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spk03: Welcome to SITAC's third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. I would now like to hand the call over to Paul Goodson, Investor Relations. Please go ahead.
spk01: Thank you, operator. Earlier today, SciTech Biosciences released financial results for the quarter ended September 30th, 2022. 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 Jean-Meneau, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during the call. that are forward-looking statements within the meaning of the federal securities laws, including statements regarding CITAC's business plans, strategies, opportunities, and financial projections. These statements are based on the company's current expectations and inherently involve significant risks and uncertainties that could cause actual results or events to differ materially from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements in the press release CITEC issued today and in CITEC'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. Reconciliation 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, SCITEC disclaims any duty to update any forward-looking statements, whether because of new information, future events, or changes in its expectations. This conference call contains time-sensitive information and is accurate only as of the live broadcast November 9, 2022. With that, I would like to turn the call over to Wen Bin.
spk05: Thanks, Paul. and welcome everyone joining the call today. I want to start by again thanking our team at SciTech for their dedication and execution as we close out the third quarter of 2022. On today's call, I will begin with a recap of our progress this year and discuss how SciTech continues to advance toward our mission and vision. And then I will turn the call over to Patrick for a more detailed look at our financial results and outlook. Our results this quarter demonstrate the success of our efforts to operate our business efficiently and effectively in a challenging macro environment. We achieved the continued improvement across growth margins, net income, and adjusted EBITDA, all while further growing our sales across the globe, diversifying our revenue base, and executing on our broader strategy. Although macro factors continue to impact the broader industry, I'm proud of our team's achievements and demonstrated ability to adapt to the evolving environment and I'm confident for the remainder of 2022 and beyond. As we look at the industry landscape, DICUS continues to stand apart in the field as we provide our customers with an end-to-end solution consisting of instruments reagents software and application services our unique portfolio of comprehensive solutions positions us as a leader in the sector and we are proud of the demonstrated value we provide to our customers this year we have consistently highlighted our comprehensive suite of products and services, which has led to a further diversification of our revenue stream beyond the sale of instruments. As we have said previously, beyond our original suite of instruments, which continue to see solid demand, we expect our reagents and sales sources to contribute considerably to our future enterprise revenue growth. I'm pleased to say that our installed base of instruments continue to achieve robust growth in the field. During the third quarter, we placed 142 instruments, bringing our total installed base to 1,501 instruments as of the end of Q3. Furthermore, these placements reflect our core strategy to achieve growth across the range of users. from high-dimensional cell analysis users to entry-level users. 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. Along those lines, I want to take a moment to speak to how our strategy of expanding our global penetration has demonstrated results for our company. In last year's third quarter, sales within the U.S. accounted for 70% of our company's revenue, while the EMEA and the APAC regions were only 18% and 8%, respectively. Now, in line with our expansion efforts, in this past quarter, our EMEA sales grew to account for one quarter of our overall revenue. Further, our APEC region sales as a percent of total grew by 10 points, now representing 18% of CITEX overall sales. Clearly, our strategy is yielding results, and I look forward to this continued progress to expand our presence globally. In addition to continuing to grow our instrument base and overall revenue, I want to again acknowledge our team's successful efforts this quarter and throughout the whole of 2022 in operating in the face of challenging macro conditions and achieve strong results. This quarter, our growth margins were over 66% and adjusted growth margin over 68%, both expanding over the prior year. And on top of that, We reported a net income of $1.6 million, and our adjusted EBITDA grew significantly from last year's third quarter. And importantly, as we continue to see increased scale in our reagent business, as well as other high margin offerings, I'm confident in our ability to continue to consistently achieve strong and stable margins. I want to reiterate. These achievements are the result of the diligent efforts of our entire team throughout SciTech, not by accident. It is this focus on efficient and effective operations that I believe sets us apart in the field and that positions us for further success as we move ahead. For example, as we have discussed previously, our team is able to withstand micro-pressures by leveraging our global workforce in order to manage through inflationary and supply chain pressures. Furthermore, our intentional strategy to maintain a path inventory buffer provides a further mitigation of potential supply chain disruption to insulate our operations from constraints. In all, we continue to be focused on execution, and I remain confident in the SciTech team's demonstrated ability to manage through this environment and continue to succeed despite the ongoing challenges. At the end of April, we announced the appointment of Todd Garland as our Chief Commercial Officer. And now, only