Cytek Biosciences, Inc. Q3 FY2021 Earnings Call

Good day, and thank you for joining us for Cytek Biosciences' third quarter twenty twenty one earnings conference call. All participants are currently in listen-only mode. After the presentations, there will be a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to your host from Investor Relations. Please proceed.

Thank you. Earlier today, Cytek Biosciences released financial results for the quarter ended September thirty, twenty twenty one. 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 email to investors@cytekbio.com. Joining me today from Cytek are Wenbin Jiang, CEO; and Patrik Jeanmonod, CFO. 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 involve material 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. Reconciliations to the most directly comparable GAAP financial measures may be found in today's earnings release submitted to the SEC. Except as required by law, Cytek disclaims any intention or obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise. This conference call contains high-sensitive information and is accurate only as of the live broadcast, November eight, twenty twenty one.

Thanks, and welcome everyone to our first earnings call as a public company. I want to start by thanking the incredible Cytek team. This is an exciting milestone for our company made possible by their relentless pursuit of excellence. On today's call, I will start with a brief overview of our company, then provide an overview of our progress for the quarter, and finally, turn the call over to Patrik for a more detailed look at our financials. For those of you new to the Cytek story, we are a leading cell analysis solutions company advancing the next generation of cell analysis tools by leveraging a novel technical approach to our Full Spectrum Profiling platform. Our FSP platform, which includes instruments, reagents, software, and application services, utilizes the full spectrum of fluorescent signal to deliver higher resolution, high content, and high sensitivity cell analysis. While our flow cytometry is a widely used tool for single-cell analysis, conventional flow cytometry and earlier approaches have faced challenges as they can only detect a few markers in a single tube. Their limited capacity, sub-optimal evolution, lower throughput, high performance, and significant technical efficiencies required to operate their systems have really constrained the advanced cell analysis field. Our patented FSP technology optimizes sensitivity and accuracy through its novel optical and electronic design that utilizes an innovative method of light detection and distribution. This technological application allows us to address the inherent limitations of other technologies by providing a higher density of information with greater sensitivity, more flexibility, and increased efficiency, all at a lower cost performance. Our technology has been validated by over three hundred peer-reviewed publications, nearly nine hundred seventy instrument placements, and a growing number of applications. To highlight a recent publication, two weeks ago a paper was published in Science exploring the human immune response to the COVID mRNA vaccine. The researchers used our Aurora instrument to collect data around immunological cells after a low dose mRNA vaccination. With our platform, they found how the vaccine induces durable and functional protection, as well as the biological mechanisms involved. This is just one example of the exciting data generated from our technologies. As I mentioned earlier, we provide our customers with an end-to-end solution consisting of instruments, reagents, software, and application services. We launched our flagship instrument, the Aurora, in twenty seventeen, and a year later, we launched the Northern Lights instrument, an entry-level product. Both instruments are cell analyzers with high throughput, highly sensitive analysis, and intuitive workflows that address the unmet needs of our customers. These instruments are efficient and compact, making them well-suited for clinical research. In October twenty twenty, we launched our reagents to capitalize on the recurring revenue opportunities from our installed base. Our work encompasses the immunoprofiling commercial kit and a fully optimized demonstration panel providing users with ready-to-use protocols and antibodies, simplifying the workflow from sample preparation to data analysis. This year, we began shipping our Cell Sorters, which allow researchers to isolate leading cell operations from lower to higher complexity panels beyond the initial biomarkers, enabling deeper downstream genomics and proteomic analysis. While our cell analyzers have been strong drivers of our revenue growth to date, we expect that the reagents and Cell Sorters will play an important role in driving our revenue growth over the next three to five years. Our commercial strategy is sequential. Academic customers create initial interest, drawing the attention of pharmaceutical companies who develop proof of concept further, and then ultimately hand off to CROs who visualize those protocols. This eventually leads to critical applications. This quarter, we replaced instruments, bringing our total installed base to nine hundred seventy instruments. Once an instrument has been placed, our intuitive workflow allows customers to quickly learn the technology and begin generating results. Additionally, we routinely work with key opinion leaders, engaging with these industry leaders to address specific scientific questions by optimizing the reagents and protocols on our instruments. This often creates opportunities for other customers to build upon. By collaborating with customers to create these novel reagent panels or kits, we are continually opening new applications and markets for our FSP platform. Our customer base includes over one hundred twenty-five biopharma customers, including all of the top-tier vaccine developers, over ten CROs, and a large number of academic institutions, including all of the universities in the top ten list with medical schools. We are excited by the growing interest around our products and the value our customers are seeing in relation to competing technology for high-dimensional cell analysis on thirty parameters. In line with our commitment to provide researchers with a complete cell analysis solution and to support scientific discovery, in October of this year, we launched a new twenty-five color immunoprofiling assay and acquired the reagents business of Tonbo Biosciences, which we will discuss further shortly. Both additions will further strengthen our position as a full solution provider to our customers. Our twenty-five color immunoprofiling assay includes reagents and tools optimized for use with our full spectrum flow cytometry. We are creating a new standard for flow cytometry by making such a high-dimensional panel available as a standardized kit. This provides researchers with a ready-to-use solution for identifying major human immune subpopulations, which play important roles in innate and adaptive immune responses to various diseases. This functions as the backbone of the cell analysis workflow, upon which users can build additional markers to expand their panels. By providing our customers with pre-optimized panels, we allow them to avoid the time-consuming and costly panel design and optimizations. Simplifying this workflow offers researchers a much more efficient way to obtain their data of interest, thereby shortening the time from biological question to answer and, hopefully, advancing the development of vaccines, personal immunotherapies, and cures for cancer and infectious diseases. Additionally, we announced the acquisition of Tonbo Biosciences’ extensive portfolio of life science research reagents for flow cytometry. The addition of Tonbo's reagents, covering application areas of immunology and immune profiling, will enable Cytek to meet customer needs in protein and cell analysis research. Tonbo is known for high-quality, high-performance reagents and will be a natural complement to our cFluor family of proprietary reagents. I am excited by the progress our team has made this quarter as we continue to establish ourselves as a leading cell analysis solutions company. As we move forward, we remain deeply focused on providing a complete cell analysis solution to our customers. We look forward to continuing to provide our novel FSP platform to these customers as they push the boundaries of scientific discovery. With that, I will now turn the call over to Patrik for more details around our financials.

