Good day and thank you for standing by. Welcome to the Cytek Biosciences' Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. 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 30th, 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 [email protected]. 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 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 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 10th, 2022. With that, I would like to turn the call over to Wenbin.

Thank you, Paul, and welcome to everyone on the call today. I want to start by expressing my gratitude to the incredible Cytek team for their hard work and execution as we close out the second quarter of 2022. In today's call, I will review our progress this year and discuss how Cytek is advancing towards our mission and vision. We continue to distinguish ourselves in the field by providing our customers with a complete solution encompassing instruments, reagents, software, and application services. Since our founding, we have consistently developed and launched new products and services, which our strong customer base has validated in the field. Our unique portfolio of comprehensive solutions positions us as a leader in the sector, and we are proud to showcase the value we deliver to our customers. Beyond our original suite of instruments that maintain solid demand, we anticipate that our reagents and newly launched cell orders will significantly contribute to our future revenue growth. This diversification of our revenue stream, including a growing component of recurring revenue, services, and reagents, will play a vital role in our success. I am happy to report that our installed base of instruments continues to grow robustly. During the second quarter, we placed an additional 130 instruments, raising our total installed base to 1,356 instruments as of the end of Q2. These placements align with our core strategy, and we have seen solid adoption among high-dimensional cell analysis users while also enhancing profiling for entry-level users. Since being launched in 2017, our cell analysis systems have gained widespread global adoption in over 40 countries. As Patrik will elaborate on later, our efforts have translated into strong revenue growth this quarter, with a 32% increase compared to the same quarter last year. These results reflect strong demand stemming from our customers' recognition of the advantages our technology provides in addressing their needs. Our team continues to perform excellently and achieve operational excellence, even amid various macroeconomic pressures. Our dedicated team is effectively managing inflationary and supply chain challenges by leveraging the strength of the global workforce. Additionally, our previous inventory buffer offers further protection against potential supply chain disruptions, shielding our operations from constraints. In summary, we remain focused on execution and I am confident in the Cytek team's ability to navigate this environment and continue to succeed despite ongoing challenges. I would like to highlight several significant recent developments 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 us, Todd has become an essential part of our team and has already demonstrated his value to our organization. We are pleased to have him onboard as we continue to pursue our mission. At the end of May, we announced that a series of single-color cFluor reagents and a 6-color TBNK kite have received CE marking under the European Union IVDD 98/79/EC. Other reagents were also included in this certification. With this development, clinical flow cytometry laboratories in the European Union can now procure Cytek cFluor CE-IVD certified reagents for their applications. This achievement enables the cFluor reagent to be used for clinical diagnostics in hospitals, laboratories, and clinics across the EU and sets us on the path to offering a complete sales analysis solution to the European market. In early June, we took part in Cyto, one of the leading flow cytometry conferences. At the event, we showcased the only Cell Sorter operating the show flow, allowing us to perform live demonstrations that illustrated the power of combining analysis with Cell Sorting. Dr. [indiscernible] from Fred Hutch presented a tutorial on running a 59 marker panel using the Aurora system, providing further validation of the transformative capacity of our technology. Overall, this year's Cyto Conference was a successful event for Cytek, generating significant customer interest and resulting in a record number of cell leads for the company. Later in June, we hosted another Analyst and Investor Day. Alongside our executives presenting a detailed look at flow cytometry, we featured four key opinion leaders who utilize our products and services and highlighted the value of our solutions. For those who couldn't attend, we encourage you to watch the replay on the investor section of our website. The KOLs who spoke are recognized scientists and physicians, focusing primarily on oncology, but also on HIV, diabetes, inflammation, aging, and various aspects of the COVID pandemic, showcasing the wide applicability of Cytek's technology. They addressed the significant improvements in capabilities, sensitivity, and accuracy achieved with Cytek machines, reagents, and software, as well as the reliable outcomes and cost savings realized. One KOL, managing a core clinical laboratory, mentioned that Cytek's machines lead to cost savings of 15% to 200% for running samples, owing to their speed being 300% greater than competing technology. He noted that Cytek's ability to process more samples with fewer tools, deliver quicker results and diagnoses, enable earlier treatments, provide tailored therapeutic approaches, consume fewer resources, and save costs, ultimately allows hospitals to make faster patient discharge decisions. Other experts remarked on the advanced features of Cytek's analyzer and the groundbreaking nature of Cytek's new [indiscernible], which create new opportunities in both research and clinical practice. We are thrilled that our work at Cytek is facilitating such substantial scientific and clinical advancements. As we expand our offerings and the base of instruments, reagents, and services, our technology has been validated by 768 peer-reviewed publications at the end of this quarter. In this quarter alone, there were 116 peer-reviewed publications referencing Cytek. I take great pride in this accomplishment, which showcases the momentum of our platform and affirms the validity of our offerings in the scientific community. A notable publication from Roswell Park Cancer Center discussed the development of a 27-color panel for detecting measurable residual disease in patients diagnosed with acute myeloid leukemia, where the researcher used only one tool to reduce costs and improve workflow. This exemplifies our mission at Cytek and the advancements we deliver to the field as we continue to show proven real-world results. Overall, I am proud of the progress our team has made this quarter, and I am optimistic about the advancements we will continue to make throughout the remainder of the year as we establish ourselves as a leading cell analysis solution provider. As we push forward with new products and applications, we remain committed to providing a comprehensive cell analysis solution to our customers. We look forward to supporting our customers as they advance scientific discoveries and clinical progress. Now, I will turn the call over to Patrik for further details about 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 compared 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 impact. 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 remain 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 raises to meet operating needs. Our strong balance sheet, including a solid cash position and no debt, underpins 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 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 actions, hard work, and shared belief in this important mission drive 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?

