Cytek Biosciences, Inc.

Thank you for standing by and welcome to the SciTech Biosciences fourth quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. We ask that you please limit yourself to one question, one follow-up. You may get back in the queue as time allows. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Alex Kahn, Investor Relations. Please go ahead, sir.

Thank you. Earlier today, SciTech Biosciences released financial results for the quarter and year ended December 31, 2021. If you haven't received this news release, or if you'd like to be added to the company's distribution list, please send an email to investors at scitechbio.com. Joining me today from SciTech are Wenbin Zhang, CEO, and Patrick Jimenud, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meetings of the federal securities laws, including statements regarding Scitech's business plans, strategies, opportunities, and financial projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward-looking statements in the press release Scitech issued today and in Scitech's filings with the SEC. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliations to the most directly comparable GAAP financial measure may be found in today's earnings release submitted to the SEC. Except as required by law, SITEC disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast. February 23, 2022. With that, I would like to turn the call over to Wendon.

Thanks, Alex, and welcome everyone joining the call today. I want to start by thanking the incredible SciTech team for their dedication and execution as we closed out 2021. On today's call, I will begin with a brief overview of our company. I will discuss our exciting progress for the quarter and the year. And finally, I will turn the call over to Patrick for a more detailed look at our financials. For those of you new to the SciTech story, we are a leading cell analysis solutions company advancing the next generation of cell analysis tools by leveraging novel technical approach to create our full spectrum profiling or FSP platform. Our FSP platform includes instruments, reagents, software, and application services and utilizes the full spectrum of fluorescent signatures to deliver high resolution, high content, and high sensitivity cell analysis. Our technology and solutions address some of the key limitations of conventional methods While flow cytometry is a widely used tool for single-cell analysis, conventional flow cytometry and the early approach to special flow cytometry have been challenged, as they are only able to detect a few markers in a single tube. Their limited dimensionality, suboptimal resolution, low throughput, high cost for performance, The significant technical XP is required to operate their systems has really limited the advanced cell analysis field. By contrast, our patented FP technology optimizes sensitivity and accuracy through its novel optical and electronic designs that utilize an innovative method of light detection and distribution. This novel technological application allows us to address the inherent limitations of other technologies by providing a higher density of information with greater sensitivity, more flexibility, and increased efficiency, all at a lower cost for performance. Our innovative technology has been validated by the 385 peer-reviewed publications to date. Over 1,100 instrument placements at the end of the year and a growing number of applications. At Scitech, we provide our customers with an end-to-end solution consisting of instruments, reagents, software, and application services. We launched our initial flagship instrument, the Aurora, in 2017. A year later, we launched the Northern Lights instrument and entry-level product. Both instruments are cell analyzers offering high throughput, ultra-sensitive analysis, and intuitive workflows that work to address the unmet needs of our customers. These instruments are efficient and compact, making them well-suited for clinical research. In October of 2020, we launched our reagents to capitalize upon the recurring revenue opportunities derived from the installed base we have generated. Our 14-color seafloor immunoprofiling kit and the 40-color optimized multicolor immunofluorescence panel provide users with ready-to-use protocols and antibodies, simplifying the workflow from sample preparation to data analysis. In October of 2021, We launched our new 25-color immunoprofiling assay and shortly after acquired the reagents business of Tangbo Biosciences. Both additions further strengthen our position as a full solution provider to our customers. Our 25-color immunoprofiling assay includes reagents and tools optimized for use with our Aurora's full spectral flow psychometer. we are creating a new novel for flow cytometry by making such a high-dimensional panel available as a standardized kit. This past year, we also began shipping our cell sorters, which enable additional downstream genomic and proteomic analysis. Importantly, our sorters allow researchers to isolate living cell populations from higher complexity panels beyond 40-bar markers. While our cell analyzers have been strong drivers of our revenue growth to date, we expect that reagents and cell sorters will play an important role in driving our revenue growth over the next three to five years. As we highlighted previously, once an instrument has been placed Our intuitive workflow allows customers to quickly get up to speed on the technology and begin generating results. Additionally, we routinely work with KOLs, engaging with these industrial leaders to address their particular scientific questions by optimizing reagents and the protocol on our instrumentation. This often creates a blueprint for other customers to build upon. By collaborating with customers to create these novel reagent panels or kits, we are continually opening new applications in the markets for our FSP platform. I'm proud to say that our installed base of instruments continue to achieve robust growth. This quarter, we placed 140 instruments, bringing our total installed base to 1,110 instruments as of the end of the year. We continue to execute on our core strategy and have achieved solid adoption with high-dimensional cell analysis users while also bringing full special profiling to entry-level users as well. During the fourth quarter of 2021, we achieved the exciting milestone of shipping our 1,000 cell analysis system. since first being introduced in 2017. Our cell analysis systems have gained a widespread adoption across the globe with use in more than 40 countries. Additionally, we continue to make progress in regulated clinical markets, including in China and in the EU. In China, We have made progress towards China National Medical Product Administration or NNPA IVD Class III certification for the TBNK assay to run on our previously certified Northern Lights CLC instruments. Data collection has been completed at three hospitals comprising 700 patients and the data analysis and NNPA submission package preparation has been initiated. In the EU, we have received IBDD certification for our automated sample loader, or ASL, that is an accessory to our previously IBDD-certified Northern Lights CLC instrument. We also closed on our acquisition of Tangbo Biosciences reagent business, which, along with the launch of our additional sea floor reagent and the reagent kits, meaningfully enhanced our regional portfolio offering. The integration of TumbleVal Sciences business within SciTech is largely complete as we are now preparing to expand these offerings further. We welcome the talented Tumble team into SciTech and are excited to grow our presence in San Diego. We are very pleased with the performance of these important new offerings and the value they bring to our platform. And last month, we announced the expansion of our Fremont headquarters with the opening of a new facility, tripling our previous manufacturing capacity in order to meet growing global demand for cell analysis solutions. In addition to the new Fremont facility, we have also opened new offices in Seattle, Washington, which are dedicated to key R&D initiatives and customer application support. This new facility supports our commitment to develop tools that will advance the next generation of cell analysis and become the partner of choice for players throughout the life sciences field. As I mentioned earlier, our technology has been validated by 385 peer-reviewed publications today. These publications cover a wide array of topics, with the top five subjects being infectious disease, immunology, immunotherapy, immuno-oncology, and oncology. In the fourth quarter, Tsai has had 55 publications in peer-reviewed scientific journals. Eleven of these publications were about COVID-19, including a nature paper elucidating which type of cells give rise to human immune system memory and the mechanism for that protection. HIV continues to be another area of investigation for our customers. In Nature Medicine, authors including Dr. Anthony Fauci published an article detailing how the human immune system reacts when HIV treatment is interrupted. I'm excited by the progress our team has made this quarter and throughout the course of the year as we continue to establish ourselves as a leading cell analysis solutions company. As we push forward a cadence of new products and applications, we are deeply focused on providing a complete cell analysis solution to our customers. We look forward to continuing to provide our novel FFT platform to these customers as they push the bounds of scientific discovery. With that, I will now turn the call over to Patrick for more details around our financials. Thanks, Wenbin.

Total revenue for the fourth quarter of 2021 was $38.9 million, a 27% increase over the fourth quarter of 2020. This increase was driven by instrument sales during the quarter, and supported our full-year revenue growth of 38% in 2021. We also saw an increase in contract service sales during this year, which we expected to continue as more instruments shift from warranty coverage to service contracts. Growth profit was $23.6 million for the first quarter of 2021, An increase of 22 percent compared to a gross profit of $19.4 million in the fourth quarter of 2020. Gross profit margin was 61 percent in the fourth quarter of 2021 compared to 64 in the fourth quarter of 2020. Non-GAAP gross profit margin in the fourth quarter of 2021 was 63 percent compared to 64 percent in the first first quarter of 2020 after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles. Operating expenses were $22.3 million for the first quarter of 2021, a 92% increase from $11.6 million in the first quarter of 2020. The increase was primarily due to expenses to support continued growth of the business including costs related to operating as a public company. Research and development expenses were $7.1 million for the fourth quarter of 2021, compared to $4.4 million for the fourth quarter of 2020. Sales and marketing expenses were $8.3 million for the fourth quarter of 2021, compared to $4.6 million for the fourth quarter of 2020. General and administrative expenses were $6.9 million for the fourth quarter of 2021, an increase from $2.6 million in the fourth quarter of 2020. Income from operations in the fourth quarter of 2021 was $1.3 million, compared to $7.9 million in the fourth quarter of 2020. Net income in the fourth quarter of 2021 was $.3 million compared to $5.6 million in the first quarter of 2020. Non-GAAP net income in the first quarter of 2021 was $3.9 million compared to $5.9 million in the first quarter of 2020 after adjusting for stock-based compensation expense, acquisition-related amortization, and other non-returning expenses. This result reflects our focus on additional investments in our operation to support our anticipated revenue growth in 2022 and beyond. Now, turning to our guidance, we expect full-year 2022 revenue to be in the range of $160 million to $168 million, with a quarterly cadence expected to be in line with the historical seasonality of our business. Before I conclude, I would like to touch on some assumptions embedded in our 2022 guidance. As Wenbin said, we are entering 2022 in a strong position. Further, our guidance does not currently anticipate another COVID wave, yet we will remain ready from an operational standpoint to handle any customer or installation challenges should they arise. Finally, in line with our objectives, we are planning to increase our capital and operating investment in sales, marketing, and research and development this year by 55 to 60 percent in the aggregate to support our continued growth initiatives. We remain well-positioned to maintain our profitability and achieve our long-term growth target and objectives. We are also pleased with our strong balance sheet including a solid cash position and no debt, underpinning our healthy organization. We will continue to invest in our core business as it relates to new projects and innovation, while remaining opportunistic in M&A environment and focusing on growth in all key areas. With that, I will turn it back over to Wenbin.

Thanks, Patrick. SciTech has continually demonstrated our commitment to developing tools to advance the next generation of cell analysis. I would like to express my deep gratitude for the team we have here at SciTech. Their excellence and the shared belief in this important mission drives our progress. Over the past year, we have successfully executed on our strategy of growing the business. while remaining profitable and investing in our enterprise for continued growth. Through product launch and expansions of our offerings, along with strategic investments in R&D and the town hall acquisition, we have positioned our portfolio for continued future growth. Our robust, established, installed instrument base, complemented by a growing contribution of recurring revenue and supported by our solid financial position will drive our success in 2022 and beyond. Going forward, our team will continue on our path to become the full cell analysis solutions partner of choice for players throughout the life sciences field as we leverage our novel technology to continue to drive innovation, transform the cell analysis market, and enable researchers to make significant scientific advances in key areas of medical discovery. With that, we will now open the call up for questions. Operator.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line, from Morgan Stanley. Your question, please.

Hi, guys. Good evening, and thanks for the time here this evening. So perhaps one to kick things off for Wendon and Alan, feel free to chime in as well. So just curious about, you know, in light of some of these pandemic headwinds in the macro environment here, some of your, you know, instrument-focused peers, particularly those with a presence in academic labs, have talked about sort of, you know, a little hesitancy in CapEx purchases and delays in the purchasing process. Have you seen any sort of like impact at all in terms of the elongation of your, you know, flow cytometer replacement cycles on an industry-wide basis? And if not, why do you think that's the case, especially for SciTech?

That's a good question, in fact. In fact, it's dependent on where we are talking about, right? And overall, we don't see much impact in the U.S. and Europe, but we do see some delay, especially on the installation and the service side for the countries in APEC region. So I think part of the reason why we don't really see much effect is because, as you can see from the number of publications and for those related to COVID, right, quite a A lot of those applications are actually COVID-related, which actually they need our tools.

Got it. That's helpful. And then, Wenmin, can you provide a little bit of color on just the traction for your sales order? If you can give us some, you know, commentary around just the demand you're seeing for bundled instruments and what you're seeing in terms of the mix of new versus existing SciTech customers, as well as perhaps multi-unit placements here, that would be helpful. Sure.

You know, the kind of deployment of our sales analyzers actually have prepared for the need for our sales orders. And many customers, when they start to use our tools and start to study and, you know, they find they actually many times they would like to look further deep into the sales they have looked at. In that situation, they actually would like to use the same sorter because our sorter allows the compatibility in terms of panel they have used. So they can transfer the panel between analyzers and the sorter freely back and forth. That basically just says a lot regarding to the kind of demand for SciTech sorter technology as well. Now, in terms of existing customers as well as the new customers, as you can imagine, some are our existing analyzer customers, but there are also customers who actually would like to buy the tools in pairs. In that case, those are the new customers.

Got it. That's helpful. And then as we look at your guide here of 160 to 168 million, perhaps this is best addressed by Patrick here. Just wanted to get a sense of what's embedded at the low versus the high end of the range. Is it just sort of incremental supply chain pressures and sort of COVID creating site access issues and installation delays at the low end? Or is there something else that you're factoring in as you think about that range?

The way we look at the guidance is the lower and the upper end. We have a number of set instruments that we're planning to move next year or this year. It's also reagents and the service revenue. So it's a combination of these three components that gives us the lower end and the high end. We feel very good with the lower end. and we also see some positive on the other end.

Got it. Very helpful. Thank you, guys. Thank you. Our next question comes from the line at Matt Sykes from Goldman Sachs. Your question, please.

Hey, guys. This is Dave on for Matt. Congrats on the quarter. Following up on the outlook for the year, any additional color you can provide on the instrument versus consumable mix and within instruments, what you're expecting?

Yeah, so the expectation here is obviously the large majority will be instrument, yet with a growing base of reagents. and also expecting the service revenues to be slightly stronger than last year. So it's really still driven by instruments, the analyzer, the self-sorter, followed by the reagent, and then the service revenue.

Got it. And could you tell us more about the puts and takes affecting operating margin? I appreciate the color on that. R&D, any additional color on the leverage you're pulling in SG&A?

So you're talking about a gross profit margin?

Operating margin, gross profit margin as well.

Yeah. So, I mean, when looking at this year, we are continuing to invest in all the key areas, sales, marketing, R&D. to help us for the future, and that's also going to help us better manage our overall business in the years out past 2022. Great. Thanks.

Thank you. Our next question comes from the line of David Wessenberg from Piper Sandler. Your question, please. David, you might have your phone on mute.

Yes, I do. Thank you so much. So congrats on the quarter. So I want to first maybe talk about some of the reagents and some of the highest plaques users. Can you talk about their adoption cycle, what kind of or how fast they get ramped on the bigger and bigger panels in terms of the reagents? And can we extrapolate some of that behavior to maybe some of the future customers as you're getting more and more mix shifts in the reagents?

In fact, as you can see, our region is a new business to us. And our early customers pretty much have leveraged whatever available on the open market. And then for those customers, certain regions are already designed into their application. Now, I think from a site perspective, we are now getting to the space and start to work with our customers to optimize their panels leveraging the sea floor reagents as well as the reagents from our town hall acquisition. And so this may take some time, but we do see a great potential out there, especially the kits we have developed, including our 14-color and 25-color immunoprofiling, those type of kits. And actually, you know, especially the 25-color kit really helps in customers to, their type of research workload and enable them to really get onto those sophisticated, complicated panels, get onto the work they want to look at. So I think we see great potential for those type of kits we are developing right now. This is also going to continue to be the focus of the company on our R&D side and expect we'll have more and more of those type of kits coming out.

appreciate the color there. Um, you know, and this question came up for a lot from investors in terms of a competitor's launch into a new sales order. And I believe this competitor is the, uh, the number one, um, company in terms of placements of flow cytometers, just generally, um, do you anticipate any impact from that new flow, uh, sales order in, um, in terms of, of your instrument placements on the year, or, you know, do you feel, still feel you, you really do have, um, such a competitive advantage in terms of your technology that it probably won't hesitate any customers won't hesitate to continue to buy your products.

Yeah, we have noted the pre-announcement of the tools they are going to launch, but until we have seen it on the market, on the customer side, it's very difficult for us to assess the kind of impact But we are paying attention to it.

Gotcha. Okay. And then, you know, on the last question in terms of your TAM expansion, I think you've given color in the past. You know, you have an $8 billion TAM. You know, this could expand over the years to I think it was $23 billion. Can you give us some of the proof markets that might be near-term TAM expanding markets that you're seeing with customers you know, maybe today and over the next couple of years, and I'll stop there. Thank you.

Yeah, I think, you know, we actually just mentioned about the five areas of publications. Actually, pretty much summarizes the type of applications our tool today are supporting, right? So, we certainly, this is just kind of for folks areas, Then I'm more beyond that. Got it.

Thank you.

Thank you. Our next question comes from the line. Max Masucci from Cowan. Your question, please.

Hi. This is Stephanie on for Max. Thanks for taking the question, and congrats on a great quarter. So I just wanted to follow up on some of the questions on the reagent business. So it's been just over four months since you launched your 25-color immunoprofiling assay. How has the demand for this assay been ramping, and are you seeing most of your customers order the 18-color kit on a standalone basis, or are most ordering the assay along with the seven reagents provided by BioLegend?

I think mostly for both, instead of A plus B parts.

Okay, great. Thanks for that. And then as a follow-up, so if you compare some of your earlier customer wins between 2017 and 2020 to the customers you've won over the past year, are you seeing any difference in their willingness to adopt your internally developed reagents and reagent kits versus sticking with their original third-party reagent provider?

In fact, we do see a lot of interest in the kits we have developed, in fact, And our team has been very busy in our operation trying to deliver those kits to meet our customer demand.

Okay, great. Thank you. And then if I could sneak in one more. So I'm just curious, has your relationship with BioLegend helped to accelerate your pace of new customer wins or expanded your customer reach? And has your relationship with BioLegend improved your ability to access any new customers?

BioLegend is one of the reagent partners we have been working with actually throughout the life cycle of our product since its launch. And we, in fact, have been working very closely with quite a few several other reagent partners as well, as you can clearly see, because the technology we have really enables the use of lots of various reagents. definitely helps on both ends for us as well as our leading partners.

Okay, got it. Thanks for taking my questions.

Thank you. This does conclude the question and answer session as well as today's program. Thank you, everyone, for your participation. You may now disconnect. Good day.