Thanks, Wenbin. Total revenues for the third quarter twenty twenty one were thirty-four point four million dollars, a thirty-seven percent increase over the third quarter of twenty twenty. This increase was primarily driven by an increase in product revenue, due to higher unit sales of our Aurora, Aurora Cell Sorter, and Northern Lights systems. Gross profit was twenty-one point four million dollars for the third quarter of twenty twenty one, an increase of thirty-seven percent compared to a gross profit of fifteen point six million dollars in the third quarter of twenty twenty. Gross profit margin was sixty-two percent in the third quarter of twenty twenty one, as compared to sixty-two percent in the third quarter of twenty twenty. Adjusted gross margin in the quarter was sixty-four percent as compared to sixty-two percent in the third quarter of twenty twenty, after adjusting the stock-based compensation expense. Operating expenses were eighteen point three million dollars in the third quarter of twenty twenty one, a hundred and six percent increase from eight point nine million dollars in the third quarter of twenty twenty. Over fifty percent of this increase came from research and development and sales and marketing expenses. Research and development expenses were six point one million dollars for the third quarter of twenty twenty one as compared to three point four million dollars for the third quarter of twenty twenty. The increase in R&D expenses was primarily due to the expansion of our R&D team. We plan to continue to invest in R&D going forward as we continue to develop new products and enhance existing instruments and technologies. Sales and marketing expenses were six point three million dollars for the quarter as compared to three point eight million dollars for the same quarter last year. The increase was primarily due to headcount and personnel-related expenses, as well as an increase in advertising and marketing activities. We expect our sales and marketing expenses to improve as we hire additional sales and marketing personnel, expand our sales support infrastructure, and invest in our brand and product awareness to further penetrate the United States and international markets. General and administrative expenses were five point nine million dollars for the third quarter of twenty twenty one, an increase from one point seven million dollars in the third quarter of twenty twenty. The increase of four point two million dollars in general and administrative expenses was primarily due to the cost of becoming a public company, as well as infrastructure service to support the growth of our overall operations. Income from operations in the third quarter of twenty twenty one was three point one million dollars, compared to six point seven million dollars in the third quarter of twenty twenty. Net income in the third quarter of twenty twenty one was one point six million dollars as compared to net income of six point five million dollars in the third quarter of twenty twenty. We ended the quarter with approximately three seventy-six million dollars in cash and cash equivalents. With that, I will turn it back over to Wenbin.

