, Stephens.

Hey, guys. Just two questions for me here. First, given the funding environment and budget constraints that you're seeing for customers that are interested in buying maybe one of your higher end instruments, are the majority of these customers -- I don't want to say majority -- but for the customers that are delaying their purchases, are they simply delaying making that purchase? Or is there a trend of them maybe moving down the price continuum and buying perhaps the mid-tier instruments?

I have just mentioned we continue to see greater interest on our flagship product, which is Aurora CS. And so in that regard, we don't really see much change that would result into how our budget impact their buying behavior.

But in longer buying cycles, particularly related to the US and APAC region, which have been -- so that's really for quite a while. But maybe it will come. It will just take a longer time for them to make decisions. That's what we are seeing.

Got it. Okay. And maybe kind of the opposite question here, but last quarter, you talked about seeing early success in converting on existing Guava customers to your Northern Lights platform. Has that trend continued?

And really when it comes to your Northern Lights sales, what proportion of those sales are going to existing Guava customers versus non-Guava customers?

In the previous session, we did mention that Guava customers do have their specialized needs, which today are not really being satisfied by the Northern Lights. Because of Guava, in particular, some of the platform is manageable while Northern Lights (inaudible) more demand for individual users with flexibility.

This is something we are working on the software side to enable us to further facilitate those needs of the Guava customers. We expect this eventually will be adjusted by them and more Guava users will convert.

Got it. Thank you, guys.

Jacqueline Kisa, TD Cowen.

Hi, this is Jacqueline Kisa on for Steven Mah. Congrats on the approvals and the facility opening. Looking forward on your clinical progress, are there any specific clinical milestones we can expect to see on the horizon now that you've gained approval for your TBNK panel and reagents?

Yes, absolutely. We expect to see continued growth to drive our reagent business. And of course, in the meantime, we hope that will also help us to grow our Northern Lights COP instrumentation. But earlier, I guess there was a question regarding to the new reagent rental, which will also be helpful. Because TBNK will enable users to come back for our initiatives to support that type of a business model.

Great. Thank you. And has the opening of the new facility driven any demand or customer conversations? And will the facility focus more on supporting clinical applications or more just provide support across the board?

So the facility will support across the board for our product manufacturing, mostly the instrument manufacturing.

Great. Thank you. And if I could just sneak one more in. Late last year, you launched a software improvement on Northern Lights. Have you received any feedback from that from customers? And is there any room for similar product improvements on the rest of portfolio?

Well, actually, we do have heard encouraging comments from the customer with regarding to the new software, which enable both conventional instrumentations to manage special features, in the meantime, reduce the kind of barriers to move from one platform to the other. I think we feel it's a great success.

Great. Thank you. Appreciate it.

(Operator Instructions)

There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.