Q1 2024 Cytek Biosciences Inc Earnings Call

Participants

Paul Goodson; Investor Relations; Cytek Biosciences

Wenbin Jiang; Chairman of the Board, President, Chief Executive Officer, Co-Founder; Cytek Biosciences Inc

William Mccombe; Chief Financial Officer; Cytek Biosciences Inc

Tejas Savant; Analyst; Morgan Stanley

David Westenberg; Analyst; Piper Sandler

Mason Carrico; Analyst; Stephens

Jacqueline Kisa; Analyst; TD Cowen

Presentation

Operator

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.

Paul Goodson

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.

Wenbin Jiang

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 cited FSP. products while also becoming well established as a market leader in flow cytometry, we are seeing customers gradually returning to their regular buying patterns in these.
Yes. However, in the U.S. and A-Pac, excluding China, we continue to see some elongated sales cycles. In the third quarter, we continued to make strategic investments to increase 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 for these facilities, we are able to increase our manufacturing capacity and foster unique vendor relationships to drive operational efficiencies and 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. When we track our success in power informatics. It's through user engagement and demand for our core bio informatics offerings at Cytek cloud. I'm pleased to report that we now have over 8,500 users, representing an average of more than three cycle cloud users per install, PICA FSP. instruments. As a reminder, sites across the 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, so data acquisition, we are also pleased to share that this week at the Stifel conference upon the flow cytometry conference worldwide, we launched our special panel software package through an early access program. Special panel is an intelligent design algorithm not automatically runs high quality panels for optimal multiple resolution and is optimized specifically to use and cited as a key instrument. We expect the special panel tool to make sizes instruments even easier to use. And I will say the social time and money by allowing a broader range of new agents to be selected automatically for the design the panel to achieve biological objectives, optimize the data quality. We recently announced this solution on our social media channels, and we encourage you we'll 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 because TV and panel in the EU markets. I'm pleased to report that just last week our application for the six currently B and three handle on our single laser and LCLC. instruments was approved in China. This approval is unique to Cytek, and here's an important development as previous regulatory approvals for CDNK. analysis have been based on using two laser instruments during cycle 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 BioTREK 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 are 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. We'll bill for more details along our financials.

William Mccombe

Thanks, Wendy. And 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 28th, 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 2020 for 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 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 2020. For today, we are reiterating our 2020 full revenue guidance, which we expect to be in the range of 203 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 2020 full revenue growth, combined with our ongoing cost control efforts, will position us to report positive GAAP net income for the full year 2024.

Wenbin Jiang

With that, I will turn it back over to Wyndham as bill. I want to express my gratitude to our exceptional site 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 runner in advancing the next generation of cell analysis, increasing application of cell analysis in fields across health care, 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 rest we agents. I'm excited for our roadmap ahead to address this demand as we build comprehensive and competitive solutions and the Empower scientists directly with the tools and the support they need to advance are Research.
I want to thank everyone for joining today's call, and we will now open it up for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Tejas Savant, Morgan Stanley.

Tejas Savant

Good evening, and thanks for the time you went and now 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 on customer conversations in the funnel? Just yet? And any any anecdotal color you can share on a potential benefit, perhaps not in 24, but into 25 and beyond would be great.

Wenbin Jiang

Thank you.
When actually in China today, our current primary growth is at the bank space, most to universities and research institutions.
Now regarding to your question on the incentive program, it's coming, but we haven't seeing the benefits yet we expect probably will help for the second half of the year.

Tejas Savant

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

Wenbin Jiang

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 may see that polymer impactful revenue to focus mostly on the reagent side, but just like most in early stage.

Tejas Savant

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, and we do start to see new players in this space.

Wenbin Jiang

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 Especial and now and the whole industry and truly convinced this is a direction that of a future cycle is clearly a leader in this space in this technology. This is also the cracker that you just are finishing a cycle, meaning adding book and it's really exciting and we are very encouraged what we have seen over the.

Tejas Savant

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

Operator

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?

Wenbin Jiang

Thank you. I mean I will not be able to handle that question.

William Mccombe

I am not sure I understood it, but I know organic revenue actually increased substantially in this quarter compared to Q4 sequentially. It was increased from, I believe, around 1% to 11% bonds. So we we saw a meaningful improvement in organic revenue growth on as far as did I understand your question correctly?

Yes. Yes, you did.

William Mccombe

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?

Operator

David Westenberg, Piper Sandler.

David Westenberg

Hi, and thanks for taking the question. So I'll just welcome.
We welcome, William, and I'll just go ahead and pick on you on since this is your first earnings call show the margins missed the Street by a little bit on this is probably a lot to do with services mix and some of this potentially also you'd have just the way customers are buying the instrument on on more services contracts.
And then with all that in mind, how should we think about gross margins the rest of the year on just in terms of pacing? And could we be seeing, you know, as we go into 25, 26 on maybe this reset to this of this level of gross margins?

