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

Great. We are live. Well, thank you so much for joining us today. And we are very fortunate to have the team from Cytek joining us today. We have Wenbin Jiang, our CEO; and then we have Paul Goodson, our Head of Investor Relations. Well, thank you so much. In today's session, so we're going to start with a company presentation. And then after that, we will have a Q&A. Wenbin, do you want to start?

Sure. Thank you. And also thank you, everyone, to be here to listen to the Cytek story. I hope you will enjoy Cytek more than the beach. Cytek is a cell analysis company. we built the company to support the analysis of immune cells based on our four business pillars, which is the foundation of our solutions. So our business -- the four business pillars include instruments, applications, bioinformatics and clinical. Instrument is how our technology is supporting and the whole company's business started with what we call the full spectral profiling technology, and we built our instrumentation based on the technology we invented 10 years ago. And application is to drive recurring revenue, including reagents based upon the installed base we have built up over the years. Bioinformatics is to make our users' life easier, to help our users to build panels, analyze data and manage data so they can spend more time to focus on their areas of interest instead of trying to figure out how to use Cytek instrument, how to leverage our technology solutions. And clinical is about specific applications to drive diagnostic solutions and to drive reagents based on those diagnostic solutions using the tools we have developed. So, so far, and since we launched our product 7 years ago, we have already deployed more than 2,800 instruments in the world across more than 70 different countries with more than 1,500 customers. Our users have published more than 2,000 papers, peer-reviewed papers on top-tier journals using the technology tools we have pioneered and developed. The company is profitable on the cash side. And last trailing 12 months, our overall 4 months fourth quarter revenue more than $200 million. Our adjusted EBITDA basis, more than $20 million. The company has $278 million in cash, and we are buying back our own shares. '23, we purchased more than $40 million of our equities. And this year and last -- actually, overall this year, we spent more than $10 million on buying back our stock as well. And even under the stock buyback, we continue to grow our cash and continue to generate positive cash flow to support our business to generate value for our shareholders. Overall, and we are a company and doing business across the world globally. And today, our revenue about 50%, actually slightly less than 50% in the U.S., 1/3, 33% in Europe and about 20% in APAC and the Rest of the World. In terms of the areas we do business, we sell to about 40% in the academic space and close to 60% in what we call the commercial customers like pharma, biotech, CRO, hospitals and also distributors. Our products, as I said, are based on these four areas. First is one of the business pillar, as I mentioned, instruments. Our instruments go across analyzers and sales orders. The cell analyzer, including Aurora, which supports more than 40 different colors or parameters for the data analysis and Northern Lights from entry to mid-level, Northern Lights also has clinical clearance to support hospitals and diagnostic solutions for China and Europe. And Orion is a tool that leverage -- automate the reagent workflow. And then we also have our imaging-based flow cytometry solution, which we call Amnis as well as Guava, which is a special flow cytometer, which does not have the kind of -- typically, flow cytometer carries two big tanks, right, and for the water and Guava actually doesn't have those. It's based on microfluidic kind of microcapillary technology. And Athena is a conventional flow cytometer. It's not a full special, it's conventional, but it's a very compact instrument to support clinical applications only for the China market. Then the reagents, instead of a general catalog type of reagents, we actually focus on certain specific reagents only supporting the special data analysis as well as the panel including like 8 color, 14 color, those are specifically for immunodeficiency type of analysis as well as 18 color, 25 color of high-dimensional cell analysis. These are the areas where we focus on. And in particular, we focus on those panels supporting pharma customers. As we know and flow cytometry reagents typically and for IUO applications carry more than 20,000 different categories, which is not an area we are focused on today. And so we only focus on those reagents that can give us returning business with volume, so we can support cost effectively. And then service and software are the other two businesses. Overall, today, instruments about 70% of our revenue, reagents, software and services about 30%. The reason why customers coming to Cytek for our full spectrum profiling tool to our technology is because of the benefits we provide to support our user base. In particular, is the sensitivity our tool can provide, which enable high-dimensional cell analysis with high resolution and high sensitivity. This is in particular important for many applications and that including tool diagnostic rare populations of abnormal cells, which in one particular example is MRD. As we know, typical MRD with flow that has certain problems with regarding to the sensitivity and typically about minus 10 to minus 4. And for MRD, normally, you want to go way beyond that type of resolution. One problem previously before Cytek is because since you can't analyze the kind of parameter you will need to do the diagnostics. So you have to split your samples across multiple tubes under that scenarios, and you won't be able to capture the kind of cells of interest. Now with Cytek technology with the high dimensional cell analysis, we can do the diagnostic studies just from a single tube. That means all the cells can be just from that tube. And in that case, not only we don't really need a large amount of samples, don't need to split samples. We actually also save on the reagent side without multiple tubes. So all of those benefits really ensure our technology, our tools will provide the kind of information customer needs and customer need