Cytek Biosciences, Inc. (CTKB) Earnings Call Transcript & Summary

Great. Thank you. And actually, thanks to Credit Suisse for giving us an opportunity to present to the audience here about Cytek. I'm Wenbin Jiang, CEO of the company; then Patrick, our CFO, over there. Okay, perfect. Okay. As usual, the safe harbor statement, I don't expect you want me to read through. So I'm going to flip over. This is completely Cytek's leadership team, and many of them are already there for years. But I want to, in particular, introduce you Todd Garland, our Chief Commercial Officer joining us 6 months ago who has been leading Cytek's commercial activities, especially for our international sales. That's what he has been focusing on within the last 6 months. And Chris Williams just joined us a week ago from Thermo Fisher. So to quickly go through a summary of where we are regarding to the company. As you can see, first years, we have a technology that has really been already validated by the number of instruments already placed actually through the end of Q3. We just announced our earnings release today. By now, 1,501 instruments. Total publication by now accumulated, 881 publication in peer review. The top journals mentioning the use of Cytek tools for supporting their experiments and the research. We have a very broad customer base with more than 100 unique customers across more than 40 countries. Cytek is a global company, our sales going across multiple continents. The trailing 12 months revenue, $155 million. Adjusted EBITDA, $21 million. And we have $342 million in cash. Right now, certainly, our organic growth doesn't require that amount of cash. But that just shows the robust strong financial profile of the company. A little bit of history about Cytek. We launched our first product 5 years ago, our first-generation Aurora analyzer -- by the way, talking about what we have, Aurora is a cell analyzer through [indiscernible], studying the immune cells of the human system. And a year later, we launched our Northern Lights to cover the entry level to mid-level application. Aurora was the high end of the research market. And then thereafter, due to the great acceptance of our technology, now we have a strong actually installed base. To leveraging those installed base for recurring revenue, we started to get into division space. Our first division was launched in 2020, 3 years ago. And then as customers continue to start to use our tool doing the experiment, they discovered lots of interesting real events, those cells. They would like to really take those cells out to do further analysis, downstream analysis using other tool like genomics study -- to do the genomic study sequencing. So they are asking us to be able to provide those sort of sales order. So that's how we launched that product early last year, has been doing very well since then on this product as well. And then to continue to help expand our recurring revenue offering to help Cytek's recurring revenue activities, we acquired [indiscernible] late -- we launched -- actually, got our divisions cleared for IVD credit for that market. That enabled us to support the clinical tender process. In fact, our tool, we also this notarized, which has already been clinically approved in China. And the European market now, we also have got our divisions that enable us to provide the system's overall solution for the clinical applications in Europe. So Cytek, in fact, even though we are a new player, not that many years of history, but we are, in fact, global companies. And our global look at where we are, already mentioned, more than 100 customers. The company now have more than 150 employees. In fact, our customers, including more than 150 pharma companies -- biopharma companies in across more than 40 countries. And many of our people are actually working in the field across many countries right there to work with our customers, supporting the field applications. Here, the company our headquarter is in Fremont, 350 miles away from here. And we have San Diego on the south over there for our division manufacturing. Seattle for our power informatics activities. And R&D, we have in the East Coast, but there's the office for our sales and application support for the customers in the East Coast. And then in Europe, we have our headquarter in Amsterdam to support our EMEA customers. Then in Tokyo, we have a majority on the joint venture to support customers in the Japanese market. And then in China, we have 2 facilities, 1 in Shanghai for sales marketing as well as some of the research activities. Wuxi is one of our manufacturing facilities. Overall, for our instrument, we have 2 facilities, 1 in Fremont, 1 in Wuxi. Then for divisions, we have San Diego and Wuxi. So both are -- we can cover each other on the manufacturing side. Also, our overall revenue today, actually, during the last 9 months of this year, 59%, U.S.; 24% Europe, EMEA; and 17%, APAC. If you look at the quarter, just -- we have announced, in fact, EMEA is about 25%; APAC, 18%. Overall, U.S. is 56%. So we are moving, in fact, quarter-by-quarter towards the right direction because, overall, we feel a more reasonable rational distribution for the whole market in our space to be 1/3 of each in pharma what we call the commercial customers and 42% academic. Again, this, we are moving really towards the right direction. And I guess last year or actually a few years ago, most of our customers are in the academic space. Now it becomes more and more into commercial customers. That's what we