Cytek Biosciences, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 30, 2021; unaudited consolidated results. Cytek develops and sells full-spectrum flow cytometry instruments, accessories, reagents, software and services, principally through its Aurora and Northern Lights platforms.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $30.4 million | $19.1 million | $54.7 million | $37.1 million |
| Product revenue | $28.7 million | $17.5 million | $51.4 million | $33.5 million |
| Service revenue | $1.7 million | $1.7 million | $3.3 million | $3.6 million |
| Gross profit / margin | $19.7 million / 65% | $8.3 million / 43% | $34.2 million / 63% | $16.6 million / 45% |
| Operating income (loss) | $3.8 million | $(0.2) million | $4.9 million | $(0.9) million |
| Net income | $2.7 million | $8.1 million | $2.8 million | $7.3 million |
| Operating cash flow | — | $(2.0) million | $1.3 million |
Revenue increased 59% in the quarter and 47% year to date, mainly on higher Aurora and Northern Lights instrument sales and improved blended selling prices. Gross margin expanded with instrument mix, lower inventory write-downs and operational improvements. Service gross margin remained negative at 58% in both 2021 periods, reflecting higher personnel and warranty costs and reduced service-contract revenue after Cytek stopped selling service contracts for non-Cytek instruments. R&D, sales and marketing, and general and administrative expenses all rose substantially as the company expanded staffing, product development and commercial activities.
Consolidated net income was lower year over year, in part because Q2 and first-half 2020 included an $8.1 million and $7.7 million income tax benefit, respectively, largely from a valuation-allowance release. In 2021, all reported net income was allocated to participating preferred securities under the two-class method; net income attributable to common stockholders was zero for both the quarter and first half.
Balance sheet, liquidity and cash flow
- At June 30, 2021, cash and cash equivalents were $159.8 million, current assets $216.9 million, current liabilities $28.2 million, and total liabilities $46.9 million.
- Cash and cash equivalents declined from $165.2 million at December 31, 2020. First-half operating cash use was $2.0 million; investing cash use was $1.4 million; financing cash use was $3.5 million. Operating cash use reflected growth in receivables, inventory and prepaid assets.
- The company fully repaid its $2.8 million PPP loan in May 2021. The filing reports no other borrowings in the presented balance sheet.
- Legal settlement liabilities totaled $19.0 million, including $7.2 million current and $11.7 million noncurrent, principally related to the BD agreement.
Material developments, outlook and risks
- IPO after quarter-end: In July 2021, Cytek sold 13,949,401 shares at $17 per share, generating approximately $237.1 million gross proceeds and approximately $215.2 million net proceeds to the company. Selling stockholders sold additional shares; Cytek received no proceeds from those sales. Preferred stock converted into 87,268,694 common shares upon IPO closing. A 1.3333-for-1 stock split was effected July 16, 2021.
- Management outlook: Cytek expects continued investment and higher absolute expenses for R&D, sales and marketing, public-company compliance, facilities and manufacturing capacity. Before reflecting IPO proceeds, management said existing cash and anticipated operating cash flows were expected to cover working capital and capital expenditure needs for at least 12 months from the filing date. The filing provides no specific revenue or earnings guidance.
- BD settlement: The 2020 settlement provides BD with a non-exclusive license and includes a low-single-digit royalty for ten years on certain product sales, a $6.0 million milestone payment upon a specified sales threshold, and a change-of-control payment if applicable. At June 30, 2021, management considered achievement of the sales milestone probable within six months.
- Business risks: Key exposures include dependence on a limited instrument portfolio and lengthy, variable sales cycles; reliance on single- or sole-source component suppliers; manufacturing and inventory execution; competition and adoption risks; international and foreign-exchange exposure; and potential disruption from COVID-19. Management reported no material pandemic-related asset impairment or material supply issues to date.
- Controls: Disclosure controls were not effective at June 30, 2021 because of material weaknesses involving insufficient qualified accounting and IT personnel, GAAP policies and procedures, and controls over systems and financial reporting. Management described hiring and outside-consultant remediation plans; the weaknesses had not yet been reported as remediated.
- Other: Cytek increased its ownership of Cytek Japan from 50% to 73% in March 2021 and began consolidating it. An August 2021 laser supply agreement has a three-year initial term and no minimum purchase obligation.
Important facts for investors to verify
- Track instrument sales, installed-base growth, reagent pull-through and whether gross-margin gains persist alongside continued expense growth.
- Assess the cash conversion of reported earnings, especially receivables and inventory growth, and the economics of the service business.
- Confirm the timing, amount and accounting treatment of BD royalties and the $6.0 million sales milestone, as well as any change-of-control obligation.
- Monitor remediation and independent testing of the disclosed material weaknesses in internal controls.
- Reconcile IPO proceeds and post-IPO share counts against the prospectus and subsequent filings; the IPO figures above use the filing’s detailed disclosure of approximately $215.2 million net proceeds.