to focus on. Another aspect of our tool, our technology is to support harmonization and standardization. This is particularly important for pharmaceutical applications. As the farmer move from early drug discovery to the clinical trial. They typically need to do the clinical studies across multiple labs from different continents. Under that scenario, they want to make sure the data from different labs are effective, are accurate. That also means the tools they need to provide the same information for the same sample. So this is the reason why pharma require those harmonization of the tools provided. Pro cytometry is a kind of tools typically used very frequently in the clinical trial by CRO by pharmas. And Cytek is the only tool today, which can really fulfill the needs with regarding to harmonization and standardization. And so this is another reason why Cytek's tools have been able to drive the application, drive the adoption and continue to fulfill all the needs among those customers in the pharma and the CRO space. Now we have also analyzed the more than 2,000 publications to try to understand how our instruments are being used in the academic space to support the applications. Based on all those studies, and as you can see, flow cytometry is really a general life science tools that can support many different type of applications in the cell analysis, which include oncology, vaccines, viral infection, immunology, information, autoimmunity and many others. These are the type of areas flow cytometer have primarily been used. But that's not the only thing. In fact, due to the full spectrum profiling technology we have developed, it is effectively a single cell spectral analyzer. That means the application can go way beyond what has been used in the typical life science space. It has also been used today in many other areas, for example, like marine biology. and environmental sciences. And it has been used, for example, like the U.S. Environmental Agency to carry studies with regarding to the water pollution and the white particle white pollutions due to the microplastic particles. So this has a wide areas of application. But clearly, today, we are focusing on how our tools are being used to support the life sciences. Another area as one of our business pillar we have mentioned is about our bioinformatics. From here, we have built Cytek Cloud. Cytek Cloud is only 2 years history, but has already been very well used, welcomed by our customer base. Just in the short 2 years, we have expanded our user base for Cytek Cloud to more than today, actually towards the end of last quarter, 12,000, representing about 5 users per installed base. Our tool has already become a standard workflow within many of our customers because the technology, the tool can automate the panel design, which is important, especially for those high-dimensional cell analysis. Typically, without Cytek Cloud, Cytek panel design tool, researchers, scientists normally takes several months to try to build a panel, test the panel, optimize the panel to -- for their studies. Now with Cytek Cloud, it can get this done in no time because the system, our tool will automate such a design, such all they need is to import the market they are interested in, the antibody, the protein they would like to look at. The system will automatically design, provide an automated -- optimize the panel for their studies for their experiment. The system, the Cytek Cloud also help our user base, our customers to do the data analysis and the data management. This also is important because with the high-dimensional studies, it generates lots of data and how to manage those data is another aspects user would like the company to help build up upon. And this is how this bioinformatics system will help. Through Cytek Cloud, through our bioinformatics program, we drive users toward our full solutions, drive them toward our instrumentation as well as our reagents. So overall, and the company is committed to generate shareholder value. And based upon first year, we continue to focus on our cost and capital efficiency, as you can see. And our overall gross margin for the business aiming for 60%, and we continue to routinely and drive to get there. And that -- and this is based on the company's overall operational efficiency. and we continue to maximize our cash flow. This does not mean we don't invest in R&D. In fact, we invest 20% of our revenue into R&D to continue to develop new tools, new technology, new products to ensure Cytek stay ahead of the competition, continue to support our user base, continue to drive new application and new technology to become the company, the vendor of choice when our customers would like to find a solution to help to support them. And here, one of the aspects in order for us to continue to be able to support them while continue to generate shareholder value is to improve our efficiency. That's how we do from operations side. And that's how we manage to ensure we continue to drive not only the top line growth as well as the bottom line growth. So profitable growth is what the company is focused on. And also through this process, we continue to find growth opportunity. Merger acquisition is another area we continue to drive to throughout the life of the company. We acquired actually four different businesses. And many years ago, and when we first started, we acquired a company doing the flow cytometry instrument service, which help us to nail down our first set of customers. The second business we acquired was Tonbo, a reagent company to help us to jump start on the recurring revenue, leveraging on our installed base. A year ago, we acquired the Luminex flow cytometry business to help drive our technology towards imaging-based flow cytometry to support our customers for more tools to support our customers for their studies. And also through that acquisition, we expanded our service business, so we can leverage deploy more of our field application engineers to support our customers while improve our operation -- service operation efficiency. And actually a few weeks ago, we acquired another company in U.K., a small business to support our customers on the service side for our European user base. And we will continue to look for opportunities that help us to drive our business growth and to support our customers. With that, I will turn to room for questions.

