Cytek Biosciences, Inc. Q4 FY2024 Earnings Call

Thank you for standing by, and good day, everyone. My name is RG, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cytek Biosciences Fourth Quarter and Full Year 2024 Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Paul Goodson, Head of Investor Relations. Please go ahead.

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the quarter and year ended December 31, 2024. If you haven't received this news release or would like to be added to the company's distribution list, please send an e-mail to investors@cytekbio.com. A copy of the news release is also available on the Investor Relations section of Cytek's website at investors.cytekbio.com. Joining me today from Cytek are Wenbin Jiang, CEO; and Bill McCombe, CFO. Please note that we will be referencing a slide presentation during the call today that has been posted to the Investors section of our corporate website. As a reminder, 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 in these statements. Additional information regarding these risks and uncertainties appears in our slide presentation 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. Additional information regarding our use of non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, may be found in our slide presentation and in today's press release. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with GAAP. 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, February 27, 2025. Finally, I would like to invite investors and analysts to attend any of the six user group meetings Cytek will be hosting in 2025. These are typically all-day meetings where Cytek scientists and users of Cytek's instruments meet to discuss research initiatives, advances in the field and use cases for Cytek products. The full schedule has not yet been established, but the first of these meetings will be in Barcelona on March 12, followed by the Southern California meeting in La Jolla on May 15. In addition to Cytek user group meetings this year, there will be a variety of industry and academic conferences, meetings and seminars where we will be exhibiting the Cytek products in the U.S. and around the world. While these events 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. We have a limited number of spaces to accommodate members of the financial community. So, if you are interested in attending any of these events, please contact me. With that, I would like to turn the call over to Wenbin.

