Cytek Biosciences, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statements are unaudited; comparisons are with the corresponding 2020 periods. Amounts are in U.S. dollars.
Business context
Cytek sells cell-analysis instruments, accessories, reagents, software and services, centered on its Aurora and Northern Lights full-spectrum flow-cytometry platforms. It reported more than 970 instruments shipped to over 620 customers. The Aurora cell sorter began shipping in June 2021.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $34.4m | $25.1m | $89.1m | $62.2m |
| Gross profit / margin | $21.3m / 62% | $15.6m / 62% | $55.5m / 62% | $32.3m / 52% |
| Operating income | $2.9m | $6.7m | $7.8m | $5.8m |
| Net income | $1.4m | $6.5m | $4.2m | $13.8m |
| Operating cash flow | — | $(0.8)m | $3.5m |
Q3 revenue rose 37%; nine-month revenue rose 43%, driven primarily by instrument sales and higher blended selling prices. Product revenue increased 39% in Q3 and 47% year to date. Service revenue increased 12% in Q3 but declined 1% year to date.
Q3 operating income and net income fell despite higher revenue, as operating expenses expanded substantially; nine-month net income was also lower, partly reflecting the prior-year income-tax benefit. Basic and diluted Q3 earnings per share rounded to $0.00 in the statements; the detailed calculation reports less than one cent per share.
At September 30, cash and cash equivalents were $376.8m, total assets $454.3m, total liabilities $51.1m and stockholders’ equity $403.2m. The IPO generated $215.7m in net proceeds in July, and preferred shares converted to common stock. The $2.8m PPP loan was fully repaid in May 2021; the filing reports no other borrowings. Cash flows used $2.7m in investing activities over the nine months.
Material changes, outlook and risks
- Product gross margin increased to 69% in Q3 from 67% and to 70% for nine months from 58%. Service gross margin weakened to negative 41% in Q3 and negative 51% year to date, reflecting higher service staffing costs and the decision to stop renewing contracts for non-Cytek instruments.
- Research and development, sales and marketing, and general and administrative expenses rose materially as the company expanded staffing and investment; G&A also included IPO-related professional fees. Management expects these expense categories to continue increasing, including public-company compliance costs.
- Operating cash flow turned negative year to date, with increased receivables, inventory and prepaid expenses. Management said existing cash and expected operating cash flows should cover working-capital and capital needs for at least 12 months from the filing date; it anticipated further equipment, R&D and Wuxi facility investment. No numerical revenue or earnings guidance was provided.
- The Becton, Dickinson settlement created a $20.0m liability at September 30, including royalties, a $6.0m sales-threshold milestone and other specified payments. Management considered achievement of the sales milestone probable within three months of quarter-end. Settlement-related royalty costs and liability accretion affected results.
- COVID-19 had not materially adversely affected results to date, but could disrupt manufacturing, suppliers, shipping, installations and customer demand. Other highlighted risks include dependence on a limited instrument range, sole- or single-source components, competition, international and foreign-exchange exposure, and customer adoption.
- Disclosure controls were deemed ineffective at September 30 because of material weaknesses involving accounting and IT staffing, GAAP policies and control design. Management described remediation efforts, including hiring and use of internal-control consultants.
- Subsequent event: on November 2, 2021, Cytek completed the acquisition of Tonbo Biotechnologies’ cell-analysis business for $17m.
Important facts for investors to verify
- Whether instrument demand, shipments and pricing sustain revenue growth, and whether product mix supports gross margins.
- Whether service economics improve as the installed base grows, given negative reported service margins.
- Cash conversion and working-capital trends, especially receivables and inventory, alongside planned capital spending and the Tonbo acquisition.
- The timing and cash impact of the BD sales milestone, royalties and remaining settlement liability.
- Progress in remediating internal-control material weaknesses and any subsequent changes to control effectiveness.
- Exposure to component-supply constraints, COVID-related disruption and regulatory requirements for expansion into clinical markets.