Cytek Biosciences, Inc. — Q1 2022 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Cytek sells full-spectrum flow cytometry instruments, reagents, software and related services. It reported one operating segment and had shipped 1,226 instruments by quarter-end, up from 1,110 at December 31, 2021. Unless noted, dollar amounts are in millions.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Product revenue | $31.5 | $22.7 | +39% |
| Service revenue | $3.6 | $1.6 | +128% |
| Total revenue | $35.1 | $24.3 | +44% |
| Gross profit / margin | $20.2 / 58% | $14.5 / 60% | Margin down 2 points |
| Operating income (loss) | ($2.4) | $1.1 | Down $3.5 |
| Net income (loss) | ($2.2) | $0.1 | Down $2.3 |
| Operating cash flow | ($1.5) | $1.9 | Down $3.4 |
Net loss attributable to common stockholders was $2.0 million, or $0.02 per share. Product gross margin was 63% versus 68%; service margin improved to 13% from negative 58%. Management attributed the overall gross-margin decline chiefly to higher material costs and increased service and manufacturing staffing costs.
Cash and cash equivalents were $362.5 million at March 31, 2022, versus $364.6 million at year-end. Current assets were $439.1 million and current liabilities $42.8 million. Operating cash use reflected higher inventory ($5.9 million increase), receivables and prepaid/other assets, partly offset by higher payables and deferred revenue. Capital expenditures were $0.8 million; financing cash inflow was $0.4 million from stock-option exercises. The filing reports no conventional borrowing balance; the $4.1 million PPP loan was repaid in May 2021.
Total liabilities were $78.4 million. These included a $16.2 million BD legal-settlement liability and $14.9 million of operating lease liabilities. The company had $20.6 million of contract liabilities at quarter-end, including deferred revenue and customer deposits.
Material changes and management commentary
- Revenue growth was driven by higher Aurora and Northern Lights unit sales, Aurora CS sales, newer reagents and consumables, and a higher blended selling price from product mix. Service growth reflected more instruments moving beyond warranty.
- Operating expenses rose to $22.5 million from $13.4 million: R&D increased 58% to $8.0 million, sales and marketing increased 63% to $7.0 million, and G&A increased 90% to $7.5 million. Management cited hiring, compensation and stock-based compensation, commercial investment, and public-company infrastructure costs.
- Stock-based compensation was $3.8 million, compared with $0.5 million a year earlier. The company expects continuing investment in R&D, sales and marketing, personnel, manufacturing capacity and facilities, including expansion in Wuxi, China.
- Management said existing cash and expected operating cash flows should fund working-capital and capital-expenditure needs for at least 12 months from the filing date. It anticipated additional spending on manufacturing equipment, R&D and facilities. No specific revenue or earnings guidance was provided.
Risks, contingencies and unusual items
- Disclosure controls and procedures were not effective at March 31, 2022 because of previously identified material weaknesses in accounting and IT staffing, GAAP application processes, and controls over systems and financial reporting. Remediation efforts were underway; management cautioned there is no guarantee they will be sufficient.
- The 2020 BD settlement requires ongoing low-single-digit royalties on certain product sales for ten years, in addition to specified milestone and change-of-control payments. The $6.0 million sales milestone was reached and paid in Q4 2021. Q1 2022 royalty expense was $0.8 million and settlement-liability accretion interest was $0.5 million.
- Cytek reported no current legal proceedings expected to have a material adverse effect. COVID-19 had not materially adversely affected the business or results to date, but its future effects could not be reasonably estimated. Management reported no material supply issues, while identifying single- and sole-source suppliers as a risk.
- Other principal risks include dependence on a limited number of instrument platforms, lengthy and fluctuating sales cycles, inventory and manufacturing execution, competition, regulatory approvals for U.S. clinical use, international and foreign-exchange exposure, and the ability to remediate internal-control weaknesses.
- In May 2022, after quarter-end, a Hong Kong subsidiary invested $1.6 million in DeepCyto for an approximately 3.3% ownership interest. A DeepCyto-affiliated investor has a representative on Cytek’s board, who is also a Cytek director.
Key facts for investors to verify
- Whether revenue growth and instrument demand persist, and how product mix and service growth affect gross margins.
- Whether higher operating expenses and stock-based compensation convert into durable growth and improved profitability.
- Inventory, supply availability and manufacturing capacity, including reliance on key suppliers and expansion plans in China.
- Progress and effectiveness of remediation of the material weaknesses in financial reporting controls.
- Future cash use and the terms and costs of the BD settlement, leases, and the post-quarter DeepCyto investment.