Thanks, Paul. Welcome, everyone, and thank you for your interest in Cytek. On today's call, I will discuss our results for the fourth quarter and full year 2024 and highlight our achievements toward our strategic initiatives to drive sustainable growth and profitability. Then I will turn the call over to Bill for a more detailed look at our financials and our 2025 outlook before we open it up for Q&A. Starting with Slide 3. Full year revenue in 2024 grew 4% over 2023, reaching $200.5 million, driven by strong growth in service revenue and double-digit growth in international markets outside of the U.S. We did very well in unit volume growth in 2024 with placements of Full Spectrum Profiling or FSP and imaging instruments up by 8.5% over 2023. This growth was achieved despite a challenging year for the industry. We were pleased to outpace the unit volume growth of the flow cytometry market as a whole and importantly, our industry competition. Our outperformance in 2024 can be attributed to the technological leadership Cytek's products continue to bring to the cell analysis market as well as to the excellent user support provided by our customer-facing teams. Cytek has always had a commitment to profitability and cash generation to support our growth and innovation. Furthermore, we have reached an important inflection point where small percentage increases in revenue can translate into larger percentage increases in adjusted EBITDA. While Bill will cover more specifics in a few moments, 2024 provides a good example of this. With revenue up 4%, our adjusted EBITDA of $22.4 million delivered a gain of more than 77% above the $12.6 million of adjusted EBITDA from 2023. In parallel with our substantial growth in adjusted EBITDA, our focus on cash generation was clearly reflected with positive cash flow achieved again in 2024. I'm pleased to report that once again, we returned this positive cash flow to shareholders in the form of repurchasing 4 million shares during 2024 under our share repurchase program. At the expiration of this program, we announced a new $50 million repurchase program in late December and have been buying shares in the open market year-to-date. Turning to Slide 4 and our fourth quarter results. Our revenue was $57.5 million, essentially flat compared to the fourth quarter of 2023 after adjusting for the strong appreciation of the U.S. dollar in the quarter. We saw year-over-year growth of 8% in our service revenue in the fourth quarter, mainly due to the growth in the total installed base of our instruments. Geographically, we continue to see a strong demand environment in APAC in the fourth quarter. While we are viewing China with a conservative stance due to the dynamic environment, we started to experience some uptick in orders in the fourth quarter related to the China stimulus program. We were also pleased to see strong growth both quarterly and year-over-year in the Rest of the World region, which includes Canada and Latin America. Total U.S. revenue was slightly up versus the third quarter and down year-over-year, driven by a decline in academic and government instrument revenues, partially offset by growth in service. Looking at our customer mix, we continued to experience strong demand from our global pharma and CRO customers who are focused on harmonizing their instruments across different regions for translational discovery work, which our technology is particularly capable of delivering. Overall, we believe our growth in 2024 demonstrates the strength of our platform, the unique value proposition of our portfolio and how Cytek solutions are becoming a well-established brand in the industry. I would like to next update you on the strong execution our team has had on our key growth pillars: Instruments, Applications, Bioinformatics and Clinical to solidify Cytek's position as a market leader in next-gen cell analysis solutions. Turning to Slide 5, starting with instruments. I want to take a moment to reflect how far we have come as an organization in driving adoption of our core instruments, including our flagship products, the Aurora Analyzer, Aurora cell sorter and the Northern Lights System. As a reminder, our core instrument platform is underpinned by our FSP technology. This technology is designed to maximize sensitivity, accuracy and harmonization across instruments through a novel optical and electronic design. Our technology enables us to address the inherent limitations of other instruments by providing the highest density of information with greater sensitivity, more flexibility and increased efficiency, all at a lower cost for performance. From our conversation with flow cytometry users, it is clear that Cytek's instruments have changed the direction of the entire industry towards full spectral technology. We believe Cytek's FSP technology has matured into the industry standard that other technologies are measured against. Our leadership in FSP technology enables us to benefit from an important first-mover advantage with our expanding customer base and validated commercial solutions that deliver superior stability, data quality and ease of use. Since the introduction of our first FSP instrument in 2017, our FSP technology has gained widespread adoption with nearly 2,000 customers worldwide using our solution today and a broad user base across more than 70 countries. Our technology has additionally been validated by more than 2,300 peer-reviewed publications regarding the use of Cytek products to address critical challenges. In the fourth quarter, we expanded our global footprint with 164 FSP instruments and 49 Amnis and Guava systems sold. This brings Cytek's total installed base to 3,034 units, including 377 Amnis and Guava instruments shipped since the acquisition of the Luminex business in the first quarter of 2023. Within our portfolio, the Aurora CS cell sorter product and Amnis imaging systems