Great. Thank you so much. Given that we just came out from the Q3 earnings, maybe just talk a little bit about like the current operating environment. So you have 70% of your revenue coming out from instrument. But in the past 2 years, the environment wasn't that good, lots of like cautious spending behaviors, people hesitate to really invest into instrument. So I am wondering what do you really see in the market right now, especially you have like really balanced end market, right? So one from pharma, biotech, the other from [indiscernible] gov. So maybe just share a little bit what do you see in the market at this point?

That's a great question. And one of the nice things about Cytek is we have a broad customer base, bridging from pharma, biotech, CRO, hospitals to academic. And also, we have customers, as I mentioned, across more than 70 different countries. Because of this, that really enables Cytek to weather through kind of up and down in any particular geographic locations. And as you can see, for example, this year, we all know and overall, the U.S. environment has been challenged, especially on the academic side. But our business in Europe and APAC have been doing very well, growing double digits. And also, one of the areas we have seen is when academic is kind of challenged, -- and our pharma and biotech area, CRO area have been doing well. Part of the reason for that is, as I have mentioned about the harmonization capability of our tools. All pharmas, yes, when they find it difficult with regarding to spend the funding source, but they will continue to do research. They will continue to do the new drug development. Then under that scenario, they will need to continue to spend on capital expenditures to support their clinical trials. The kind of features, harmonization features of our tool really drive them towards Cytek that enable them to become more efficient, cost effectively for clinical trial. That's the reason why we continue to see how our technology are being well adopted for supporting pharma and CRO. This is an area of growth for the company. Academic side, while overall, we see in the U.S. continue to be challenged, but we do see sequential improvement from Q3 to Q2. On the other hand, we actually see great opportunities and growth in EMEA and APAC region. Of course, when we talk about APAC, we do include China in the whole APAC territories. We all know China has been challenged. Many companies have been talking about this. We are no different. We continue to see some challenges even though overall, our business in China is kind of flat, better than going downwards for many companies. But we do see great opportunities and the growth in other part of APAC and which is, for example, like Australia, New Zealand, Japan, Southeast Asia, which is a new market for us in many Southeast countries outside of Singapore. And we have also seen opportunities, in fact, in India. And this year, we see great opportunity growth in India as well. So with our technology, with our tools in that many countries, definitely, and we are seeing lots of opportunities in areas previously does not exist for us.

That's very helpful. I guess like you mentioned in the [indiscernible] a little bit slower than the market side. I guess internally, do you have like any -- like -- do you track any leading indicators to see when we can see a better recovery? Like do you think the new administration right now going to impact that market in '25 and beyond?

As you know, with the new administration, definitely new policy is going to impact how business is going to grow. But irregardless how it's going to happen and from Cytek's perspective, it's important from a few areas. One is continue to maintain our technology leadership. That's the reason why we continue to invest and to make sure our technology stay ahead of the competition and to solve customers' needs. And second part is continue to maintain the operation efficiency, operation excellence. This is actually, in fact, very important for profitable growth. Profitable growth means not only about developing new technology, developing top line. You also want to make sure you can be cost effective in manufacturing the products to support customers that can ensure you can continue to survive the up and down, right? And so regardless of the environment, we will -- that can enable us to continue to weather through all of those different situations. That's why we continue to feel confident and we are going to grow and whether or not and how the policy is going to change, and we can deal with all of those situations.

Got it. I guess switching to the more product side. So flow cytometry. In the past, you mentioned that your market share is about like 5%. So wondering, how do you -- like what kind of strategy that you have like really just to scale the market share and then in this market? Like how easy -- like how long does it take to really convert customers from like using the conventional flow cytometry to your technology, really the full spectrum technology?

