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

Hello, everyone. Welcome. My name is Zach Conte. I'm a member of the Healthcare Investment Banking team here at JPMorgan. It is my pleasure to introduce Cytek today. Today, we'll be joined by Wenbin Jiang, CEO; and Bill McCombe, CFO.

Good morning. Thanks to the JPMorgan team for giving us an opportunity to tell you about the Cytek story. And also thanks for everyone here to stay through the last day to have an opportunity to hear from us. And just the normal things here, we have to present safe harbor statement. So who is Cytek? Cytek is a technology innovator, empowering the scientific and medical community with leading cell analysis tools. This is validated by the award we received in 2024 as the Overall BioTech Company of the Year. That's a great honor for the company, for our team. So just some summary to walk you through our journey. We released our first product, the company's first product in 2016, our Athena, which is a conventional flow cytometer. Right afterwards, a year later, we launched our flagship product, Aurora, which has driven us to where we are today. The year later, 2018, we launched an entry-level product based on the same technology, Full Spectrum Profiling technology inside the Aurora, same engine, and that's to enable us to serve for the entry-level market. And then 2019, we got into the reagent space, as you all know, and as we continue to deploy our instrument in the field and more and more opportunity for the company to leverage the recurring revenue opportunity through consumables. And then thereafter '21, we launched the Sorter. That's the same year Cytek went public on NASDAQ. Then after we acquired the reagent outfit, Tonbo Biosciences to further enable us to serve for the consumable business for the company. And then we received our IVDD for the European market to serve for the clinical applications based on our Northern Lights entry-level products, Northern Lights-CLC. And 2023, clearly, we launched multiple products. The most important part of '23 is we acquired Luminex technology and products that enabled us to broaden our offering. And I will have one slide to summarize the Luminex acquisition to basically as an exam to see how we have been doing with that acquisition. Last year, we launched the ESP module, which enabled us to serve for the small particle applications based on our full spectrum technology. So overall, over the last 10 years since the company was first founded, we have already deployed more than 2,800 instruments, which include the Luminex Instrument we shipped since the acquisition. More than 2,000 publications on the top-tier literary journals and citing the use of Cytek full spectrum products. We have more than 1,500 customers across the world in more than 70 countries. The company -- the trailing 12 months' revenue through the end of third quarter $200 million. Company is profitable. Actually we are one of the few companies of our size in the life science space that's actually profitable, making money, okay. So we have a strong cash position, now $278 million. We are not burning through actually. In fact, we have leveraged our cash generated from our normal operation to buy back our own stocks. And the Board just approved another $50 million purchase through the end of the year. And of course, we are also optimistic, continue to look for opportunities to acquire business. Over the last 3, 4 years, we acquired Tonbo and Luminex assets. We'll continue to look at opportunities to enable us to continue to expand our offerings in addition to the organic investment and development internally through our own R&D effort. We just pre-released last year -- actually yesterday of our last year's revenue within $200 million to -- about $200 million to $201 million overall for 2024. So the question comes down to is always lots of questions, how Cytek can continue to grow in that market, judging from the success we have encountered -- we have experienced over the last 7 to 10 years from nothing to $200 million. In fact, we are serving a very large market. Looking at the overall business, one is the initial TAM, which flow cytometry can serve directly. It's about $7.5 billion, which includes single cell analysis and a few others. And plus the adjacent opportunities, another $8.5 billion, altogether, $16 billion opportunities in the cell analysis space that enable us to serve. That basically pave a baseline for Cytek. So $200 million among that $16 billion is a small part, and that means we have a long way to go, great opportunity going forward. Another data point that we look at is overall, there are about 50,000 flow cytometers currently in the field. Many of those instruments are up for replacement. And today, when they do replace, guess what technology they are going to go for, what? That's Full Spectrum Profiling tools Cytek has pioneered, and we are a leader in this space. Clearly, it's a no-brainer for them to think about Cytek first. And the long term, our growth driver is based on all the applications relying upon full spectral technology, looking at from research side running from stem cell to oncology and pharma side for new drug discoveries for cancer immunotherapy and for clinical, including, in particular, leukemia diagnosis, MRD, all those applications that are going to drive the continued growth of Cytek business. And to attack that market, Cytek has laid out 4 business pillars. Our whole R&D dollars are invested to continue to drive those 4 business pillars, which include instrument. This is how Cytek starts from. We're going to continue to invest and to improve the performance, adding more intelligence, make it more easier to use and make it more compact and cost effective, of course, also more reliable. And on the application side, that helps us to drive the recurring revenue. We focus on the areas which conventional reagents are not available. We focus on kits, applications, functionalities that to help us to drive -- continue to drive the reagent business. And then bioinformatics, I will have a slide to talk further about it, which, in fact, is a great success for the company, which was launched 2 years ago. Clinical is another aspect of our technology, our products. One of the nice feature of our tool is because of the sensitivity, the number of parameters it can do from a single tool that can really make our tool much far better than the conventional technology can afford