Cytek Biosciences, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. Cytek develops and sells full-spectrum flow cytometry instruments, reagents, software and related services for cell analysis. This unaudited quarterly report covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods unless noted. The company reported one operating segment and had shipped 1,501 instruments cumulatively by quarter-end.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $40.5 million | $34.4 million | $115.7 million | $89.1 million |
| Gross profit / margin | $26.9 million / 66% | $21.3 million / 62% | $71.6 million / 62% | $55.5 million / 62% |
| Operating income (loss) | $1.4 million | $2.9 million | $(1.9) million | $7.8 million |
| Net income (loss) | $1.6 million | $1.4 million | $(1.2) million | $4.2 million |
| Operating cash flow | Not stated for the quarter | Not stated for the quarter | $(18.4) million | $(0.8) million |
- Product revenue was $36.4 million in Q3, up 13%; service revenue was $4.1 million, up 87%. For nine months, product revenue rose 26% to $105.0 million and service revenue rose 96% to $10.7 million.
- Q3 product gross margin was 71% (69% prior year); nine-month product margin was 67% (70%). Service margin improved to 26% in Q3 and 7% for nine months, from negative 41% and negative 51%, respectively.
- Cash and cash equivalents were $341.5 million at September 30, down from $364.6 million at December 31, 2021. Current assets were $443.9 million and current liabilities $41.5 million. Total liabilities were $82.8 million, including a $17.3 million BD legal-settlement liability and $15.7 million in operating lease liabilities.
- Nine-month investing cash outflow was $4.8 million; financing cash inflow was $1.7 million. Operating cash use reflected working-capital investment, including increases in inventory ($19.5 million), receivables ($11.8 million) and prepaid expenses and other assets ($15.0 million).
Material changes versus prior comparable periods
- Revenue grew 18% in Q3 and 30% for the first nine months. Management attributed growth mainly to Aurora CS, Northern Lights, and recently launched reagents and consumables; service growth also reflected more instruments coming off warranty.
- Q3 gross margin increased four percentage points, mainly on a higher contribution from Aurora CS. Nine-month gross margin was unchanged at 62%.
- Operating expenses rose 39% in Q3 to $25.5 million and 54% for nine months to $73.5 million. Nine-month R&D, sales and marketing, and G&A expenses increased to $25.1 million, $24.2 million, and $24.2 million, respectively. Management cited hiring, compensation and stock-based compensation, commercial expansion, and infrastructure investment.
- Nine-month operating cash use increased to $18.4 million from $0.8 million. Cash declined by $23.1 million during the period, compared with a $210.7 million increase in 2021, when IPO proceeds generated most financing cash flow.
Outlook, risks and unusual items
- Outlook: No numeric revenue or earnings guidance is provided in the filing. Management expects revenue to grow as it expands sales territories, its customer base and product offerings, and expects R&D, sales and marketing, and G&A expenses to increase. It believes existing cash and expected operating cash flows will meet working-capital and capital-expenditure needs for at least 12 months from the filing date.
- Capital and subsequent events: An at-the-market program permits up to $150 million of common-stock sales; no shares had been sold under it by September 30. In November 2022, a Wuxi subsidiary agreed to buy a building for approximately $5.8 million and entered a 60-month loan agreement to finance approximately $2.8 million at a fixed 4.5% rate.
- BD settlement: The company recorded $17.3 million of remaining legal-settlement liabilities. The agreement includes royalties on certain product sales and a change-of-control payment provision. Royalty expense was $0.8 million in product cost of sales for the first nine months of 2022; remaining contractual payments are classified as operating expenses beginning in Q2 2022.
- Revenue recognition item: Bill-and-hold arrangements contributed $5.1 million of Q3 revenue and $6.1 million for the first nine months of 2022, versus immaterial amounts in the prior-year periods.
- Controls and risks: Management concluded disclosure controls were not effective at quarter-end because of previously identified material weaknesses in accounting/IT staffing, U.S. GAAP processes and control design. Remediation is underway, but management gave no assurance it will be sufficient. Other key risks include dependence on a limited instrument portfolio, sole- or single-source components, demand and inventory forecasting, competition, regulation and international operations. Management reported no material supply issues to date, while noting uncertainty around COVID-19, inflation, economic conditions and the Russia-Ukraine conflict.
- Other financial considerations: Nine-month net loss included a $1.6 million income-tax benefit; the reported effective tax rate was 56.8%. Foreign-currency translation reduced nine-month comprehensive income by $1.4 million. Cash and cash equivalents exceeded federally insured limits.
Important facts for investors to verify
- Whether revenue growth, instrument shipments and recurring service/reagent sales continue to support margins as commercial and operating costs rise.
- How much of reported revenue depends on bill-and-hold arrangements, and whether associated customer acceptance and delivery conditions remain satisfied.
- Inventory and receivables trends, operating cash consumption, and management’s stated 12-month liquidity assessment.
- The expected timing and amount of BD royalties and settlement payments, plus the cost and financing terms of the Wuxi building purchase.
- Progress in remediating material weaknesses and the implications for future reporting and internal-control attestations.
- Exposure to constrained component suppliers, regulatory approvals for clinical markets, and potential dilution if the ATM program is used.