showed good growth in the fourth quarter compared to the same quarter of 2023. Collectively, these instrument placements represent growth across a diverse customer base, offering comprehensive and better solutions tailored to meet their needs. As I mentioned earlier, the number of placements of our FSP instruments increased 8.5% in 2024 over 2023. We were pleased to see 13% year-over-year growth of the Aurora cell sorter and 12% year-over-year growth of the Northern Lights System. We believe this solid growth in placements despite a challenging and dynamic macroeconomic environment demonstrates Cytek's continued leadership in FSP flow cytometry and our strength in these product categories. In 2024, we were excited to announce our Enhanced Small Particle Detection module or ESP, a new technology that can be added to new or retrofitted to existing Aurora, Aurora cell sorter and Northern Lights instruments. This new feature allows our already powerful systems to provide higher sensitivity to identify and analyze a variety of small particles, including extracellular vesicles, small bacteria, viruses and viral particles and nanoparticles and further distinguish our cell analysis solution as the preferred choice among researchers and clinicians. Turning to Slide 6. In early 2023, we strategically expanded our Cytek platform with the Luminex transaction to continue diversification of our instrument portfolio with both competitive and operational advantages. With the addition of Amnis and Guava product lines, we accomplished several objectives. First, we enhanced our technical capabilities with AI-driven high-resolution imaging. Second, we enabled a more effective and efficient service and support through an expanded installed base, dramatically increasing our service gross margin. And third, we broadened our customer reach within the entry-level market. Since the acquisition, we achieved significant growth in Amnis imaging revenue in the entry-level market. Specifically, our imaging revenue increased by 14% in 2024. In addition, growth in the entry-level market is reflected by the 12% full year unit volume growth in our Northern Lights placement, which was one of the goals of the acquisition. Leveraging an expanded installed base, our service business gross margin improved from 15% in 2022 before the acquisition to 57% in 2024, notably one of the highest in the industry. This major increase in gross margin demonstrates one of the advantages that we obtained from the Luminex transaction. We believe the growing installed base of our instruments, including our core FSP instruments as well as Amnis and Guava will continue to serve as a strong foundation to drive adoption of our product and service offerings going forward. To support the rising global demand for Cytek solutions, we recently opened a new manufacturing facility in Singapore. With this facility, we are able to offset low-cost manufacturing, increase our capacity and enhance global supply chain flexibility. Turning to Slide 7 and Bioinformatics. We introduced Cytek Cloud two years ago as a digital ecosystem to support full spectral flow cytometry research from panel design to data acquisition and to enable our customers to streamline their workflows through our online software tools. In 2024, we expanded the capabilities of Cytek Cloud with the addition of the SpectroPanel tool, a proprietary intelligent algorithm that designs and optimizes the panels in minutes rather than days or weeks with a manual process, allowing scientists to focus their efforts on their own applications. Cytek Cloud is becoming a vital resource in the research community. We now have over 16,000 users, growing our base by more than 160% from the start of 2024. This represents an average of more than six users per installed Cytek FSP instrument. We continue to believe that the Cytek Cloud is an important factor in earning the loyalty of our users to the Cytek brand. Turning to the Applications and Clinical pillars of our strategy. We continue to believe the clinical market represents an attractive business opportunity for Cytek. Several of our products are approved for clinical use in both China and the EU, including our Northern Lights CLC system. In May 2024, we were pleased to receive approval from the China National Medical Administration for clinical use of our 1 laser and 2-laser 6-color TBNK reagent cocktails on our Northern Lights systems, specifically in hospitals, laboratories and clinics across China. As a reminder, this is the first and only 1 laser-based 6-color assay supported by FSP capability, which offers higher system reliability and data consistency, a competitive advantage against the more expensive 2 laser systems. This achievement broadened our market presence in both China and Europe, while strengthening our competitive advantage. Notably, Northern Lights CLC unit placements grew by 15% in 2024 compared to 2023, achieving the highest placement growth rate out of all Cytek instruments across our product portfolio. As we continue to push forward new products and applications, we remain deeply committed to providing comprehensive cell analysis solutions to our customers. In sum, we believe we are well positioned to serve a large and growing cell analysis market with our industry-leading cell analysis portfolio, global diversification and the critical first-mover advantage with our FSP technology. This combination paired with our incredible team, strong balance sheet and focus on execution will drive Cytek further on our strategic initiatives. Looking ahead, as we continue to strengthen Cytek's market leadership position in cell analysis, the durable foundation we have built provides us with confidence in our expectations and our long-term objective of delivering sustainable growth and profitability. With that, I will now turn the call over to Bill for more details about our financials.

Thanks, Wenbin. Turning to Slide 8 and our fourth quarter financial results. Total revenue for the fourth quarter of 2024 was $57.5 million, a 1% decrease over the fourth quarter of 2023. Growth in service revenue was offset by a decline in product revenue due to a strengthening in the U.S. dollar and orders that were delayed to the first quarter of 2025. Product revenue, which is instruments and reagents, decreased 3% versus Q4 of 2023, but increased 14% sequentially versus Q3 of 2024. The decrease versus Q4 of 2023 was driven by U.S. dollar strength, a softer instrument market in the U.S. and EMEA as compared to a strong Q4 of 2023 and certain orders being delayed into Q1 of 2025. Service revenue grew 8% versus Q4 of 2023. This service revenue growth reflects continued expansion of our installed base of instruments and active usage of our systems. Turning to our geographic market performance. Total U.S. and EMEA revenue declined 10% and 18%, respectively, compared to a strong Q4 of last year, driven by lower instrument sales and also foreign exchange effects in EMEA. Asia Pacific grew 21%, driven by strong growth in China. Other international markets, primarily Canada and Latin America, also grew strongly off a small base with revenue reaching $5.3 million in the fourth quarter compared to $1.9 million in the prior year quarter. This growth reflects the fact that Cytek's technology is the full spectral flow cytometry technology of choice in these markets and around the world. GAAP gross profit was $33.7 million for the fourth quarter of 2024, an increase of 2% compared to gross profit of $33 million in the fourth quarter of 2023. GAAP gross margin was 59% in the fourth quarter of 2024 compared to 57% in the fourth quarter of 2023. Non-GAAP adjusted gross margin in the fourth quarter of 2024 was 61% compared to 59% in the fourth quarter of 2023 after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles. In the fourth quarter, we had a total of $8.8 million of nonrecurring noncash reductions in operating and interest expense from adjustments based on our reevaluation of a license and royalty settlement liability. Operating expenses were $30.7 million for the fourth quarter. This included $2.6 million of the nonrecurring benefit I described above. Excluding this $2.6 million benefit, operating expenses were $33.2 million, unchanged from both the fourth quarter of the prior year and sequentially from Q3 of 2024. This demonstrates our focus on controlling expenses as an important driver of delivering on our goal of growing profitability and cash flow. Research and development expenses were $9.7 million for the fourth quarter, down 11% from the fourth quarter of 2023 and down 2% from Q3 of 2024 due to reduced compensation and engineering expense, reflecting our efforts to reduce costs and improve the efficiency of our investment in R&D. Sales and marketing expenses were $11.9 million for the fourth quarter, up 3% from the $11.6 million in the fourth quarter of 2023 due to higher compensation and amortization expenses. General and administrative expenses were $9.1 million for the fourth quarter. This included the $2.6 million nonrecurring benefit I described earlier. Excluding this benefit, general and administrative expenses would have been $11.7 million, up from $10.8 million in the fourth quarter of 2023 due to higher stock-based compensation expense. Income from operations was $3 million for the fourth quarter, an improvement over the $0.1 million loss from operations in the fourth quarter of 2023. This included the $2.6 million nonrecurring benefit described earlier. Excluding this benefit, profit from operations would have been $0.3 million compared to a loss from operations of $0.1 million in the prior year quarter. This was driven by higher gross profit in the current quarter. GAAP net income was $9.6 million in the fourth quarter. This included the $2.6 million nonrecurring benefit described earlier and a $6.2 million nonrecurring noncash interest expense reduction related to the same liability adjustment for a total of $8.8 million of nonrecurring benefit. This contributed $6.7 million after tax to net income in the quarter. Excluding this nonrecurring benefit, net income would have been $2.9 million compared to a GAAP net income of $5.5 million in the prior year quarter. This was primarily due to lower net other income driven by a foreign exchange loss of $1.8 million in the current quarter versus a gain of $1.3 million in the prior year. Now for the full year 2024. Total revenue for the year ended December 31, 2024, was $200.5 million, a 4% increase over the prior year. The increase in total revenue in 2024 was driven by 30% growth in services revenue and double-digit growth in product revenues from international markets, offset by a slowdown in U.S. product revenue. GAAP gross profit was $111.1 million for the year ended December 31, 2024, an increase of 2% compared to a GAAP gross profit of $109.4 million in the prior year. GAAP gross margin was 55% in the year ended December 31, 2024, compared to 57% in the prior year. The decline was primarily due to one-time inventory adjustments in Q1 of 2024. Adjusted gross margin, which excludes stock-based compensation and acquisition-related intangibles in the year