Cytek Biosciences, Inc. — Q3 2023 Form 10-Q
Business context and period. Unaudited results cover the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Cytek sells cell-analysis instruments, reagents, software and services. Results include the Luminex flow cytometry and imaging (FCI) business, acquired February 28, 2023. Unless noted, amounts are USD millions.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $48.0 | $40.5 | $134.8 | $115.7 |
| Gross profit / margin | $27.2 / 57% | $26.9 / 66% | $76.4 / 57% | $71.6 / 62% |
| Operating income (loss) | $(6.4) | $1.4 | $(27.7) | $(1.9) |
| Net income (loss) | $(6.5) | $1.6 | $(17.7) | $(1.2) |
| Operating cash flow | — | $(4.2) | $(18.4) |
- Q3 revenue increased 19%; nine-month revenue increased 16%. Product revenue rose 6% and 5%, respectively, while service revenue rose 134% and 130%.
- FCI contributed $6.8 million of Q3 revenue and $18.8 million for the nine months. Excluding FCI, management reported Q3 organic revenue growth of 2% year over year.
- Q3 operating expenses were $33.6 million, up from $25.5 million; nine-month operating expenses were $104.1 million, up from $73.5 million. R&D, sales and marketing, and G&A all increased, with added staffing and costs associated with FCI cited as key factors.
- Product gross margin declined to 58% in Q3 from 71%, and to 59% for nine months from 67%. Management cited higher material costs and a less favorable instrument mix following the acquisition. Service gross margin improved to 52% in Q3 from 26%, and to 48% for nine months from 7%, reflecting a larger installed base coming off warranty and FCI.
Balance sheet, liquidity and capital allocation
- At September 30, 2023, cash and cash equivalents were $163.6 million and short-term marketable securities were $124.4 million, totaling approximately $288.0 million. Current assets were $422.3 million and current liabilities $58.7 million.
- Cash, cash equivalents and restricted cash decreased $135.9 million during the nine months. Investing cash outflow was $123.0 million, including $44.9 million for FCI and net purchases of marketable securities; operating cash outflow was $4.2 million.
- Total liabilities were $103.9 million. Debt was approximately $2.3 million, including $0.5 million current and $1.7 million long term. The $18.7 million BD settlement liability is separate from debt.
- Cytek repurchased 1.28 million shares for $9.4 million during the nine months under a $50 million authorization; approximately $40.6 million remained available at quarter-end.
Outlook, commentary and risks
- The filing provides no specific revenue or earnings guidance. Management expects operating expenses to increase as it invests in R&D, commercial infrastructure, hiring, geographic expansion and new products. It expects existing cash, cash equivalents and anticipated operating cash flows to cover working capital and capital expenditure needs for at least 12 months from the filing date.
- Management said macroeconomic uncertainty, higher interest rates and liquidity concerns among U.S. biotech and pharmaceutical customers contributed to longer sales cycles in Q3 and may continue to weigh on results. It also cited inflation, supply-chain and geopolitical risks.
- The company disclosed that its disclosure controls and procedures were not effective at September 30, 2023 because of material weaknesses involving accounting and IT staffing, technology controls, journal-entry review and account reconciliations. Remediation was underway; management cautioned it could not guarantee the measures would be sufficient.
- The company carries a $18.7 million liability related to its BD settlement, including future royalty obligations and accretion. Management reported no other material pending legal proceedings and no legal matters it believed could materially affect financial position, results or liquidity.
- Key risks include customer adoption and lengthy instrument sales cycles, dependence on a limited range of products and certain suppliers, competition, manufacturing and inventory execution, regulation of clinical uses, international and currency exposure, and the ability to integrate FCI and remediate control weaknesses.
Important facts for investors to verify
- How much of ongoing revenue growth is organic, and whether the reported 2% Q3 organic growth persists as FCI integration progresses.
- Whether product margins recover from higher material costs and unfavorable mix, and whether service growth translates into durable profitability.
- Whether expense growth moderates and operating cash flow improves, given the nine-month operating loss and cash use.
- Progress on remediation of the material weaknesses and whether future filings report effective controls.
- FCI integration performance, purchase-price allocation updates, and any effects on goodwill, acquired intangibles or reported margins.
- Use of the remaining share-repurchase authorization and any material changes in liquidity, debt, settlement obligations or capital needs.