Yes. I think first, with regarding to the conversion from conventional to full special, I think the mission is accomplished. In fact, today, and all of our competitions are jumping into full special technology. I don't think there's any research dollars today these days are investing in continuing to drive the conventional. And from that aspect, -- so that part is already done. And when users or any customers today going to buy a new flow cytometer, probably unless it's limited by certain regulatory needs, for example, clinical regulatory restrictions, they will go to spectrum, okay? And it's -- when -- a few years ago, when we first started, when you go to -- when you went to customer, it's always about conventional versus spectral. Today, if you go to customer, it's about Cytek special versus someone else's special. It's not about Cytek versus conventional anymore. So that part of the things is already done. And the whole industry has been moving toward full spectrum. We have fulfilled that task. And so that's one aspect. Second part is with regarding to the market share. And actually, flow cytometry is a complicated area, right, with regarding to market since with so many applications, and we have to really look at this through different type of application. Let's say, if we split the market in terms of high end, let's say, 25 color or 30 color and beyond or mid-end from 10 to 25 color and below 10, which are typically for the clinical type of applications. Then in the way high end, we are dominating, in fact, we have the most of the market share, Cytek. Cytek created that market. We continue to dominate. We are driving that market. So that's not 5%, that's way more than 5%, maybe 50%. And now the second part is 10% to 25%. This is the previous high end. Today is no longer the high end. It's basically mid-end. That just means there's a different way to address that market. But this is also an area we can support easily. We can really drive down the cost to support that type of applications. We have products really can do this very cost effectively, and we are growing that market, by the way. And initially, this kind of small, but today, and I think in that market, we are not 5%. We're probably more than 5%, but of course, about 50%. But that's also an opportunity for us for the growth. So high end is where we are -- it's up to Cytek to defend. We continue to develop new technology to defend our market presence. This mid-end is where our opportunity is that can grow our revenue, grow our market share. And then there's entry level up to 10 color. And this is mostly about clinical. And we have our instrument already clinically approved in China. We have it approved in Europe. This is a market we are supporting. In fact, in China, close to 50% of our business is actually about clinical. So we have done well there. And Europe, we just started. We hope we can grow that part of the business on the clinical side. U.S. is where -- and we need to get our tool clinically approved. This is where we are working on, and that's the future opportunity for us.

Great. Well, that's a good switching to the clinical opportunity, right? So you mentioned quite a lot in China. Europe started. U.S. is also a bit of opportunity out there. So how do you really think about the growth contribution from the clinical application? Like you mentioned it's going -- you can do like MRD, you have approval product in the cell and gene therapy side. But how do you think about the contribution from the clinical to the top line?

Yes. There are two parts of the clinical. One is the typical flow cytometry clinical like TBNK, right? And that require 510(k) for the FDA U.S. side. Those are the type of applications. There are a lot of solutions there and very competitive. And since conventional can do it, our tool can do it. That's not really an area of focus for the company, but we definitely need to get there. And then the second part of the application is actually LDT based. Of course, we know the U.S. FDA is regulating the LDT as well. But this is where we definitely can see the opportunity. And we -- our technology, our tool really fits that market very well. And earlier, I mentioned about the sensitivity our tool can provide that really drives the MRD applications for that market, we have been working with many labs in the world to drive the application adoption of our tool for the MRD. And in fact, just a few weeks ago in ICCS, which is a clinical conference, and there were lots of presentation and from the top influential labs, addressing -- using full spectrum, Cytek tools for the -- to drive the leukemia type of diagnostic application, in particular, the MRD. And that is definitely a trend area this is -- we see an opportunity for Cytek. And they have been working on using our tool. Of course, we have been helping them and to optimize our instrumentation to support their applications. And they definitely see how our tool can help them and to address the market. So I feel -- and this is clearly an area Cytek's technology, Cytek tool and our solution will be able to support to help to drive with regarding to clinical applications and to grow the clinical side of the business.

Got it. But do you see like any challenges in terms of kind of expanding into the clinical application, especially in the U.S.?

As I mentioned, for the U.S., there's a lot of discussions with regarding to LDT, how to regulate LDT. And on one hand, we have been supporting many labs in the U.S. to develop solutions, their solutions to support the leukemia MRD as well as not just leukemia MRD, we also see them using our tool to support the solid tumor type of studies and diagnostics on the LDT basis. But on the other hand, clearly, we continue to monitor to see how this LDT regulatory part of the process will evolve. This might be a challenge. It may slow down a little bit. But regardless, this is an area of opportunity for Cytek. -- that's what we feel.

Got it. So in the last few minutes, I wanted to touch on one of the new kind of product line from you, which is like the imaging flow cytometry. So we have the ImageStream product. Can you just maybe talk about a little bit about the -- how they differentiate from like other single cell technologies? And then what are really the applications for that specific instrument?

Actually, imaging flow cytometry, actually Cytek's imaging flow cytometry, we actually can even call it a single cell microscope. And it provides very high resolution and on a single cell basis. And this is actually how our imaging flow cytometry differentiates from other similar type of technology we talked about and high resolution. One of the applications and in fact, last year and early in the U.S., the FDA approved a first gene -- and therapy, which actually is to treat the sickle cell disease. And for that actually treatment, in fact, our imaging flow cytometry has been used to validate the efficacy of the treatment. So this is the type of applications, imaging flow cytometry can be used. And another area on the research side is it can -- because it's imaging-based, it really helps to look at those RNA-based nanoparticles type of studies, also helps to look at the interaction between those cells, looking at the structure inside the cells, those type of information typically a normal flow cytometer is not able to provide, but image flow cytometry is capable of supporting.

Great. Awesome. Well, thank you so much. We learned a lot. I think we're about time. So well, thanks for joining.

Thank you.

Thank you.