to do. And I will talk more about it. Our complete platform portfolio include here instruments, reagents, services and software, among which instrument, of course, is capital expenses. This is about 70% of our business revenue today. And then service reagent software are all recurring, about 30% of our business. Going forward, this is an area we hope to continue to grow on the recurring side and an ideal situation pretty much capital recurring 50%, 50%. To really serve our customers, we -- to enable them to leverage and utilize the Cytek's full spectral profiling technology, we have developed a standard workflow process starting from sample collection, sample preparation labeling, experiment, running the actual experiment, doing the in-situ real-time data analysis and the more advanced study analysis thereafter. That whole workflow we have worked out, and this is very much appreciated by our user base. Many of our customers have embedded this into their own workflow to go through the process. And this is how the customers appreciate our technology and appreciate how we -- what we can do for them. Going back further with regarding to our offering on the instrument side, our flagship technology, flagship products, Aurora and Aurora Cell Sorter running from 3 laser to 5 laser driving today, more than 50 colors it can support. In fact, one is analyzer, the other is sorter, we are the only company today providing a complete full pair of solutions enable customers to develop panel on analyzer, for example, first, then move the panel back to the sorter and back and forth. It's fully compatible. That's the solution we are providing to our customers. And the Northern Lights based on the same technology driving the Aurora to serve for the entry-level applications. In fact, when we say entry-level Northern Lights, really it's about the cost structure equivalent to the entry-level products. But in terms of performance, it can go way beyond 20 colors. In the conventional sense, it's a high-end application. Talking further about conventional versus Cytek's full spectrum technology; if you look at the conventional, on the clinical side, pretty much capped by about 12 to 13 colors today and on the research side, 20 color-ish plus/minus. But with Cytek technology, we have really break the barriers and both clinical and the research side will drive through to about 50 colors. In particular, our technology really enable users to remove the autofluorescence. This is very important. In a conventional sense, this is always a problem and really to stop them from getting more sensitive data, more better data due to those -- what we said the dirty data from conventional technologies spillover as well as autofluorescence. And in the flow cytometry with full spectrum, we can really improve all of those to provide users a very clean data. This is why people come to Cytek. And earlier I mentioned I'm going to talk about the Luminex acquisition 2 years ago. Some of you may remember, at that time, we said the reason for the acquisition, 3 benefits. One is to add to Cytek portfolio of the imaging technology and leverage the Cytek Aurora customer base to driving the further application of imaging and adding imaging to our spectrum and to enable our users. Second benefit is a large installed base, adding on top of Cytek now that really enable us to deploy our field service more effectively to help drive the service operation efficiency. The last one is a larger customer base for the Guava. We can leverage that customer base to drive the revenue growth in that area based on both Guava and Northern Lights, which we would like to get to. Today, taking a look at how we have -- what kind of performance we have achieved. Through the third quarter '24 comparing to the same period a year ago, our imaging revenue grew by 46%. That's basically the outcome of leveraging Cytek's high end of the customer base. And our service operation gross margin has improved during the same period from 43% to 58%. This is one of the highest in the industry with the kind of operational efficiency for the service business. And then low end of the market, combining Northern Lights and Guava, our revenue grew by 41%. So this is the benefits of the 2 business coming together, how we have leveraged the business and showing the success of this acquisition. Coming to the second part, application; as I said, we, in fact, are not really trying to compete against many of the catalog company in the reagent -- flow cytometry reagent space in this market. We focus on key reagents, which is not available from the conventional sense, and we focus on kits, applications. Over the last few years, we launched quite a lot of individual reagents to serve for our customer base. In fact, one of the reasons we have achieved 40 color, remember, there's a paper in the flow cytometry space that 40 color paper is actually a milestone that has really changed the whole landscape of the flow cytometry, which was published a few years ago and becomes a paper of the year. That has changed the whole industry. Today, every -- the whole industry is moving towards full spectrum, okay? Nobody is thinking conventional will have any long going forward. And that paper indeed is a milestone today. All of the competitors coming to this space, they always would like to compare their data with our 40 color data. The reason we get to that 40 color, in fact, involve the reagents we developed internally to get there, okay? That -- and we have our own reagents for the clinical applications. Today we have our 1-laser and 2-laser 6-color TBNK clinically approved for the China market. And we have our single color 6 color -- single-laser 6-color TBNK approved for the European clinical applications. So these are the kind of applications we have been focusing on, plus the leukemia diagnostics, MRD type of applications. And earlier, I mentioned I want to talk about this cloud, Cytek Cloud bioinformatics program. We launched this 2 years ago. In a very short period of time, we have accumulated more than 15,000 users on this platform. These are the users working on Cytek instrument on a daily basis. And this platform really has changed the whole landscape of how flow cytometer is being used. Now they can optimize the panel on our platform before they purchase the reagent and actually run on the actual instrument that really helps improve the efficiency on this platform, it helps them to automate the panel