ended December 31, 2024, was 59%, flat versus the 59% in the prior year. Operating expenses were $131.6 million for the year ended December 31, 2024. This included the $2.6 million of nonrecurring benefit mentioned before. Excluding this $2.6 million benefit, operating expenses were $134.2 million, a 2% decrease from the $137.3 million in the prior year. The decrease was primarily due to lower research and development costs. Research and development expenses were $39.4 million for the year ended December 31, 2024, compared to $44.2 million in the prior year. The reduction was primarily due to lower headcount and engineering expense. Sales and marketing expenses were $49.1 million for the year ended December 31, 2024, flat compared to $49.1 million in the prior year. General and administrative expenses were $43.1 million for the year ended December 31, 2024. This included the $2.6 million nonrecurring benefit mentioned earlier. Excluding this benefit, general and administrative expenses would have been $45.7 million compared to $44 million in the prior year. The increase was primarily attributable to higher stock-based compensation expense, partially offset by lower outside services expense. Loss from operations in the year ended December 31, 2024, was $20.5 million, which included the $2.6 million nonrecurring benefit mentioned before. Excluding this nonrecurring benefit, loss from operations would have been $23.1 million compared to a loss of $27.8 million in the prior year. GAAP net loss for the year ended December 31, 2024, was $6 million. This included the $2.6 million nonrecurring benefit mentioned earlier and a $6.2 million nonrecurring noncash interest expense reduction related to the same liability adjustment for a total of $8.8 million of nonrecurring benefit. This contributed $6.7 million after tax to net income. Excluding this nonrecurring benefit, GAAP net loss would have been $12.7 million, an increase from the net loss of $12.1 million in the prior year, which was primarily due to higher foreign exchange losses and lower tax benefit offset by a lower loss from operations. Adjusted EBITDA was $22.4 million in the year ended December 31, 2024, which excludes the nonrecurring items mentioned earlier, foreign exchange impacts and stock-based compensation expense. This was up significantly compared to $12.6 million in the prior year. Adjusted EBITDA included investment income of $8 million in the year ended December 31, 2024 and $7.4 million in the prior year. Excluding these amounts, adjusted EBITDA improved from $5.2 million in the year ended December 31, 2023 to $14.4 million in 2024. Consistent with our historical focus on cost control and profitability, we are committed to improving these metrics going forward. Cash, cash equivalents and marketable securities were $277.9 million as of December 31, 2024. This represents an increase of $15.2 million from the $262.7 million at the end of December 2023, despite repurchasing $21.6 million in our stock repurchase program during 2024. Our strong balance sheet and positive cash generation underscore our ability to invest in our global growth initiatives. As mentioned above, during 2024, we repurchased approximately 4 million shares of Cytek stock for a total cost of approximately $21.6 million at a weighted average cost of $5.43 per share, leaving us with 129.2 million shares outstanding as of December 31, 2024. Concurrent with the expiration of our $50 million stock repurchase plan at the end of 2024, we announced a new $50 million repurchase program for 2025 and have been actively repurchasing shares year-to-date. Before providing you with our revenue guidance for 2025, I want to address some recent external developments that may affect our 2025 revenue. As you are all aware, the NIH recently announced that it will reduce the amount of funding for indirect costs associated with its grants going forward. Secondly, in January, the Biden administration introduced new export controls and licensing requirements for the export of certain flow cytometry products and technologies to certain countries, most notably China. Finally, the Trump administration recently announced wide-ranging tariffs on imports from several countries, including China. While we are continuing to assess the potential implications for our business, these factors may create headwinds for our instrument revenues going forward. We expect solid growth in our service business and we see good momentum in our instrument sales in APAC. However, we are currently experiencing softer market conditions in the U.S. and EMEA. Taking all of these factors into account, we expect our full year revenue for 2025 to be in the range of $204 million to $212 million, representing overall growth of 2% to 6% over the full year 2024, assuming no change in currency exchange rates. We expect this growth to be back-end loaded due to current market conditions and the fact that the first quarter is typically our seasonally weakest quarter. As Wenbin noted, our market leadership position remains strong and we are confident we will perform well relative to the overall flow cytometry market. With our strong balance sheet, we are well positioned to continue investing for growth. With that, I will turn it back over to Wenbin.

