Earnings Call Transcript - CTKB Q3 2025

Operator, Operator

Good day, everyone, and thank you for being here. My name is Arjarie, and I will be your conference operator today. I would like to welcome everyone to the Cytek Biosciences Third Quarter 2025 Earnings Conference Call. I will now turn the call over to Paul Goodson, Head of Investor Relations. Please go ahead.

Paul Goodson, Head of Investor Relations

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the third quarter ended September 30, 2025. 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 investors@cytekbio.com. A copy of this 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 the 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, November 5, 2025. I want to thank those of you who attended our User Group Meeting on October 22 in New York City. Our next and last User Group Meeting for 2025 will be just 2 days from now on November 7 in Montreal. Cytek also participates in a variety of industry conferences worldwide, often hosting a booth where attendees can see our products and learn about them from our knowledgeable team members. As always, these events are primarily geared to the scientific community, but they may offer an opportunity to investors and analysts to interact with our users of technologies and to learn why Cytek's 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 in January when we will have a list of 2026 events. With that, I will turn the call over to Wenbin.

Wenbin Jiang, CEO

Thanks, Paul. Welcome, everyone, and thank you for your interest in Cytek. On today's call, I would like to start with a discussion of our performance in the third quarter. Next, I will give you some highlights of our progress during the third quarter on our strategic priorities before turning the call over to Bill for a more detailed look at our financials and our outlook. Turning to Slide 3. In the third quarter of 2025, total revenue reached $52.3 million, representing a year-over-year increase of 2% compared to the same period in 2024. This growth was primarily driven by strong double-digit gains in the Asia Pacific region and the continued momentum in our recurring revenue businesses, specifically service and reagents. Turning to Slide 4. Geographically, APAC, including China, led our performance with robust revenue growth across all categories, including instruments, reagents and service. In the U.S., we saw double-digit positive year-over-year overall revenue growth driven by continued momentum in service revenue. In contrast, EMEA experienced a double-digit year-over-year revenue decline, largely due to significantly reduced instrument sales to academic and government customers and a modest decline in instrument sales to pharma, biotech and CRO customers. In our Rest of World region, which includes Canada and Latin America, we achieved double-digit overall revenue growth compared to the third quarter of last year. Turning to Slide 5. Notably, I wanted to call out that excluding the performance in EMEA, Cytek posted double-digit revenue growth in all worldwide regions in the third quarter, as you can see from this slide. Focusing now on instruments. Our instrument revenue to pharma and biotech customers grew 12% worldwide, including 10% in the U.S., driven in part by the launch of our Aurora Evo instruments. Instrument revenue in APAC, including China, grew 20% year-over-year and grew 32% year-over-year in the rest of the world. This strong momentum is being driven by a positive funding environment for academic institutions in these regions. In the U.S., overall instrument revenue was flat compared to a year ago. U.S. instrument revenue was driven by improving demand from pharma, biotech and CRO customers, which we believe stems from greater clarity around the macroeconomic and industry factors. However, these instrument revenue gains were offset by continued softness in the academic and government sectors, where funding uncertainty persisted due to the evolving U.S. policy landscape. In the quarter, we did begin to see some stabilization in this end market. However, academic and government demand remained under pressure, resulting in no net overall instrument revenue growth in the U.S. in the third quarter. In EMEA, instrument revenue declined, particularly in the academic and government sector, which we believe reflects a broader shift in public spending priorities. Looking at our recurring revenue sources, service revenue continued to grow strongly, contributing meaningfully to our overall base of recurring revenue. APAC was particularly strong broadly, including in service and reagents. Service revenue growth was driven by our expanding installed instrument base and strong utilization of our products. Reagent revenue grew 21% globally year-over-year, supported by operational improvements, including faster delivery times and enhanced customer service. I would now like to update you on the progress our team has made across our core strategic pillars; instruments, applications, bioinformatics and clinical to further solidify Cytek's position as a market leader in next-gen cell analysis solutions. Starting with our core instruments on Slide 6. In the third quarter, we expanded our global footprint by 161 instruments, bringing Cytek's total installed base to 3,456 units. Within our instrument portfolio, our Aurora cell sorter was the strongest contributor in Q3, growing 35% year-over-year. We believe this strong growth is notable during a time when competing instruments have been recently introduced to the market. Late in the second quarter, we introduced the Aurora Evo Analyzer, and I'm pleased to report that it has had a strong reception. The Aurora Evo system is a demonstration of Cytek's commitment to maintain its position at the forefront of technology development in the flow cytometry industry. It offers a unique combination of high throughput, industry-leading data quality, small particle detection, ease of use and automation and harmonization features. We expect it will be the standard against which other systems are measured. We included these new features after listening to what our customers wanted. And by the strong reception during Q3, it's clear that they are deriving value from the new features we added to create the Aurora Evo. Finally, regarding instruments, I want to mention that our Muse Micro Analyzer has gotten a very strong reception since it was first introduced this past March. The Muse Micro offers advanced microcapillary fluids, enhanced optics, better software and broader assay compatibility, all while maintaining affordability and a compact design. It's an ideal choice for researchers and labs seeking cost-effective flow cytometry systems. Turning to our next growth pillar applications, which includes reagents. We remain focused on driving our reagent product engine growth. And as part of this commitment, we recently announced the expansion of our European headquarters at our facility in Amsterdam's Life Science District. This site increases our footprint in EMEA by more than 40%, including a dedicated customer service and training center. To further advance our reagent business, we additionally transitioned reagent warehouse operations to this site to improve operational agility and efficiency, reduce turnaround time and provide reliable and consistent experiences for our customers. Over time, we expect our recurring revenue base to continue growing. Moving to bioinformatics. As we have mentioned before, our Cytek Cloud continues to provide important benefits to our users. Our software tools empower customers to streamline their experiment workflow, which drives adoption and utilization of our cell analysis solutions and growth in our reagent and service businesses. As of September 30, 2025, we had more than 22,600 Cytek Cloud users, representing remarkable growth of over 40% since the beginning of 2025. This represents an average of almost 8 users per installed Cytek FSP instrument. We believe this growth reflects the loyalty our users have to our product portfolio and the halo effect of the Cytek Cloud driving the utilization of our technology platform, including our recurring revenue offerings in reagents and service. As a reminder, our Cytek Cloud is transforming how researchers design and conduct complex flow cytometry experiments. At its core is our proprietary AI-powered Panel Builder, which saves weeks or months of time by automating critical steps like fluorochrome selection and marker matching. Scientists can then conduct virtual experiments before committing to real wet-lab studies, reducing trial and error and improving data quality from the start. Moving to clinical. We continue to believe the clinical market represents an attractive business opportunity for Cytek. In the third quarter, Cytek took center stage to showcase our complete cell analysis solutions at several industry conferences. One notable event was the ESCCA meeting in Montpellier, France in September. The event featured presentations by independent researchers discussing the importance of special flow cytometry in performing in vitro diagnostic procedures and acknowledging that Cytek's Northern Lights-CLC system is the only special analyzer approved for clinical use in the EU. With that, I will now turn the call over to Bill for more details about our financials.

William McCombe, CFO

Thanks, Wenbin. Turning to Slide 7 and our third quarter financial results. Total revenue for Q3 was $52.3 million, a 2% increase versus Q3 of 2024. This reflects strong growth in service and reagents worldwide, in instruments in Asia Pacific and stabilization in U.S. instrument revenues. These were offset by continued weakness in EMEA instrument revenues. We saw a 14% growth in total revenues from biopharma customers globally versus the year ago quarter, offset by a similar decline in revenues from government and academic customers. Product revenue, which is comprised of instruments and reagents, decreased 4% versus Q3 of 2024, driven by a 26% decline in EMEA, offset by 19% growth in APAC. U.S. product revenue was up 20% versus Q2, but flat versus Q3 of 2024, which was the strongest quarter of product revenue in 2024. Our performance in the U.S. was attributable to a 10% increase in instrument revenue from pharma and biotech customers, driven by the launch of our new Aurora Evo instrument and an improved industry environment. This was offset by a 13% decline in instrument sales to academic and government customers as funding pressures continued. In EMEA, the decline in product revenue was primarily driven by a significant percentage decline in revenue from academic and government customers, which we believe is a result of a shift in government spending priorities and a single-digit decline from pharma, biotech and CRO accounts. While our reagent revenue is still a single-digit percentage of our total revenue, it achieved its highest ever quarterly revenue in Q3, representing 21% growth over the prior year quarter. As Wenbin mentioned, this was largely due to a concerted effort by our reagents team to shorten delivery times and to improve customer service. Service continued to deliver strong revenue growth with 19% growth in Q3 versus the prior year quarter. This was driven by growth in the installed base and active usage of our systems. Turning to geographic market performance. U.S. revenue grew 12% in Q3 versus prior year, driven by service revenue growth. EMEA declined 28% due to lower instrument revenue. APAC, including China, increased 25% in Q3, driven by growth in instruments, service and reagents. GAAP gross profit was $27.6 million, a 5% decrease versus Q3 of 2024. GAAP gross profit margin was 53% versus 56% in the prior year quarter. This was due to both a lower service gross margin resulting from an increase in headcount and travel costs and a lower product gross margin as a result of lower product revenues, higher materials and tariff costs and higher overhead. GAAP gross margin improved sequentially from 52% in Q2 due to higher product gross margins on higher product revenues and improved overhead absorption. Adjusted gross profit margin, which excludes stock-based compensation and amortization of acquisition-related intangibles, was 55% in Q3, down from 60% in the prior year quarter and down from 56% in Q2. Operating expenses were $36.7 million in Q3, up $3.5 million or 10% versus Q3 2024. This was driven by higher general and administrative expenses, partially offset by lower R&D and sales and marketing expenses. Research and development expenses were $9 million, down 9% versus the year ago quarter, primarily due to lower headcount and compensation expenses, partially offset by higher engineering expenses. Sales and marketing expenses were $11.7 million, down 6% versus the year ago quarter due to lower headcount and compensation expenses and lower outside services expenses. General and administrative expenses were $16.1 million, up $5.2 million or 47% from the year ago quarter. The increase was primarily attributable to legal expenses related to a patent litigation case, and to a lesser extent, a $0.7 million non-recurring non-cash write-off of deferred offering costs for an at-the-market equity financing facility entered into in 2022, which expired in the current quarter. Loss from operations was $9.2 million for Q3 versus $4.2 million in the year ago quarter, driven by $1.5 million lower GAAP gross profit and $3.5 million higher operating expenses. Net loss was $5.5 million in Q3 versus net income of $0.9 million in the prior year quarter. This was driven by 3 factors. First, higher loss from operations of $5 million, as mentioned above. Secondly, net other income decreased by $3 million to $1.4 million from $4.4 million in the prior year quarter. This was primarily driven by $0.9 million of FX losses in the current quarter versus $1.1 million of FX gains in the prior year quarter and lower interest income of $0.9 million. The higher loss from operations and lower net other income totaling $8 million were offset by an increased tax benefit of $2.3 million in the current quarter as a result of a higher effective tax rate versus a tax benefit of $0.8 million in the prior year quarter. Adjusted EBITDA, which excludes stock-based compensation, foreign exchange impacts, and the nonrecurring charge of $0.7 million for the write-off of deferred offering costs, declined to $2.5 million from $7.6 million in the year ago quarter. This was due to lower gross profits of $1.5 million and higher operating expenses of $3.5 million due to the factors I described above. Free cash flow was slightly negative at minus $0.3 million in the quarter, modestly decreasing our total cash and marketable securities to $261.7 million. Lastly, turning to our full year guidance on Slide 8. We are reaffirming our full year 2025 revenue outlook for a range of $196 million to $205 million, assuming no change in currency exchange rates. This is based on our year-to-date results, our pipeline of instrument sale opportunities for Q4, and the good momentum we see in our service and reagent businesses. Our performance this quarter showed continued strong growth in instruments in APAC, stabilization in U.S. instruments, and solid growth in our recurring revenue businesses. We expect these trends to continue, and our outlook remains consistent with our views in previous quarters that we would see slowly improving trends as the year progressed. We have noted this in the U.S. market, whereas EMEA remains challenged. Importantly, we continue to believe our performance in Q3 and in 2025 year-to-date reflects a strong market leadership position in what has been a difficult environment. Our core business is showing positive growth in all regions except EMEA, and our recurring revenue continues to grow. Notwithstanding some temporarily elevated operating expenses, we delivered positive adjusted EBITDA, which we anticipate will continue in Q4. We believe we will perform well relative to the overall flow cytometry market, which is also beginning to show signs of stabilization. Finally, our strong balance sheet also gives us the ability to continue investing for growth. With that, I will turn it back over to Wenbin.

Wenbin Jiang, CEO

Thanks, Bill. Turning to Slide 9. I want to close by first thanking our Cytek team for their continued commitment to advance our mission amid a challenging and evolving market environment. We believe our third-quarter results are encouraging and demonstrate our established brands and strong technology and underscore our market leadership position. Our team continues to execute with discipline, expanding our global installed base, growing our recurring revenue streams, and sharpening our focus on profitability and cash generation. At the same time, we are committed to making targeted investments that will reinforce our competitive position and accelerate our growth. While we remain mindful of broader market conditions, we believe Cytek is well-positioned to deliver long-term value through our differentiated technology portfolio, durable growth drivers, strong balance sheet, and global reach. I want to thank everyone for joining today's call, and we will now open it up for questions.

Operator, Operator

Your first question comes from the line of David Westenberg of Piper Sandler.

David Westenberg, Analyst

I wanted to actually maybe just start with the product launch, the Aurora Evo. Can you talk about the differences in this product versus the other products in the market and how we should think about growth contribution from new products in the next couple of years?

Wenbin Jiang, CEO

I think this new product, basically, what we have done here is we listened to our customers, specifically from pharma biotech customers. And in terms of the features, we have included higher throughput and small particle detection, automation and harmonization, all of those really suited for those pharma customers.

David Westenberg, Analyst

Got it. Just maybe speaking of pharma customers, and actually, I was going to say, is there anything to take away from the double-digit growth in CROs? Meaning, are they potentially leading indicators that biopharma might want to own their own instruments?

William McCombe, CFO

When we talk about biopharma and CROs, we're talking about one category. So, when Wenbin talks about biopharma customers, we're grouping all of those together. And as we noted in the remarks, our instrument revenue to that group grew 12% worldwide and 10% in the U.S. So, we've received a very favorable response.

David Westenberg, Analyst

Maybe I'll ask another way. In the press release, it mentioned CROs. I think it said it grew at 14%. Now normally, when I think about CROs and their usage...

William McCombe, CFO

Yes, what we referred to was the aggregate group of customers, which includes pharmaceutical companies, biotech companies, CROs, and distributors. That group saw total revenues rise 14% in the quarter. Additionally, instrument revenue within that same group increased by 12%. The large pharmaceutical companies likely make up the largest portion of that group. That's the way to think of it.

David Westenberg, Analyst

Could you provide some insight on the double-digit revenue growth in the U.S.? How much of that can be attributed to easier comparisons rather than solid execution? Do you believe we are at the early stages of a recovery rather than the later stages of stagnation? I'll follow up on this later.

William McCombe, CFO

The third quarter of last year was quite strong. The performance in the U.S. reflects significant growth in services and reagents, while our instruments remained flat. As I mentioned earlier, Q3 of last year was the peak quarter of 2024 for U.S. instruments, setting a high benchmark. Therefore, achieving flat results against that is a commendable accomplishment, particularly in the instrument sector. Additionally, we saw robust growth in services and reagents. Does that address your question?

Operator, Operator

Your next question comes from the line of Brendan Smith of TD Cowen.

Brendan Smith, Analyst

I appreciate the detailed information. I wanted to ask a bit more about the conversations you've been having with customers lately. Can you provide any insights into their willingness to spend more on certain instruments as they start planning their 2026 budgets? If they are looking to increase spending, which of your products do you think they will prioritize when those funds become available next year? Additionally, have you noticed any geographic trends in your responses to that question?

William McCombe, CFO

Yes. Currently, the trends in the business indicate that the Asia Pacific region is performing well and experiencing strong growth, particularly in the instrument business. Service momentum and reagent sales are also robust. However, EMEA is still facing challenges. The U.S. is following the expected trajectory of gradual improvement as the year progresses, with stability observed in the U.S. instrument business, which has remained flat compared to last year for two consecutive quarters. While we cannot predict next year with certainty, we anticipate that these trends will persist, assuming no unforeseen disruptions. Within the U.S., the biopharma sector has shown strength, while the academic and government sectors have weakened, effectively balancing each other out. It's premature to discuss 2026, but we generally expect the growing areas of the business to continue their upward trend, barring external influences. Additionally, it seems that Europe has to reach a low point after a significant drop this year, nearly 30% in aggregate revenue, suggesting that the rate of decline should begin to slow.

Operator, Operator

Your next question comes from the line of Mason Carrico of Stephens.

Harrison Parsons, Analyst

This is Harrison on for Mason. Can you walk us through your key assumptions behind the 2025 outlook? Are you assuming the typical 4Q step-up in instrument placements or something more muted, given the macro environment?

William McCombe, CFO

We believe there is no reason to doubt the typical budget flush from our biopharma customers in Q4. We expect the usual seasonal improvement during this period. Additionally, I want to emphasize that the service and reagent momentum remains strong. The Asia Pacific region is performing well, the U.S. market remains stable, and we anticipate that EMEA will continue to face challenges compared to last year.

Harrison Parsons, Analyst

Understood. I wanted to inquire more about the U.S. How has the demand from U.S. academic institutions and government agencies changed since last August? Are there any indications of stabilization as we approach next year?

William McCombe, CFO

It continues to be down compared to last year. The funding pressures or reductions have not changed much. However, on the positive side, the momentum in biopharma has been strong, as we noted. We don't foresee significant improvement or deterioration in U.S. academic and government demand. We believe it will continue to face pressure compared to last year.

Harrison Parsons, Analyst

Okay. And then, I know reagents are growing, and you've cited over $150 million annual opportunity with less than 10% captured today. What specific initiatives are you implementing to increase that capture rate? And have you begun to see those initiatives bear fruit?

Wenbin Jiang, CEO

We have significantly improved our operational efficiency and logistics functions, which has allowed us to shorten delivery times. As reagent is a recurring business, we have focused on addressing logistics issues over the past few quarters, and these improvements have certainly benefited us. Recently, we also expanded our facilities in Amsterdam and integrated the reagent warehouse in-house, and we expect to continue seeing benefits from these changes.

William McCombe, CFO

We also are focused on what we've mentioned in the past around what we call our design-in activities where we design a panel for a customer and use that as a way to sell more of our reagents. So that's another initiative.

Wenbin Jiang, CEO

Cytek Cloud is another area we have leveraged to help drive our reagent business.

William McCombe, CFO

Yes. Finally, we continue to invest in research and development to expand our portfolio of reagents. We create custom reagents for specific customers, which we may later incorporate into our catalog. This is another way to grow our reagent business, among other initiatives. We are actively pursuing multiple strategies across various fronts.

Operator, Operator

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

Noah Lewis, Analyst

This is Noah on for Andrew. First question, going off of the other one around the 4Q guide and outlook for the year, we expected a bit of a step-up just seasonally, but you mentioned some budget flush. How reliant is the 4Q guide and the rest of the year on a step-up or really a budget flush versus pure seasonality? So just trying to get a feel for the mix between them in terms of the step-up.

William McCombe, CFO

When we use those terms, we're essentially referring to the same thing. The seasonality we experience is due to customers using up their remaining budgets. Those two terms refer to the same situation. As we mentioned, this is something we observe fairly consistently each year, including last year and in previous years. We have no information to suggest that it won't happen to some degree this year. Therefore, our outlook is based on our year-to-date results and the positive momentum in our recurring revenue streams. The growth drivers include the reagent business we discussed, the installed base for services, and our pipeline of opportunities in the instrument business. Taking all of this into account, we are reaffirming our guidance range.

Noah Lewis, Analyst

Okay. Got it. Yes, I just wanted to clarify whether when you meant budget flush that there was a significant like improvement in the market, but I understand the seasonality.

William McCombe, CFO

Yes. Our objective is to engage in both share repurchase and M&A, aligning our share repurchase with our free cash flow. Historically, we've aimed for our share repurchase to be roughly equal to our free cash flow. Year-to-date, we've actually exceeded our free cash flow in share repurchase. Consequently, since we were above our free cash flow, we didn't buy any shares in the third quarter. Generally, our approach to share repurchase is to act opportunistically and make purchases when conditions are favorable, while keeping those purchases aligned with our free cash flow. We are not changing this approach and will proceed as opportunities arise. Regarding M&A, we are continually examining various opportunities. However, M&A prospects tend to be sporadic and can be irregular. We are noticing potential opportunities and are committed to growing both organically and through acquisitions.

Operator, Operator

So, 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.