design and the total change of the kind of workflow. This platform also enables users to do the data analysis, data management and all kinds of needs. And it also allows users to purchase reagents through their pipeline and to drive their applications. Quite a few of our users have already embedded Cytek Cloud in their standard workflow. This platform enables users to stay with Cytek -- stay with Cytek technology because of the full solution Cytek is enabling them. Cytek is providing, helping them. And I mentioned about clinical application. One of the reasons why clinical is good based on Cytek tool is because of the so many parameters that can be drawn from a single tube. That's important because a single tube, so many parameters, that means you don't really have to split your sample into multiple tubes. That really helps to improve the efficiency, improve the sensitivity and save the cost on the reagent side since multiple tube, you need redundancies, here you don't need. And it enables you to support applications like MRD to improve the sensitivity to the level just like PCR, what can -- sequencing can achieve. And of course, it opens up many of the new opportunities. Today, many of our users are studying leveraging Cytek technology for the type of applications, clinical diagnostic applications. Talking about the application flow cytometer, we mentioned about a large market. One of the reasons why the market is so big, so large, we talk about many usage here. In reality, it is driven by all the kind of applications involved embedded into those needs. We have analyzed the more than 2,000 publications on those top-tier journals citing the use of Cytek technology, Cytek tools. And as you can see, the application being driven behind it, including infectious disease, immunology, immuno-oncology, COVID-19, of course, that's a few years ago and -- plus neurobiology, drug -- new drug discovery, all kinds of applications, so many varieties of applications. The reason why flow cytometry is a basic life science tools. It's going in almost everywhere, all places. Another trend we are seeing through the years of work is we noticed many of the farmers are starting to look at Cytek as the place to go to help them to harmonize, standardize their flow cytometry tools across their different labs in the world. As you know, pharma, as they move from early discovery to the translation to clinical trial, they want to make sure the data coming from different instruments from different labs are consistent, accurate. This is a tool Cytek technology is enabling it, a reason why they come to Cytek. And that's also a reason why, as we can see, Cytek now our customer portfolio going more and more towards the commercial side, pharma CRO, which I have one slide to show thereafter. So standardization, harmonization is critical, important -- mandatory for the clinical trial and also for the industry applications. For those type of applications, where they go? Cytek. So just to summarize why customers choose Cytek, right? First is with such large parameters, we provide a deep cell analysis, deep assessment of the cells. And we enable the standardization, right, which I just mentioned, is important, and it's more powerful at lower cost, not because we provide 50 colors, it becomes far more expensive. It's not. Actually, it costs lower than the conventional, okay? And it allows to isolate rare cells, that means it can support applications like MRD, one very important aspect, important applications potentially for Cytek technology. And it really enable us to get to the data, maximize the efficiency and a much shorter, quicker time. And all of those are validated by the more than 2,000 publications. Of course, these are the publications in the scientific journal by the academic customers. Today, many of our customers are from an industry, they don't really publish. Take a look at the global scale of Cytek today. When we first started, of course, 100% are from academia, but now 60% of our customers are from pharma, CRO, biotech companies. That shows the success migration of our technology into varieties of applications. And second part, taking a look at the geographic locations. When we first started, 100% of our customers are U.S. based. Today, U.S. is less than 50%. That shows as the revenue continue to grow, our growth really coming from other parts of the world. International sales now more than 50%, including one-third from Europe and APAC, rest of the world close to 20%. This just shows a steady growth since 2019 of the deployment of Cytek tools through third quarter. As you can see, it continued to grow quarter-by-quarter. We have also seen throughout the year is we are -- we have really reached an inflection point as we continue to drive the top line. Now we have started seeing the improvement on our gross margin, improvement on our bottom line, our EBITDA. And this is what you will continue to see throughout 2025 and going forward and also a focus of the company. We are -- and this is a company. And as earlier I mentioned, one of the few companies today is profitable, is generating cash. This is our focus. It's not just the top line, more importantly, the bottom line. So the theme to our shareholders is we continue to run cost and capital efficiency throughout our operation. We really focus on our operational efficiency and improve our profit margin. And we -- throughout the whole operation process, we maximize our free cash flow. And we acquired a few companies. We'll continue to do so looking for opportunities, but we are not going to acquire any companies. We look for opportunities. We do smart acquisitions. In the end, it has to match our overall business direction, our overall strategy, and we focus on our execution. And as I mentioned, most importantly, profitable growth. Cytek is not a company to grow revenue at any cost. It's a profitable growth. That's what we have been focusing on. So this is what I'd like to summarize. Cytek is a technology platform leader, which have changed the whole industry, changed the whole flow cytometry industry. We have changed that, as I mentioned, that $16 billion business market from a conventional to full spectrum. And we are serving a really large and growing market, okay? This is not a market that's going down. It's continued to grow. And Cytek is one of only a few companies with a very strong financial portfolio. Thank you for your patience to get to where we are today.

Thanks a lot, Wenbin. That was an excellent presentation. Just to kind of touch on the last slide that you talked about, the flow cytometry market has really evolved over the last 5 years. Could you kind of talk about how Cytek has been a main player in that and how that evolution has driven to full spectral flow cytometry?

As you have seen a few years ago before Cytek, the whole flow cytometry is dominated by the conventional technology and with very limited capabilities at that time. It really has hit a limit threshold of what flow cytometry can do. And we came along, developed this technology through what we have done, we have really broken the threshold, broken the barrier at that time 20-ish color get to, as earlier mentioned, about 40 color paper become really a milestone paper in this space, right? Through that process, we changed the whole industry, whole direction of the flow cytometry. Today, everybody is saying the whole industry is going to be spectral. Nobody is going to continue to invest on a conventional technology. Spectral can cover everything conventional can do and plus a lot of additional benefits, lots of flexibility and much easier to use. And it's even more cost effective. So this is how we have changed and looking at all our competitors have been doing and they are chasing behind Cytek, but we are way ahead. And looking at the full spectrum with 50,000 installed base most of them, of course, conventional. Cytek actually has probably 20% of that due to the Luminex acquisition. And -- but going forward, all the high end of the acquisition purchase, I don't think anyone is going to buy the conventional tool. They're all about spectral.

Awesome. And then this week, you guys preannounced your 2024 revenue, which is a slight miss from your prior guidance. Could you talk a little bit about the dynamics behind that?

Yes sure. So our revenue came in -- for the quarter came in $2.5 million below, I think, consensus expectations. $1.5 million of that differential came from the appreciation of the U.S. dollar that happened in the fourth quarter versus the other currencies of countries where we do business. So that was something that we obviously weren't able to anticipate. And the other $1 million resulted from a delay of a few orders. We had one particular order in the U.S., which was delayed and a slightly softer tone in Europe. And that really made the difference.

Great. And then you kind of touched on it in your presentation. A lot of the peers in your space have been seeing or equipment peers in your space have seen struggles in China. And it looks like you guys have actually done very well in this space. Could you kind of talk about how Cytek sees that as an opportunity and it continues to perform well?

In fact, China is embedded into the overall APAC business, we're not breaking out the China alone. The overall growth, I don't think China -- Cytek is that much different from any other peers, right? But relatively speaking, our business in China is kind of more stable instead of going down. But our growth in the whole APAC region is primarily from other part of the areas such like Australia, New Zealand and Japan, Southeast Asia.

Awesome. And then just staying on China, do you guys have a local manufacturing footprint there or how does that look?

Yes, we have local manufacturing. Our clinical instrument for the China market as well as for the European market are made in China.

And then I guess, turning to the rest of the world, primarily the Americas and Europe. You guys have noticed that equipment purchasing patterns have kind of returned to normal. Could you kind of talk a little bit about the dynamics between the Americas and Europe and how you see this going forward?

We saw slower growth in Europe compared to a very strong Q4 in 2023. So on a full year basis we still see decent growth in Europe. The Americas was weak in Q2. We had a nice recovery there in Q3. If you look at North America in total, including Canada, we had actually a pretty good Q4, but much of that strength was based in Canada. So we're hoping it becomes the 55th state.

That's great. And then you guys recently just touching back to financials, you announced your third $50 million stock buyback. Could you kind of talk about the rationale behind that?