Thanks, Bill. I want to take a moment to thank our team at Cytek for their dedication to our mission. Together, we have built a strong platform of cell analysis products to empower the scientific community with better tools to advance their research. In 2024, we were honored to be named overall Biotech Company of the Year in 2024 by the BioTech Breakthrough Organization out of thousands of nominations across 14 different countries. This premier recognition is a testimony to our team's commitment and highlights the significant role our technology plays in advancing discovery. We are proud to make our powerful flow cytometry technology more accessible, enabling scientists to accelerate their research and achieve more impactful results. I want to thank everyone for joining today's call, and we will now open it up for questions.

Thank you. Your first question comes from the line of David Westenberg of Piper Sandler. Please go ahead.

Hi. Thank you for taking the questions. I wanted to start with the 8.5% instrument growth. That was a really good number. Growth, of course, on the top line was 4%. So, can you talk about some of the things that are happening with maybe mix? I'm guessing maybe this is higher placements of maybe Northern Lights versus some of the other ones and how we should think about that in the coming year? And how we should think about the consumables used on that mix, if there's a difference between Northern Lights and, say, Aurora in terms of whether or not they use your consumables versus the competitor consumables. Sorry, can you guys hear me?

All right. Yes. Wenbin, would you like me to take that one?

Yes, please.

Yes. So we did see good growth in Northern Lights in the quarter in 2024. And we don't want to give guidance specifically on product categories, but we think that momentum will carry forward in terms of unit growth. The product is proving popular. So, I won't go beyond that in terms of our guidance. When we came up with our guidance range, we factored in all the recent trends and also the recent headwinds that I mentioned. In terms of reagent consumption, I have to defer to Wenbin on that one.

Yes. Clearly, as you can see, we have 16,000 users on Cytek Cloud using our tools to design panels, optimizing their panels for their applications. In fact, Cytek Cloud is also equipping our users to other reagents and we expect reagent is one of the areas with faster growth for the company. With regard to the mix of the instrument, as you can see clearly, we cite 12% growth year-over-year on Northern Lights, right? That's even faster than the overall unit growth of 8.5%.

Yes. In terms of reagent consumptions, I don't think that we see significant differences between the Northern Lights and other instruments. I don't think that that would have a significant impact on our overall reagent revenues. The driver of the reagent revenues would be the overall unit volume growth.

That's great. You provided a lot of good information on the various regions and tariffs. Could you summarize the impact in one or two sentences? Specifically, is there a numerical projection for gross margins, or should we expect lower growth due to higher costs? You also mentioned that some manufacturing occurs in Singapore. Could that help mitigate some of the tariffs since Singapore is not part of a tariff nation?

From a market perspective, clearly, and as a global company, we do business across the world today and U.S. is less than 50% of our overall business and Europe is one-third and with the balance from the Rest of the World, including APAC. So that can help us really to weather the kind of domestic economic conditions we are experiencing or may experience. With regard to tariffs, certainly, Singapore today is not part of the impact, but who knows and it may happen going forward. But again, with our manufacturing today across multiple sites, in multiple countries that gives us flexibility to deal with all kinds of potential implications going forward. As you know, we manufacture in the U.S., in Singapore, in China. And so we hope with kind of diversification of our manufacturing that will help going forward.

Yes. When I mentioned those three factors, I was referring to the changes from the NIH, the export controls we discussed at the JPMorgan Conference, and the potential impact of tariffs on revenue primarily from reciprocal tariffs affecting U.S. exports. Currently, we have not experienced significant effects from these tariffs because we mainly produce our products for China in China. Additionally, as Wenbin pointed out, there is also the impact of tariffs on our cost of goods and margins, but we anticipate managing and addressing this issue through our flexible global manufacturing system, which operates plants in three different locations.

I hope that distinction is clear.

Yes, yes. No, much more clear. You got pretty long answers to my question, so I'll kick it off to the next panelist. Thank you.

Your next question comes from the line of Tejas Savant from Morgan Stanley. Please go ahead.

Hi. Thanks. This is Edmund on behalf of Tejas. I wanted to ask about your U.S. academic government customers. We recently attended AGBT and noticed a generally negative customer sentiment, including reports of instrument purchase freezes. Could you first quantify your exposure to the NIH? Additionally, could you share what you're hearing from U.S. academic customers and how much of an impact you have currently included in your 2025 guidance?

Do you want me to take the first part of that, Wenbin?

Yes, please.