Wenbin Jiang

I think it, I think thank you for the welcome and for the questions. The 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, and this is something that was caused by the integration of Luminex inventories into the Cytek system some that had to be done on the inventories post acquisition, where 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 skews 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 and the balance related to overhead absorption on this is although overhead expenses were up, 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 on, we would expect that to revert over the course of the year as quarterly revenue increases. And so yes, the onetimer on inventory, we would we do expect that that was a one-timer and then the overhead impact, we would expect that that would ameliorate bomb over the course of the year guy.

David Westenberg

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

Wenbin Jiang

You know, I don't want to be specific about margin guidance is not something that we've done. I would just say that we're certainly out our goal is to get back to our historic gross margins.

David Westenberg

Perfect. I will thank you on that. Lots of great detail there. And so just on wind, then I think you said in Asia and in Europe, you're seeing on 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 analog to the US and what might be happening in the US or North America on it, but just wanted to confirm, I heard that correctly and can you elaborate a little bit on what you're seeing there and why we're optimistic in terms of that?

Wenbin Jiang

And what we are saying is and particularly in Europe and China and we are seeing the purchasing coming back to where and returning to normal because this way and this actually started in Q4, which continued in Q1, that's not even kind of and on the other hand, we do see continued elongated purchasing cycle in the U.S. as well as APAC, excluding China. But we are going those auto will return and it's not lost a minimal share and they will they will come back and they will.
So they will close and we expect them to close that gap are just on my last one, I'm just in terms of customers using larger or the fall potential a full set for Spectra flow cytometry, so full spectrum flow cytometry, are you seeing on a Y-o-Y increase of that usage. And when you are seeing increase of that, are you seeing them order Cytek specific reagents? And just in a little bit more color on how you're 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 not through the whole organization, even hundreds of those a year ago, our scientific instruments today. So in some organizations that encouraging.

David Westenberg

Thank you.

Operator

Andrew Cooper, Raymond James.

Hey, everyone. Thanks for taking my question. This is Noah on for Andrew. So my first question is I know, 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 sole source in the higher end products or is that mostly from other places within the portfolio?

Wenbin Jiang

Our strengths continue to be our flagship product, which is our and 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 products portfolio.

Austin, thank you so much and one more question on you guys launched the Orion re-agent 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?

Wenbin Jiang

Yes, you know what our new instrument was about the launch of the first thing is to do a camera to work with customers to validate the instrument before we have actually put into production on the customer side and we have seen very encouraging trends right now under the interest our customer base.

Thank you.

Operator

Mason Carrico, Stephens.

Mason Carrico

Hey, guys. Just two questions for me here on 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. It are the majority of these customers. I don't want to say majority, but for the customers that they are delaying their purchases, are they simply delaying making that purchase? Or is there a trend of maybe moving down the price continuum in buying perhaps the mid tier instruments?

Wenbin Jiang

Well, we've got I have just mentioned and we continue to see greater interest on our flagship product, which is oil and RCS. And so in that regard, and we don't really see much change would result into our budget or impact your buying behavior, but it in longer buying cycles, particularly related to the U.S. and A-Pac region, which have been.
So that's really for quite a while. But maybe I'll come I'll just take a longer time for them to make decisions.
That's what we are seeing.

Mason Carrico

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 in really wind when it comes to your Northern Light sales? How much what proportion of those sales are going to existing Guava customers versus non Quattor customers.

Wenbin Jiang

And in the previous session, we did have mention a lot from our customers to have their specialized needs, which today are not really being satisfied by the Northern Lights and because of Guava, in particular, some of the platform is manageable. While Northern Lights marches on for individual users with flexibility and this is something we are working on the software side to enable us to further facilitate those needs of the global customers. We expect this eventually will be adjusted by them on more value that will convert.

Mason Carrico

Got it. Thank you, guys.

Operator

Jacqueline Kisa, TD Cowen.

Jacqueline Kisa

Fire. This is Jacqueline, Keith on for Steve and Mark, congrats on the approvals and the facility opening. I'm 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?

Wenbin Jiang

Yes, absolutely.
We expect to see continued growth to drive our Asian business and of course, in the meantime, we hope and that will also help us to grow our northern ICOP instrumentation. But earlier, I guess there was a question will be regarding to the new agent rental, which will also be helpful because I thought the CBNK. will enable users to come back for our initiatives to support that type of a business model.

Jacqueline Kisa

Great. Thank you. And has the opening of the new facility driven in any demand or customer conversations?

Wenbin Jiang

And will the facility focus more on supporting clinical applications or more just provide support across the board what was allocated to support across the board for our product manufacturing, MosaiQ instrument manufacturing.

Jacqueline Kisa

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

Wenbin Jiang

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

Jacqueline Kisa

Great. Thank you. Appreciate it.

Operator

(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.