Thanks, Patrik. Over the last few years, Cytek has continually demonstrated our commitment to developing tools 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, and the commitment to this important mission drives our progress. Going forward, our team aims to become the full cell analysis solutions partner of choice for players throughout the life sciences as we leverage our novel technology to continue to drive innovation, transform the cell analysis market, and enable researchers to make significant scientific advances in key areas of medical discoveries. With that, we will now open the call for questions. Operator.

Thank you. And our first question comes from Max Masucci from Cowen and Company. Your line is now open.

Hi, thanks for taking the questions. First one is, is Tonbo Biosciences generating revenues from the sale of their reagents and if so, how should we think about any contribution in Q4? And then I'm curious if you're acquiring any sales reps from the company as well?

Matt, thanks for the question. So, Tonbo may be a small accretion to our revenue in Q4. And yes, we added two sales reps from Tonbo.

Okay, great. And then just on the quarter, revenues came in above our estimate, I'm just trying to understand if the beat came from a higher mix for placements or higher than expected reagent sales for those that are internally developed?

Yeah. So, the beat comes from a better mix of the instruments we sold in Q3.

Thank you. And our next question comes from Tejas Savant from Morgan Stanley. Your line is now open.

Good afternoon, everyone. This is Edmund speaking on behalf of Tejas. Thank you for addressing my questions. I would like to know more about the traction of your Aurora Cell Sorter, specifically regarding market demand and whether it is meeting your expectations. For some emerging technology platforms, users typically need a six to nine month period to ramp up, optimize, and conduct pilot experiments before moving to larger scale operations. I noticed you mentioned that the platform has a quicker onboarding process. Could you discuss your expectations regarding how long it will take for users to become familiar with the Cell Sorter before we see a notable increase in consumable sales? Thank you.

Yes, you are correct. Typically for instruments, it normally takes some time to train users to get used to the workflow and to establish a process before they start to deploy their own experiments. This is what's going on at present. And the market has continued to welcome our product, and we are seeing strong demand for our sorters. So, we expect to see more and more sorters being distributed and replaced over the next few quarters.

Got it. I mean that was very helpful. And then, I guess a follow-up question will be, it seems like your instruments have come a little shorter than what we were expecting in terms of placements. I was wondering if you could speak to the operating environment that you guys are seeing? Have you seen any sort of increased logistics pressures or longer lead times to deliver the instruments to your customers, or in terms of maybe supply chain? Are you seeing any pressures there?

First, in terms of the number of instruments, it’s basically a mix of products. In fact, we are seeing more of the high-end instruments coming from our customers. Now, in terms of supply chain logistics, yes indeed, we are experiencing various kinds of issues over time. However, we have been working through those problems and we don't see any notable short-term impact yet.

Got it. That was very helpful. Thank you for your time.

Thank you. And our next question comes from David Biland from Goldman Sachs. Your line is now open.

Hey, guys. This is Dave on for Matt. Thanks for taking the questions. Congrats on the strong quarter. Can you give us any additional color on what you're seeing in the consumables and reagents market? And what areas you're seeing the most strength?

Yes, looking at our total revenue, we see that instrument revenue remains the strongest. The second largest would be service revenue followed by reagent revenue. We're not going to extend too much from the reagent side at this point. Overall, the revenue for the quarter on the instruments was in line with our expectations. We also see that the Tonbo acquisition will help us on the revenue side.

Thanks. And what are you seeing in the market in terms of supply chain tightness? We've seen any thoughts on pricing as it relates to inflation and in your strategy there?

We do see that because of the shortage of parts, especially the integrated circuits, there is some price pressure. However, we are working through this by improving our efficiency and leveraging our international distribution to help us adjust to these issues.

Great. Thanks.

Thank you. And I am showing no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect.