Cytek Biosciences, Inc. (NASDAQ:CTKB) Q2 2022 Earnings Conference Call August 10, 2022 5:00 PM ET
Paul Goodson - Head, IR
Wenbin Jiang - President, CEO and Chairman
Patrik Jeanmonod - CFO
Conference Call Participants
Max Masucci - Cowen & Company
Matt Sykes - Goldman Sachs
David Westenberg - Piper Sandler
Tejas Savant - Morgan Stanley
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. [Operator Instructions] 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@example.com. 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.
Thanks Paul and welcome everyone joining the call today. I want to start by again thanking the incredible Cytek team for their dedication and execution as we close out the second quarter of 2022.
On today's call, I will begin with a recap of our progress this year and discuss how Cytek continues to advance towards our mission and vision. And then I will turn the call over to Patrik for a more detailed look at our financial results and outlook.
Cytek continues to stand apart in the field as we provide our customers with an end-to-end solution consisting of instruments, reagents, software, and application services. Since our inception, we have continued to develop and launch new products and services which have been validated in the field by our robust customer base. Our unique portfolio of comprehensive solutions positions us as a leader in the sector, and we are proud of the demonstrate the value we provide to our customers.
Beyond our original suite of instruments, which continue to see solid demand, we expect our reagents and recently launched cells orders to contribute considerably to our future enterprise revenue growth.
We see this further diversification of our revenue stream, including a growing contribution from recurring revenue, lifting of services, and the reagents playing an important role in site exclusion.
I'm pleased to say that our installed base of instruments continues to achieve robust growth in the field. During the second quarter, we placed for 130 instruments, bringing our total installed base for 1,356 instruments as of the end of Q2.
These placements are also aligned with our core strategy and we have continued to achieve solid adoption with high dimensional cell analysis users, while also improve special profiling to entry level users.
Since first being introduced in 2017, our cell analysis systems have gained the widespread adoption across the globe with use in more than 40 countries. As Patrik will discuss later, our efforts have once again translated to strong revenue growth this quarter, with revenue increasing 32% over the prior year second quarter.
These results reflect a strong demand driven by the recognition from customers of the advantages of our technology in addressing their needs. Once again, our team continue to execute well and achieve operational excellence. Even in the face of various macro prayer.
Our dedicated team is able to leverage the sight of global workforce in order to manage to inflationary and the supply chain pressures. Additionally, our past inventory buffer provides further mitigation of potential supply chain disruption insulating our operations from constraints.
In all, we continue to be focused on execution and I remain confident in the Cytek team demonstrated the ability to manage the flow this environment and continue to succeed despite the ongoing challenges.
I would like to take a moment to highlight some important 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 Todd has pulled an integral part of our team and has already demonstrated a significant value to our organization. And we are pleased to have Todd with us as we continue to execute 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 reagent that effect the CE marking also included in the certification.
With this development, clinical flow cytometry laboratories based in the European Union can now purchase Cytek cFluor CE-IVD certified reagents for their use. This exciting achievement makes the cFluor reagent available for clinical diagnostic use in hospitals, laboratories, and clinics across the EU and positions us a path to offering a total sales analysis solution to the European market.
In early June, we participated Cyto, which is one of the premier flow cytometry conferences. At the event, we had the only Cell Sorter that was actually running the show flow, which enabled us to perform live demonstrations showing the power of combining analysis with Cell Sorting.
Dr. [indiscernible] from Fred Hutch gave a commercial tutorial on running a 59 marker panel using the Aurora system, providing further validation of the transformative power of our technology.
Overall, this year's Cyto Conference was a very successful event for Cytek. Significant customer interest resulted in a record number of cells leads for the company.
Later in June, we also hosted our another Analyst and Investor Day. In addition to our executive providing a deep dive into flow cytometry, we showcase four key opinion leader users of our products and services, who illustrated the power of our solutions, and the important value we bring to our customers.
For those who may not have attended the event, we invite you to view the replay of the webcast on the investor section of our website. The KOL who spoke are scientists and physicians in the research and the clinical field, who focus largely on oncology, but also HIV, diabetes, inflammation, aging, and the multiple aspects of the COVID pandemic, demonstrating the breadth of Cytek's technology.
These experts spoke to the dramatic expansion in capabilities, sensitivity, and the accuracy they have achieved from Cytek machines, reagents, and the software as well as the consistency of results and the significant cost savings they have obtained.