Our first question comes from Max Masucci at Cowen & Company.

To address your first question, we have both near-term and longer-term targets regarding the percentage of total revenues that can be generated from reagent kits. A few months ago, we recognized numerous macro factors and regional dynamics that are affecting the supply and demand for life science research tools products. I am interested to know how the demand for our reagent offerings has changed throughout 2022, particularly in Q2.

Yes, so Max, I can address that first question. We had another strong quarter for our reagent, building on last year's performance, which was based on a smaller foundation. We are very pleased with our current position. Overall, it aligns with our expectations. However, we've faced some challenges on the currency front, which impacted our total revenue by about 3% to 5%. Despite that, the business is progressing as expected. Given the macro environment, I feel we delivered another quarter of solid financial results, positioning us well for a successful year ahead.

Okay, great. Another insight from the Analyst Day is the evaluation of clinical flow cytometry labs regarding the performance of instruments that support clinical applications and their operational efficiency, turnaround time, etc. I'm curious if there are similar standards in place for European flow cytometry labs. If so, after the CE mark announcement, how should we think about the priority of your 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, including our CE certified instruments as well as the originals. 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.

Okay, great. Thanks for taking the questions.

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

Wenbin and Patrik, I appreciate you taking my questions. At a high level, since I know you don’t break out the different instruments, I wanted to ask about the traction you were generating with Aurora compared to Northern Lights last year, especially in the latter half. It’s been a year since you launched the Cell Sorter, and considering its average selling price and potential impact on margins, could you provide an update on the progression of each instrument category? Specifically, I'm interested in the cell sorter and its progress since its launch. Thank you.

So, on the cell sorter, what I can say is that we don't really break out information, but we had a record number of sales sort of 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 the Cell Sorter.

Great. Thanks, Patrik. I have another question for you. The adjusted gross margin came in above our expectations and is on par with last year. Can you discuss the factors influencing gross margins this quarter? Additionally, what are your expectations for the adjusted gross margin trends for the remainder of the year?

Yes, the expectation is that the gross profit margin will gradually improve over time, particularly as we introduce reagents that generally have a higher gross profit margin. Additionally, as we continue to globalize our processes, we have encountered some challenges with the effects position, but I believe we have managed that effectively this quarter.

Thanks very much for taking my questions.

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

Congratulations again on all the progress. I want to start with a question for Patrik regarding inventory. We've heard from many companies that they are being opportunistic with their supply chains and parts, purchasing whenever items become available and often in large quantities. Should we anticipate any impact on free cash flow due to inventory? Will you need to build up a significant amount of inventory in the coming quarters to ensure you have enough parts on hand? How should we think about inventory and free cash flow over the next six to nine months?

We haven't waited this quarter to increase our inventory. Our inventory level has reached a record high of 45 million, up from 32 million, which is significantly higher than last year. Our goal is to ensure that we have enough parts in stock so we can continue to deliver excellent service to our customers. While we've managed to maintain this inventory, it does come at a cost, leading to slightly elevated inventory levels. I expect that our inventory will continue to grow gradually over time, but it shouldn't be as substantial as the increases we experienced since December.

Got it. Okay. And then probably this one's more of a question for Wenbin. We did see a partnership between BD and LabCorp using flow cytometers in a potential first CDx. Now, I think on the Analyst Day, you did show a lot of indications around or usage around minimal residual disease. Are there any other maybe clinical applications that you see as being particularly interesting from full spectrum flow cytometry, and maybe anything outside of minimal residual disease? Or how do you think some of those CDx 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 clinical laboratories in the world across several countries that include applications in such as immuno-profiling and other type of research projects as well as clinical activities.

Got it. Okay. All right. And then just really, for the last one, can you guys hear me okay?

Yes, we can hear you.

Okay. Perfect. I was cut off for a bit. Just one last question, if I may. Patrik, regarding the guidance, it still stands at $162 million to $168 million. You mentioned aiming for the high end of guidance. Why didn’t you raise the low end as well? It’s fine if that’s just a stylistic choice. I’m curious if there are factors that might still lead to meeting the low end of the guidance, such as supply chain issues or a recession in Europe. Again, I’m just looking for some clarity on whether this is purely stylistic or if this is my first time working with you in your role as CFO. It’s been about a year and a half since we last interacted. So, anyway, yeah.

It might be stylistic, but we feel good about reiterating our guidance, despite some foreign exchange headwinds, and it will be at the higher end, yes.

That's good enough. Thank you. Yes, I got enough for your time. I appreciate it.

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

Good evening. 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 instruments focused life science plays out there. So, just curious as to what you're seeing and why?

It really depends on the region territories. I think U.S. APAC, especially China, we have been doing well. In Europe, we do see some delayed processes, taking longer time to close, but the business is still there. We expect all of those businesses will continue to come back, maybe towards the second half of the year.

Got it. That's helpful. Patrik, I have a question for you. What are your assumptions regarding a budget flush this year, which seems to be essential to the 4Q uplift that you are presumably including in your projections?

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

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

Our manufacturing is located in Wuxi, near Shanghai, and the impact is very minimal. As we mentioned earlier, we have been building inventory on both the product and instrument sides to ensure we can serve our customers effectively.

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

Process doesn't take a couple of years. Therefore I don't really have much new updates.

Got it. Okay, thank you.

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