would like to do, and it's a kind of intentional shift. Now look at the overall market, we are -- unlike many of the life science tool companies, which we place us at, many life science companies, they have a kind of challenge trying to create a market for the technology we have developed. Cytek actually comes in already into a market people are familiar with. So it's a big market. We are developing a technology more advanced to meet the actual needs of the industry, waiting for something to come along for a long time. So basically, the customers are waiting for something instead of trying to push something to customers. That really enables Cytek to grow very rapidly during the last few years. And that differentiates Cytek from many of other companies out there. Looking at the overall space, this is a conventional total available market, $8 billion, separated by like cell analysis, cell counting, cell proliferation and cell ID. Of course, this is what's available that can utilize the conventional for cytometry, not necessarily the -- all those opportunities are using the flow cytometry, right, but that's what's available. Now if you really look at the total sales adding up all the sales for those suppliers, probably about $4 billion to $5 billion, but total available market is. Now our technology have added additional capabilities that enable us to support additional market. Those are not being able to be supported by the -- as a conventional for cytometry tools. That gave us another $8 billion, so with a total of $8 billion market. Then in addition, our tool has also been used -- is able to support other application like marine biology, water supply contamination and other alternative biofuel. That's kind of interesting application as well. We have customers who are using our tool for this type of research studies. So overall, the market is growing by 8% to 10%. We foresee in a few years getting to $23 billion. Now where our tools are being used. This is actually -- we looked at the 881 publications and looking at where they are being used in their research in the academic space. That's what we see, okay. By order, number one, infectious disease, about 21%; followed by immunology; immunotherapy; COVID-19; oncology; immuno-oncology. Those 6 applications take probably about the majority of the application. Then the tool has also been used for other type of applications like information and the drug discovery and autoimmune disorders, the type of interesting study research and applications that we have been supportive. And those publications are being published across many of the Tier 1 journals like Cell and Nature. And as you can see, the publication over the last few years, growing quite rapidly, right? More and more people are coming to Cytek using our tool and doing studies, and this shows how the number of publications are accumulating. So the question comes down to all those customers coming to Cytek, using our tool for their studies. First is because of the technology -- unique technology we have provided that really enabled our customers to a deeper assessment of patients' immune systems. That's very important. That including both before and after the treatment, and that also support those preceding medication for cell therapy. That's what's needed. And that including from cancer, COVID information, drug discoveries, those type of applications. Second part is the reason they come to Cytek is what's unique about our tool is the consistency and the reliability and -- which is another benefit of the tool we have developed, especially for clinical applications. For those clinical trial studies, they would like to standardize across labs, across instruments, and you want to make sure the same sample going to different tools, different lab level give you the same results. But unfortunately, many of the conventional tools just not capable of doing so. Our tool is equipped -- designed for supporting this type of needs. And next thing is with our tool is still in the for our resin-based space, people -- many users are familiar with. We are not trying to create something new. People suddenly feel it's a new thing, then you have a big hurdle, education curve to learning curve to cross for our tools. There's no need. And so we basically provide a system, a more powerful system in the space that people have been using for a long time, supporting a big market, but providing them at lower cost. So this is another important factor that enable our tool to quickly get into the customer base, penetrate in the customers. And then due to the number of parameters, our tool can support from a single cell that really enable customer now to isolate rare cells for deeper insight. This is related to the sorter technology we have developed. This is, again, something conventional technology is not capable of doing. And then, of course, and due to the number of parameters, it can support again and it can help maximize the value of lab samples with typically for the patient sample, especially for certain applications, though sample sizes are small. You would like to be able to take as much information as possible. That, our tool is right there to help to support, which conventional to is not capable of doing. It's especially important for those minimum residual disease type of application, MRT. So that's [ enticing ]. Of course, our tools are already supported by the number of publications out there in such a short period of time. That's just another validation of the usage, the application our tools is