One KOL, who operates the core clinical laboratory said that Cytek's machines saves from 15% to 200% in cost for running samples, which is due to being 300% faster than competing technology.
He observed that Cytek's ability to run more samples in fewer tools, produces results in less time, gives faster diagnosis, allows treatments to beginning sooner, allows a more specific therapeutic approach, consumed fewer resources, cost less, and allows hospitals to make patient discharge decisions more quickly, thus saving further costs.
Others commented that the advanced capabilities of Cytek's analyzer and the groundbreaking nature of Cytek's new [indiscernible] create new opportunities in research and clinical practice.
Two KOLs said that Cytek's flow cytometers have become the default tool for spectral analysis, simplifying the technical skills needed and unleashing the power that artificial intelligence can offer.
We are gratified that our work at Cytek is enabling such significant scientific and clinical advancements. As we continue to grow our offerings and the base of instruments, reagents and services, our technology has now been validated by 768 peer reviewed publications as of the end of the quarter. This quarter alone, there were 116 peer reviewed publications mentioning Cytek.
I'm very proud of this accomplishment, which speaks to the momentum of our platform and validates the use of our offerings in the scientific community. A notable publication was on Roswell Park Cancer Center entitled development of a 27-color panel for the detection of measurable residual disease in patients diagnosed with acute myeloid leukemia, in which the researcher used only one to reducing costs and improving workflow. This exemplifies our mission at Cytek and the technology we bring to the field as we continue to demonstrate the proven real-world results.
In all, I'm pleased with the progress our team has made this quarter and the expect to make throughout the remainder of the year as we continue to establish ourselves as a leading cell analysis solution company.
As we continue to push forward a cadence of new products and applications, we remain deeply focused on providing a complete cell analysis solution to our customers. We look forward to continuing to provide our novel [indiscernible] to these customers, as they push the bounds of scientific discoveries and the clinical progress.
With that, I will now turn the call over to Patrik for more details around our financial.
Thanks Wenbin. Total revenue for the second quarter of 2022 was $40.2 million, or 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 expense to support continued growth of the business, including further investment in sales and marketing, R&D, and cost related to operating as a public company.
Research and development expense 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 expectation.
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 and as well as achieving our long-term growth targets and objectives. As such, we do not anticipate the need for future capital raise to meet operating.
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 the 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 share the bliss in this important mission drives our progress. I would like to again demand 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 the line of Max Masucci - Cowen & Company.
So, to your first question -- target some near-term, some longer term just for the percentage of total revenues that can be generated from reagents kits a few months ago, and clearly there's a lot of macro factors and other regional dynamics in play, that are impacting both supply and demand are no life science research tools product. So, would just be curious to hear how the demand for the reagent offerings has trended over the course of 2022? And then maybe more specifically during Q2?
Yes, so Max, maybe I can take that first question. So, we had another very solid quarter on the reagent from last year, just because we had a small base from last year. Very pleased with where we are.
So, overall, the, it's in line with our expectation. We've seen a little bit of I would say head wind on the currency side. So, we were impacted with -- or I would say we were impacted aggressively with some maybe 3% to 5% on the total revenue. But outside of that, I think it's marching towards our expectation. I think the business is performing very well, considering the macro environment. I would say that we deliver another quarter very solid financials, and I think it's positioned us very well for another great year.
Okay, great. And then another insight from the Analyst Day is the evaluation of clinical in a flow cytometry labs, in terms of the performance of instruments that are supporting clinical applications, along with their operational efficiency, turnaround time, et cetera.
Just curious if there are similar standards in place for European flow cytometry labs? And then if so we saw the CE mark announcement, how much -- how should we be thinking about -- how much you're prioritizing a 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, that including our CE certified instrument as well as the originals. So certainly, it's still new to us. And we have just got our reagents cleared, but, again, there'll be new opportunities for us going forward.
Okay, great. Thanks for taking the questions.
Thank you. Our next question comes in the line of Matt Sykes from Goldman Sachs.
Wenbin and Patrik, thanks for taking my questions. Maybe just first, at a -- I guess at a high level because I know you don't necessarily break out the different instruments. But I know last year, towards the latter half of the year, you were generating a decent amount of traction within Aurora relative Northern Lights.
