Cytek Biosciences, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Cytek develops and sells cell-analysis instruments, reagents, software and services. Amounts below are in U.S. dollars; financial-statement amounts are converted from thousands to millions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $37.1 million | $35.1 million | +6% |
| Gross profit / gross margin | $21.0 million / 57% | $20.2 million / 58% | Margin down 1 percentage point |
| Operating expenses | $33.2 million | $22.5 million | +47% |
| Operating loss | $(12.2) million | $(2.4) million | Loss widened |
| Net loss | $(6.8) million | $(2.2) million | Loss widened |
| Basic and diluted loss per share | $(0.05) | $(0.02) | |
| Operating cash flow | $2.9 million | $(1.5) million | Improved |
Product revenue was $31.2 million, down 1%; service revenue was $5.9 million, up 65%. Product gross margin fell to 59% from 63%, while service gross margin rose to 43% from 13%. Higher material costs and a less favorable instrument mix weighed on product margin; a larger installed base moving off warranty supported service revenue and margin.
At March 31, cash and cash equivalents were $129.5 million, marketable securities were $169.5 million, and restricted cash was $2.9 million. Current assets were $425.6 million and current liabilities $56.5 million. Debt totaled approximately $2.7 million, including a $2.9 million five-year China subsidiary loan secured by restricted cash. The company reported $18.0 million of legal settlement liabilities and $14.5 million of operating lease liabilities.
Cash, cash equivalents and restricted cash declined $167.1 million during the quarter. Investing cash outflow was $168.9 million, including $123.2 million of marketable-security purchases and $44.9 million for the Luminex acquisition. Operating cash flow was positive despite the net loss. Inventory rose to $69.5 million from $48.2 million at year-end.
Material changes and business developments
- Reported revenue included $3.4 million from the Luminex flow cytometry and imaging (FCI) business, acquired February 28, 2023. Excluding that contribution, management reported organic revenue of $33.7 million, down 4% year over year.
- Management attributed weaker organic performance mainly to softness in U.S. pharmaceutical and biotechnology sales and longer sales cycles amid macroeconomic uncertainty. Stronger EMEA and APAC revenue partly offset the weakness. Product revenue also reflected fewer-than-expected instrument sales.
- Direct-channel revenue fell to $25.5 million from $30.9 million; distributor-channel revenue increased to $11.6 million from $4.1 million. Distributors represented 31% of revenue versus 12% a year earlier.
- Research and development rose 24% to $10.0 million; sales and marketing rose 60% to $11.1 million; general and administrative expense rose 60% to $12.1 million. Management cited headcount, personnel-related costs and infrastructure investment. Q1 included approximately $1.5 million of FCI acquisition transaction costs in general and administrative expense.
Outlook, risks and contingencies
- The filing provides no numerical revenue or earnings guidance. Management expects expenses to increase as it invests in research and development, commercial infrastructure, geographic expansion, and manufacturing capacity. 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 identifies macroeconomic uncertainty, liquidity concerns in the financial sector, rising interest rates and inflation as potential pressures. It said these conditions contributed to longer sales cycles among U.S. pharmaceutical and biotech customers. The company also cites seasonal and quarterly sales variability and dependence on a limited number of instrument products.
- The Luminex FCI acquisition cost $44.9 million in cash. Preliminary purchase accounting included $20.8 million of acquired intangible assets and $9.0 million of goodwill; valuations remain subject to adjustment. Acquired operations contributed $3.4 million in post-acquisition revenue. Pro forma Q1 revenue, as if acquired January 1, 2022, was $41.7 million in 2023 versus $45.3 million in 2022; pro forma net losses were $6.2 million and $3.6 million, respectively. The filing cautions these figures are not necessarily indicative of actual results.
- The company’s disclosure controls and procedures were not effective at March 31, 2023 because of previously identified material weaknesses involving accounting and IT staffing, IT access and change-management controls, journal entries, and account reconciliations. Remediation is underway; effectiveness is not yet established.
- The BD settlement requires low-single-digit royalties on certain product sales for ten years and other specified payments. The sales milestone was paid in 2021; the remaining settlement liability was $18.0 million at quarter-end. The company reported no material pending legal proceedings and no known legal matters expected to materially affect its financial position, results or liquidity.
- Other risks highlighted include reliance on single- or sole-source suppliers, inventory forecasting and product quality, competition and adoption, regulatory requirements for clinical use, foreign exchange exposure, and execution and integration risks from acquisitions.
Important facts for investors to verify
- Whether organic revenue stabilizes and instrument demand recovers, particularly among U.S. pharmaceutical and biotech customers.
- Whether service growth and the larger installed base can offset product-margin pressure and sustain overall gross margins.
- How the FCI acquisition performs after integration, including final purchase-price allocation, acquired-business profitability and any further integration costs.
- Progress in remediating the material weaknesses and the timing of management’s conclusion that controls are effective.
- Cash generation, inventory levels and planned capital spending; distinguish cash used to buy marketable securities from operating needs and acquisition spending.
- Future BD royalty and settlement payments, and any changes to acquisition-related estimates or other contingencies.