capable of support. Now look at what Cytek has today. We are actually providing really from end-to-end complete solutions to support our customers' needs that include from instruments, instrument including our cell analyzers, our cell sorter and also the automatic sample order. This actually is especially important for those pharmas because when pharmas are trying to do the drug discovery, they want to go through -- is going through many, many different kind of recipes. Then they have to do this automatically. The menu process becomes very difficult. This automatic sample really enables them to do this. And we also provide our services and application support. Many of our people are in the field to provide this to our customers. And then our divisions and [indiscernible] enable us to getting to the current revenue space to help our customers provide this complete solution and our data acquisition and the software. So all of those help Cytek perform these 4 business pillars, which is what we have already formed. We continue to invest, to develop, to support customers with those 4 business pillars. It's going to help drive company's rapid revenue growth over the next 3 to 5 years. That includes our instruments. Our conventional strength today, most of our revenue is from this space, but we are going to continue to invest to make sure we stay ahead, stay ahead of our competition, which will have more -- better performance, more intelligence, where ease of use and make a small compact. Again, compact is very important. If you visit many of the labs, you can see those lab space are very squeezed. And it's also costly these days, real estate. So they would like to place as many instrument as possible in the small tiny labs. Cytek's compact size really helped enable them to take more -- better utilized of the lab space we have. And cost has always been affected something in their mind for their applications. And division, in fact, we are not talking about the division. Cytek is not trying to become a catalog company. Many -- so many varieties of offerings, but we are focusing on a few areas to support customers' application, that including those enablers. That's what we are focusing on the division development. We develop enabling division to take full advantage of the technology, the tool technology we have developed, to help expand the panel size. And so that's why panel kit is our focus and flexibility is another area. We are developing this panel, these kits. And then we enable customers to select a subset of the kits to match their needs, their application. Our kits will also enable customers to add additional kits -- additional division, additional parameters to support their needs. This actually is because supported by the tool we have developed. It's, again, the benefits of our full special profiling technology. Conventional tool out there once a panel is developed. You cannot add , you cannot take out something because once that's done, the whole panel needs to be optimized. Performance has changed. Cytek's tool enables you to move in and out, add or deduct the divisions. That's the kind of flexibility we are offering here. And next thing is our panel is with certain specific purpose. It's not just arbitrary. We are putting all those regions together. We -- our panel, our focus with application demand. For example, our 14-color kit is aimed specifically for immunodeficiency detection. Our 25-color is for a broader leukemia diagnostic purpose. There's an application in mind when we focus on developing those panels. And also, we focus on applications with volume -- with repeated applications. Instead of certain experiments only doing once, that part of the business, we drive this to our partner, to our catalog partners. And we focus on those applications with repeated use with volume, and that's the type of business we are supporting. And bioinformatics, due to the number of parameters we have developed. And there are lots of data that have been generated. Our customers are in problem with handling that much data, immediately, very short period of time up, okay, my hard drive is full. I need storage, more storage. They want to handle this. Second part is on the panel construction, they say, okay, such a large panel, I need your help. I need help to not only to construct optimize this panel, I would like you to help me to validate this panel because this is just too complicated. It's beyond my knowledge, especially this is for many of the pharma companies. They say my focus is drug discovery, not really trying to optimize this thing. All I need this data. It's driving down to give me the data. So you help me on that perspective. That's why bioinformatics become a very important subject. That's what we are going to focus on as well as the third business pillar for our business to support our customers because that will also help customers to come back to our instrument and applications. And the last one is clinical. Already mentioned about our instrument career in China as well as Europe. We're going to continue to drill down on these aspects to develop the applications, also including the U.S. for regular trade kind of clearance. And for the LDT application, we are also going to develop more of the software menu-driven application to make our customers' life easier for the clinical applications. So then the question here is you have a great technology, and what happened and when your competitor comes along to do something similar to take market share from you. In fact, we have a very