It's been a year since you've launched the Cell Sorter and just given the ASP of the Cell Sorter and the potential impact on margins, maybe just kind of give us an update on the progression of each instrument category or maybe just specifically, I'm interested in the cell sorter as well the progress given the time that's elapsed since launch? Thanks.
So, on the cell sorter what I can say that we don't really break out information but we are 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 Cell Sorter.
Great. Thanks Patrik. And then just maybe another one for you Patrik. Just on the adjusted gross margin came in came in above where we were somewhat on par with last year, a very high level, can you just maybe talk about some of the drivers of gross margins this quarter? And then what your expectations are for gross margin trends -- adjusted gross margin trends for the balance of the year?
Yes, so the expectation is that the gross profit margin will fail -- will gradually improve over time, especially as we roll out the reagents that typically have a higher gross profit margin. And as we also continue to globalize our processes, we have seen, as I said earlier, a little bit of a headwind on the on the effects position, but I think we've been able to manage that quite well, in this quarter.
Thanks very much for taking my questions.
Thank you. Our next question comes from the line of David Westenberg from Piper Sandler.
Congrats, again, on all the progress. I want to actually start with probably a question probably more for Patrik, because it's on inventory. We're picking up a lot of -- I mean, you've talked about supply chain on the call. We appreciate the color there.
We're picking up from a lot of companies that they're having to be opportunistic with, with supply chain and parts and when things become available, they're, they're kind of just buying right then and buying in big numbers. Should we expect free cash flow due to the fact that inventory? Maybe you'll have to build a lot of inventory over the next few quarters in order to, to kind of keep a lot of the parts on hand? I mean, just how should we think about inventory free cash flow that you'll probably have to do over the next six to nine months?
Right. And -- so we haven't waited this quarter to build our inventory. So, and you'll see that looking at the balance sheet, our inventory level is now at the highest, it's been 45 million, up from 32 million. So, substantially higher, if I look at last year, and I think what we're doing here is we, to your point, I mean, we try to ensure that we have sufficient parts in stock in inventory, so that we can continue to deliver and provide the best service to our customers. So, I think we've done a pretty good job, which has a cost, sadly, which is having slightly higher inventory.
So we will probably -- I'm expecting the inventory to continue to build a little bit over time, but it should not be as dramatic that we've seen since December.
Got it. Okay. And then probably this one's more of a question for Wenbin. We did see a partnership between the 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 is, are there any other maybe clinical applications that you see as being particularly interesting from full spectrum flow cytometry, and maybe anything outside of them 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 many several countries that includes applications in such as immuno-profiling and other type of research projects as well as the clinical activities.
Got it. Okay. Okay. All right. And then just really, for the last one, this one to be nice -- sorry, I cut out. Can you guys hear me okay.
Yes, we can hear you.
Okay. Perfect. Cut out for a little bit. And then just maybe just one last question, if I can. Patrik on the guidance, there was one -- it's still that $162 million to $168 million. You did mention come the high end the guidance. Is there a reason why you didn't just bring up the low point of guidance? No, I will accept the answer. It's just the stylistic thing, versus I just was wondering if maybe there is some things that could happen that would still hit the low end of the guidance, for example, maybe supply chain, recession in Europe, again, I'm just trying to get some color, whether that's stylistic, or this is the first time I've worked with you as a CFO. And you guys are only about a year and a half out from my feeling. So, anyway, yeah.
It might be stylistic. But then all we I think we feel pretty good about the I mean, we reiterate reiterating our guidance, despite the -- some FX headwind, if I can call it this way, and it will be on 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 focus 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, okay. And in Europe, we do see some delayed process, takes longer time to close, but the business is still there. And we expect all of those business will continue to come back maybe towards the second half of the year.
Got it. That's helpful. And then Patrik, one for you. I mean, implicit in the guide, what are you assuming for a budget flush this year? And I guess it normalized the budget flush essential to the 4Q uplift that you are -- I'm assuming you're modeling into your projections?
Yes, so, I mean, currently, as I said, I mean, 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 actually outside in Shanghai in Wuxi, and the impact is very minimal. And as we touched earlier -- mentioned, we have been building inventory not only on the product side, as well as on the instrument side to make sure we will be able to serve our customers.
Got it. Okay. And then finally, last one for me, in terms of next gen is 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, et cetera. 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.