Cytek Biosciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unless otherwise noted, dollar amounts are in millions. Cytek develops cell-analysis instruments, reagents, software and services, including its Full Spectrum Profiling platform. Results include the acquired Luminex flow cytometry and imaging business (FCI) from February 28, 2023.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $49.7 | $40.2 | $86.8 | $75.2 |
| Gross profit | $28.2 | $24.6 | $49.2 | $44.7 |
| Gross margin | 57% | 61% | 57% | 59% |
| Operating expenses | $37.3 | $25.5 | $70.5 | $48.0 |
| Operating loss | $(9.1) | $(0.9) | $(21.3) | $(3.2) |
| Net loss | $(4.4) | $(0.7) | $(11.2) | $(2.9) |
| Net loss per share, basic and diluted | $(0.03) | $(0.00) | $(0.08) | $(0.02) |
- Q2 revenue rose 24%; first-half revenue rose 15%. Q2 product revenue increased 9% and service revenue increased 201%. Management attributed service growth largely to instruments coming off warranty.
- FCI contributed $8.2 million of Q2 revenue and $11.7 million in the first half. Excluding Q2 FCI revenue, management reported organic revenue growth of 3.3% year over year.
- Product gross margin declined to 59% in Q2 from 68% a year earlier, primarily due to higher material costs and less favorable instrument mix following the FCI acquisition. Service gross margin improved to 47% from negative 25%, with management citing a larger installed base, instruments coming off warranty and FCI.
- Research and development, sales and marketing, and general and administrative expenses increased in Q2 by 44%, 70% and 26%, respectively. Management cited higher headcount and personnel costs, growth initiatives, and, for first-half G&A, $1.5 million of FCI acquisition costs.
- Cash and cash equivalents were $131.5 million at June 30, down from $296.6 million at year-end 2022; marketable securities were $167.3 million, compared with $44.5 million at year-end. Combined cash and marketable securities were approximately $298.8 million. Current assets were $424.8 million and current liabilities $53.6 million.
- First-half operating cash flow was approximately break-even ($0.008 million provided), compared with $10.9 million used in the prior-year period. Investing activities used $166.1 million, including $129.1 million of net purchases of marketable securities and $44.9 million for the FCI acquisition. The reported net decrease in cash, cash equivalents and restricted cash was $168.0 million.
- Long-term debt was $1.9 million; the loan’s current portion was $0.6 million. The separate BD legal-settlement liability totaled $18.4 million. Operating lease liabilities totaled $13.8 million.
Changes, outlook and risks
- The February 2023 FCI acquisition expanded Cytek’s instrument, reagent, service and customer portfolio. Purchase-price allocation remains preliminary; acquired goodwill was approximately $9.0 million and acquired identifiable intangibles were $20.8 million.
- Management expects to continue investing in R&D, commercial infrastructure, hiring, geographic expansion and manufacturing capacity, including Wuxi facilities. It expects expenses and capital expenditures to increase, but provided no numerical revenue or earnings guidance in the supplied filing text.
- Management stated that existing cash and cash equivalents and anticipated operating cash flows should meet working-capital and capital-expenditure needs for at least 12 months from the filing date. It also cited longer sales cycles among U.S. pharmaceutical and biotech customers amid macroeconomic uncertainty.
- Risks highlighted include reliance on a limited number of instrument platforms and certain sole- or single-source suppliers; demand and inventory forecasting; competition and customer adoption; international, currency and macroeconomic exposure; and regulatory, product-quality, intellectual-property and cybersecurity risks. The company reported no material pending legal proceedings, while the BD settlement continues to require future payments, including royalties on certain product sales.
- Controls: Management concluded disclosure controls and procedures were not effective as of June 30, 2023 because of previously identified material weaknesses. These include insufficient qualified accounting and IT resources, weaknesses in IT access and change-management controls, and ineffective journal-entry and account-reconciliation controls. Remediation efforts were ongoing; management cautioned that successful remediation is not guaranteed.
Most important facts for investors to verify
- How much of reported growth is sustainable organic growth versus acquired FCI revenue, and how FCI performs after integration.
- Whether product margins recover from higher material costs and unfavorable mix, and whether service growth translates into durable profitability.
- Whether rising operating expenses and investment levels can be supported by revenue growth and operating cash generation.
- Liquidity composition and cash deployment: cash fell materially while marketable securities rose; verify maturities, accessibility and future acquisition or capital-spending needs.
- Progress in remediating material weaknesses and whether controls become effective in subsequent filings.
- Future cash requirements related to the BD settlement, the $50 million share-repurchase authorization, and the company’s at-the-market equity program, under which no shares had been sold as of June 30, 2023.