We analyzed our revenues for 2024 and found that approximately 5% is funded by NIH grants. This makes it challenging to determine the impact moving forward. Current estimates suggest that about 8% of NIH funding could be reduced, but there may also be indirect effects that are difficult to measure. Overall, this represents a relatively small exposure for us. We've still seen orders and shipments to U.S. academic customers in the early part of this year. While changes from the NIH could cause some disruption, most of our revenue occurs in the third month of each quarter. Since these changes were only announced in January, it's still uncertain what the overall impact will be for us at this time.

On one hand, we are still waiting to see how it might potentially impact Cytek. But based on our analysis of what we have seen in 2024, the impact is less than 5%. In the meantime, as we all know, we are a global company, and more than 50% of our revenues come from outside of the U.S., which helps us weather the ups and downs domestically.

Got it. And then just switching gears a little bit. On the large pharma and CDMO side, looking to harmonize their workflow with your instruments. I was wondering if you can talk to some of that progression in the quarter. And in terms of the instruments that are ordering to harmonize, do you have any sense what percent of these are replacement orders versus capacity expansions?

This is actually very difficult to gauge. And clearly, we have seen pharma as they migrate from discovery to translational and they would really like to see the data coming out of the different labs across different countries in their institution to provide the same data quality with a better confidence. In that end, they place orders from Cytek to meet the needs across multiple sites in the world, in fact, not just in one country. So, this is what we have been seeing right now a kind of shift momentum from those pharmaceutical companies as well as some of the CRO. And we are benefiting clearly from this harmonization right now.

Yes. When we file the 10-K shortly, we will publish the data for the global customer segments. You'll notice that the biotech pharma distributor CRO segment increased by 14% in the fourth quarter. This growth encompasses more than just pharma companies and includes all regions worldwide, reflecting strong growth in that segment. This is the year-on-year growth rate for the fourth quarter.

Great. Thanks for the time. I’ll pass it on.

Your next question comes from the line of Andrew Cooper of Raymond James. Please go ahead.

This is Noah on for Andrew. Thanks for taking the question. First one, just looking at your OpEx, it looks like the G&A run rate is a little bit like quite a little bit lower from where it was in the back half of last year. So just asking, I guess, what are you taking out? Is there some dynamics around that, that could prove better for margins? Or are you taking any actions on that? Or is it the one-time benefit that's really flowing through?

It's the one-time benefit. So there's a $2.6 million benefit in the fourth quarter. So, if you add that back in, the G&A was about flat with Q3, but it was down and it was about flat with Q4 of last year. So, we did make some significant reductions in G&A in the year-on-year basis in Q2 and Q3, but we've been holding pretty flat around $33 million per quarter since then.

Okay. Awesome. And then just kind of following up on the question around tariffs. What would be your ability to pass price through should some of those tariffs are not affecting the business? And I would assume that would be within 2025.

No, indeed, it depends on the magnitude of the tariff, how much we can pass on, at least based on the current proposal or the tax rate out there indeed, and we are trying to pass this through to customers. But on the other hand, there's a delay effect, right? And we continue to need to be honor the previous quotes already provided to our customers.

Your next question comes from the line of Matthew Sykes of Goldman Sachs. Please go ahead.

Thanks for taking my questions. So the first one, how are you thinking about your capital allocation strategy as it relates to organic investment? Can you talk through your innovation pipeline and any investments you're particularly excited about?

We think...

Our investment, yes, go ahead, Bill.

No, no, go ahead, Wenbin.

Yes. In terms of investment, there are two components. One is the share buyback program. Additionally, we continue to invest significantly in our internal research and development, dedicating nearly 20% of our revenue to creating new products and technologies that advance our offerings. Last year, we launched several products, such as the new panel design Cytek Cloud and our ESP modules for small particle detection, which have been well received by our customers. We will keep investing and aim to deliver new products in 2025, and we will determine our future direction from there.

The other area where we are investing aggressively is in our service network. Revenues are growing quite strongly there. We are continuing to build out our network by adding more service personnel in many locations. We are also investing in IT automation to enhance our transaction processing and inventory management efficiency. This will be particularly beneficial as we grow the reagent business, which is a smaller scale business.