six months into the role, Todd has been instrumental in our company's recent success. Among his many areas of focus, Todd has developed an execution plan for our European sales strategy. We've demonstrated results already and more to come. More recently, just last week, we announced the appointment of Chris Williams as our Chief Operating Officer to lead and execute CITEX global operation strategy to scale up our capability to support our mission as a full solution provider to our customers. Prior to joining SciTech, Chris was the VP of Engineering, Technology, Operations, and Innovations for Thermo Fisher's Pharma Services Group. And before that, he was VP and the General Manager for Single Use Technologies, and the VP and the General Manager for Bioprocess Equipment and Automation, both at Thermo Fisher Scientific. I want to take a moment to welcome Chris to our team at SciTech. He joins us as an important time for our company as we are on the growth trajectory that requires the ability to scale. Around those lines, our focus is on ensuring that this growth is conducted efficiently as we target markets with large scale and automation and the process improvements are critical components of this. We are confident that Chris is the right person to help lead us forward and make the most of our growth opportunities. And we are excited for what comes next for our organization. As we continue to grow our offerings and the base of instruments, regions and services, our technology has now been validated by 881 peer-reviewed publications as of the end of the quarter. This quarter alone, there were 112 peer-reviewed publications mentioning SciTech. I'm very proud of this accomplishment, which speaks to the momentum of our platform and validates the use of our offerings in the scientific community. Of note, one paper on HIV published in Nature by researchers at Scripps Research Institute showed how a slower immunization process holds promise for difficult vaccine targets. In a second Nature paper, researchers from NYU Medical School showed how gut bacteria direct T cells to adopt distinct functions in the adaptive immune system. Microbiome research is rapidly growing, and we are pleased that our FFT platform provides insights into this promising area. As you can see, these papers and many others demonstrate the proven real-world applications of our technology and services to the scientific community. In all, once again, I'm pleased with the progress our team has made this quarter and throughout 2022. As we continue to push forward a cadence of new products and applications, we remain deeply focused on providing a complete cell analysis solution to our customers. We look forward to continuing to provide our novel FSP platform to these customers as they push the bounds of scientific discovery and the clinical progress. With that, I will now turn the call over to Patrick. for more details around our financials.
spk04: Thanks, Wenbin. Total revenue for the third quarter of 2022 was $40.5 million, an 18% increase over the third quarter of 2021. During the third quarter, total revenue was adversely affected by the timing of certain sales as well as foreign currency headwinds, given the continued strengthening of the U.S. dollar. As a greater portion of our sales have shifted toward commercial customers, which are calendar year-based, we expect the timing of some sales to transition from the third quarter to the fourth quarter of this year. Gross profit was $26.9 million for the third quarter of 2022, an increase of 26% compared to a gross profit of $21.3 million in the third quarter of 2021. Gross profit margin was 66.4% in the third quarter of 2022, representing a 450 basis point expansion compared to the 61.9% in the third quarter of 2021. Adjusted gross profit margin in the third quarter of 2022 was 68.4% compared to 63.5% in the third quarter of 2021, after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles. Operating expenses were $25.5 million for the third quarter of 2022, a 39% increase from $18.4 million in the third quarter of 2021. The increase was primarily due to expenses to support continued growth of the business, including further investments in sales and marketing, R&D, and costs related to operating as a public company. Research and development expenses were $8.7 million for the third quarter of 2022, compared to $6.1 million in the third quarter of 2021. Sales and marketing expenses were $8.8 million for the third quarter of 2022, compared to $6.6 million for the third quarter of 2021. General and administrative expenses were $8 million for the third quarter of 2022, an increase from $5.7 million for the third quarter of 2021. Despite our revenue coming in slightly below our expectations, As a result of the timing dynamics and FX impact I mentioned, we achieved net income of $1.6 million this quarter compared to $1.4 million for the third quarter of 2021. Additionally, adjusted EBITDA in the third quarter of 2022 was $7.3 million compared to the $5.5 million in the third quarter of 2021 after adjusting for stock-based compensation, expense, and foreign currency impact. As we indicated, our third quarter revenue was adversely impacted by the timing of certain sales, as well as foreign currency exchange rate, given the strengthening of the U.S. dollar. Despite these headwinds, we continue to expect full year 2022 revenue to be closer to the high end of the range of $160 million to 168 million, ending the year strong. FITEC continues to be in a strong position financially, continues to see solid demand, and is committed to remaining profitable on an annual EBITDA and net income basis, as well as achieving our long-term growth targets and objectives. In addition, our strong balance sheet, including a solid cash position and no debt, underpin the strength of our healthy organization. We will continue to invest in our core business as it relates to new projects and innovations while remaining opportunistic in the M&A environment and focusing on growth in all key areas. With that, I will turn it back over to Wenbin.