complete strong portfolio of patents covering the implementations for our tools. If you take a look here, what we have here, we have developed. First, cytometry is a very complicated system, that including lasers, detectors, [indiscernible] software. All of those things, we have a strong patent portfolio to cover. We have patents, let's say, for the lasers, for the detection systems. We have leveraging the telecom industry, CWDM technology. That's another nice feature of our tools, and we have the pattern covering that type of implementation from telecom to the life science space. And then the whole algorithm for the data analysis, that's also covered by our patents. So we -- the technology already very well developed in the semiconductor industry, wafer level. That's the part, again, plays as a part to the conventional technology. We have, again, our patents covering this type of application. This actually just shows our technology in terms of the kind of bandwidth. It supports sensitivity. It enables comparing the conventional tool here. That's why you can see why our technology is far more advanced than the alternative technology out there. That's what we have developed. And I'm not going to go through the details about our technology, but this just shows some of the implementation and why Cytek technology is more advanced, performed better than conventional technology out there. But just to show you how Cytek has been growing was regarding to our instrument placement quarter-by-quarter. As you can see, continuous growth through Q3, 1,501 instruments. So it's a steady growth. And firstly this shows how our revenue is growing quarter-by-quarter, year-over-year. And so this dark one is service revenue, then the shallow one is our product revenue. Service is always going to be part of our revenue stream. It's recurring because once the instrument goes out of warranty, customer will come back to Cytek to provide insurance, to provide services. As more of the more installed base, you start to accumulate this part of the revenue will grow. And as you can see, that's exactly what we are seeing right now. And then overall, our revenues continue to grow over the time. And another important subject part is the gross margin is also -- continue to improve. If you take a look at Q1, 3 years ago and to where we are now today and the last -- we just announced 66% gross margin. This, in fact, considering dominant part of the revenue is instrument. We have, in fact, one of the highest gross margin in our industry, in our space, relying upon our implementations. This is similar to even to many other companies relying on recurring reagent revenue. We have -- that just shows how well our operation is. And this shows also revenue versus our adjusted EBITDA. Cytek, it is actually the -- not only very few companies in our space in the lifestyle tools space, which is actually profitable. You can see here in the quarter-over-quarter and shows the 17% adjusted EBITDA for Q3 this year, we just announced. And you can see the continuous -- we have maintained the profitability. The difference between adjusted EBITDA versus the EBITDA for the years. For this number, we removed the stock-based compensation. Overall, our plan, our intention and operations has always been trying to make sure on a yearly basis, not only adjusted EBITDA is profitable, net GAAP-based revenue income is also going to be positive. That's what's the philosophy of our operation. So that just shows -- summarizes how Cytek has been operating to create shareholder value. And we have shown our covenant to our shareholders. We maintain our capital efficiency throughout our operations that -- and we continue to improve our operational excellence as we continue to build up our installed base, our customer base, our revenue growth and increasing our capacity, but maintain this operational excellence that through this process, we do employ training to also improve our manufacturing process throughout and improve our supply chain management. So all of those, to ensure we can continue to improve our operation margin. And maximize cash -- free cash flow is another factor that make sure we make sure our overall operations is efficient. And our -- another goal is we continue to -- I just already mentioned, to maintain positive EBITDA on an annual basis. That's another philosophy of Cytek's operation and execution speed, not only our operational or manufacturing, also on the R&D. We make sure we continue to invest on our R&D, but invest smartly and make sure we do this in the right way so we can actually deliver to meet customers' needs. The last part is acquisition. As you can see, we have the cash out there, how to utilize the cash and smartly. And this is another area of possibility for the company, not only through our organic growth, also through merger acquisition for inorganic growth. This is another area of opportunities for Cytek. Since we are a profitable company, we don't really need any cash to maintain our operation. And so we can utilize what we have to support the kind of company growth from different aspects. So this summarizes how Cytek continue to grow. It shows how Cytek is going to continue to shape our vision over the next few years. I think that is the overall presentation, if you have any questions.

Great. With that, Wenbin, we're out of time for the...

Oh is that so, I thought I was fast.

That was a perfect timing. Thank you so much for your time. Patrik, thank you for joining us today.

Thank you.

All right. Thank you.