Great. That actually leads very well into my next question, which was, can you talk to the growth you saw in services? And then any drivers outside of the general installed base growth? And then what your expectations are around services for 2025?

The major driver is the installed base, which influences both service contract revenue and time and materials revenue, where customers request our assistance for specific projects or jobs. We are continually looking into new offerings in the service area, but the significant factor remains the expanding installed base. Regarding our guidance, we chose not to detail our overall revenue guidance by separating service from product, but you can likely deduce that we anticipate ongoing positive momentum in service revenues in 2024. So, you can expect solid growth in that area.

Great. Thank you.

Your next question comes from the line of Chad Wiatrowski of TD Cowen. Please go ahead.

Chad Wiatrowski on for Brendan Smith. I appreciate cash flow positive and you're investing heavily in R&D, the share buybacks you mentioned, service reps. Are you open to additional M&A at this point? And could you kind of outline what that criteria would look like, just balancing sort of investing in growth but also profitability?

Sure. Wenbin, you like me to take a stab at this one?

Sure. Go ahead.

We are open to pursuing additional mergers and acquisitions. We have a substantial cash balance, which gives us the capability for significant M&A activity. The criteria for potential acquisitions should align with our existing markets or adjacent areas, ensuring they are relevant to our customers. It’s important that we can realize substantial synergies in areas such as sales, distribution, research and development, general and administrative expenses, or manufacturing, ideally encompassing all four. From a financial standpoint, we aim to acquire businesses that can contribute positive EBITDA within a relatively short time frame, typically within 12 months. Our goal is to target businesses with gross margins that are comparable to our current margins, with an emphasis on those that will allow us to achieve positive EBITDA contributions quickly, often requiring some level of synergy and integration.

That's helpful. And then just on Cytek Cloud growth, it's just pretty impressive. What's being underappreciated there? I know you have like the AI automated panel product and some other things happening. What's kind of driving that user growth? Thanks.

I think Cytek Cloud significantly simplifies the process for our users when it comes to designing panels, particularly for high parameter and high dimensional cell analysis. Typically, optimizing large panels can take weeks or even months. However, our algorithm streamlines this process, making it much easier for users. Many contract research organizations and pharmaceutical companies have already integrated Cytek Cloud into their standard workflows, which enhances their efficiency with Cytek instruments. We believe this tool provides substantial value to our customers and has contributed to our rapid user growth from a few thousand to 16,000 in just the last year. This momentum is expected to continue, benefiting us in several ways. Firstly, it fosters loyalty to Cytek solutions, and secondly, it supports our reagents. Additionally, Cytek Cloud offers a comprehensive catalog of reagents that users can purchase.

Thanks for the questions.

Your next question comes from the line of Harrison Parsons of Stephens. Please go ahead.

Great. This is Harrison on for Mason. Thanks for taking the questions. I wanted to ask if you could tell me what your guidance assumes in terms of flow cytometry market growth throughout 2025.

We didn't make a specific assumption regarding market growth. Implicitly, we assumed there wouldn't be much change from 2024. There aren't many reliable studies on the flow cytometry market. The best indications we have suggest that the instrument business was mildly negative. Therefore, we broadly assumed no significant changes in either direction, but we considered the near-term headwind factors I mentioned earlier. This results in a likely more back-loaded growth profile.

Okay. And then could you give us some insight into your expectations in terms of growth this year across your different key geographies?

We don't want to specifically guide by each geography. However, I can say that in 2024, the U.S. market showed significant softness, while Asia Pacific and Europe performed much stronger, achieving double-digit growth in those regions. It’s reasonable to expect that our guidance for 2025 will reflect a market environment similar to 2024. Therefore, we anticipate that the U.S. market will remain flat, while we expect better growth in APAC and EMEA. Overall, we are looking at a continuation of the trends observed in 2024, with some near-term headwinds likely to impact the U.S. market.

Perfect. I’ll leave it there. Thanks for the questions.

That ends our Q&A session and we appreciate your participation. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.