spk05: Thanks, Patrick. I'm proud once again of SciTech's achievements this quarter and throughout the duration of 2022, punctuated by our strong gross profit margin, net income, and adjusted EBITDA results. We operate our business according to four key pillars, each of which is integral to our enterprise's mission and forward vision. These pillars, which are instruments, applications, are informatics and clinical, lay out our roadmap for operating our business now and in the future with intentional and purposeful execution. As we continue to build out our team at the leadership and operations level, I'm ever more confident that our daily work aligned with these four pillars adheres to and executes on our overall strategy. I would like to express my appreciation for our team around the world. It is their excellence, hard work, and a shared belief in our important mission that drives our progress. Thank you, everyone. And we will now open the call for questions. Operator.
spk03: As a reminder, to ask a question, you will need to press star 11 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Teha Savant of Morgan Stanley. Please go ahead.
spk06: Hey, guys. Good evening, and thanks for the time here. Maybe, Patrick or Wenbin, I'll just start with trying to get a sense of how much of the The softness you saw in the quarter was FX versus instrument slippage, and then I have a couple of follow-ups.
spk04: Yeah, so Petras, thanks for the question. So the majority is more slippage into the next quarter, and obviously we're also seeing the FX impact. So I would say that the 60% may be delayed, and the remainder is FX.
spk06: Got it. That's very helpful. Now, in terms of just your sense of whether this is a one-time thing or given the skew shifting a little bit towards commercial customers here, do you think there's risk of further slippage here into 2023 for some units that you had hoped to ship in the fourth quarter? And then the context for the question, guys, is basically some of the Some of your tools peers have talked about, you know, large biopharma customers perhaps freezing CapEx budgets for the rest of the year. So any color you can share there would be helpful.
spk04: Yeah, so at this point we're not expecting – so we reiterated our guidance for the year, as I mentioned. So at this point we are not expecting further separation into next year, yet the environment evolves quickly. From what we are looking at, at this point, we're not expecting any sliverage.
spk06: Got it. And then one for you, Wenbin. You know, as you think about your instrument backlog heading into next year, I know you've reiterated sort of expectations for, you know, I think it was 30% growth year over year. Is that something you still feel good about? And at least at a qualitative level, can you share some color on that How much of the instrument shipments that you're looking at in 23 are essentially covered by the backlog that you will have exiting this year?
spk05: We are actually right now working on our budget for next year, and we don't really have a very concrete number to share with you, but as time goes by, we will let you know. But in the meantime, I think as Patrick earlier just mentioned, we are very confident with regarding to what we see today in achieving our overall year revenue guidance for the year.
spk06: Got it. So that 30% growth, is that still on the table or is that under review as you work on your next year's plan, Wendon?
spk05: It continues to be on the table, yes.
spk06: Okay. Got it. Thank you.
spk03: Thank you. Our next question. comes from the line of Matt Sykes of Goldman Sachs. Please go ahead.
spk08: Thanks. Good afternoon, Winn, