Cytek Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited consolidated results; balance-sheet comparisons are with December 31, 2021. Cytek develops and sells cell-analysis instruments, reagents, software and services, including its Aurora and Northern Lights full-spectrum flow cytometry systems.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $40.2 | $30.4 | $75.2 | $54.7 |
| Gross profit / margin | $24.6 / 61% | $19.7 / 65% | $44.7 / 59% | $34.2 / 63% |
| Operating income (loss) | $(0.9) | $3.8 | $(3.2) | $4.9 |
| Net income (loss) | $(0.7) | $2.7 | $(2.9) | $2.8 |
| Operating cash flow | Not presented by quarter | $(10.9) | $(2.0) |
- Revenue mix: Q2 product revenue was $37.1 million, up 29%; service revenue was $3.1 million, up 77%. First-half product and service revenue rose 33% and 101%, respectively. Management attributed growth to instrument volumes, Aurora CS and newer reagents and consumables, higher blended selling prices, and a larger installed base generating service demand.
- Profitability: Gross margin fell four percentage points in both comparisons. Management cited higher material costs and increased manufacturing and service headcount. Service gross margin remained negative: (25%) in Q2 and (4%) for the first half. Operating expenses rose 60% in Q2 and 64% in the first half, reflecting higher R&D, sales and marketing, and G&A spending. Stock-based compensation was $7.8 million for the first half, versus $1.1 million a year earlier.
- Per-share results: Net loss attributable to common stockholders was $0.02 per share for the first half; Q2 diluted loss per share was reported as $(0.00) after rounding. The 2021 net income was allocated to participating securities, so common-stockholder income per share was reported as zero.
- Cash and liquidity: Cash and cash equivalents were $349.9 million at June 30, down from $364.6 million at year-end. Current assets were $443.3 million and current liabilities $42.4 million. First-half operating cash use was driven chiefly by increases in inventory ($14.4 million), receivables ($8.0 million), and prepaid and other assets ($8.7 million). Investing used $3.7 million; financing provided $1.5 million. Management expects existing cash and anticipated operating cash flows to cover working capital and capital needs for at least 12 months from the filing date.
- Debt and obligations: The PPP loan was fully repaid in 2021; the filing reports no outstanding conventional borrowing. Significant obligations include the BD settlement liability of $16.8 million and operating lease liabilities of $14.8 million. A further $1.9 million of lease commitments related to a lease expected to commence in Q3 2022.
Material changes and management outlook
- Revenue increased 32% year over year in Q2 and 38% for the first half, while the company moved from operating and net income to losses as expenses grew faster than gross profit.
- Operating expenses increased to $25.5 million in Q2 from $15.9 million, and to $48.0 million for the first half from $29.3 million. Management expects continued spending growth in R&D, commercial infrastructure, geographic expansion, and public-company compliance.
- Instruments shipped rose to 1,356 at June 30, 2022, from 1,110 at December 31, 2021. Management expects recurring reagent and service revenue to grow with the installed base and anticipates potential gross-margin improvement as reagent sales and manufacturing efficiency increase; it also cautioned that product, channel and regional mix, royalties, and production costs can affect margins.
- No specific numerical revenue or earnings guidance is provided in the filing. Planned spending includes manufacturing equipment, R&D investment, and expansion of the Wuxi, China facilities.
Risks, contingencies and unusual items
- Financial reporting controls: Management concluded disclosure controls were not effective at June 30, 2022 because previously identified material weaknesses in accounting and IT staffing, U.S. GAAP procedures, and control design remained under remediation. Management says remediation is ongoing but cannot guarantee it will be sufficient.
- BD settlement: The 2020 settlement resolved claims between Cytek and Becton, Dickinson and Company. Cytek recorded $16.8 million of remaining settlement liability at June 30, 2022, in addition to contractual royalties and accretion expense. The $6 million sales milestone was achieved and paid in 2021. The filing says there were no current legal proceedings expected to have a material effect.
- Business and operating risks: Revenue depends substantially on a limited number of instrument lines and can fluctuate with long sales cycles and seasonality. The company also cites reliance on certain single- or sole-source suppliers, inventory forecasting and manufacturing scale-up risks, competition, customer adoption, and dependence on academic and government research funding.
- Regulatory and external risks: Most U.S. products are marketed for research use only; clinical use in the United States may require FDA authorization. COVID-19 had not materially adversely affected results to date, but future effects remain uncertain. International operations expose the company to foreign exchange, trade, regulatory and geopolitical risks; it reports no currency hedging to date.
- Other items: Cytek adopted the new lease standard on January 1, 2022, recording approximately $14.6 million of right-of-use assets and $15.2 million of lease liabilities at adoption. It also made a $1.6 million investment in DeepCyto in May 2022; an entity affiliated with an investor whose managing partner had served on Cytek’s board held a significant interest in DeepCyto.
Important facts for investors to verify
- Whether revenue growth converts into improved operating profitability and cash generation as spending, inventory and receivables grow.
- Drivers of falling gross margins, particularly the negative service margin, material costs, staffing, and product and channel mix.
- Progress in remediating material weaknesses and the company’s readiness for its first required auditor attestation on internal controls.
- Timing and cash impact of BD settlement payments, royalties, lease commitments, and planned facility and manufacturing investments.
- Evidence of sustained demand, reagent and service pull-through, and reduced reliance on core instruments, alongside supplier capacity and product-quality performance.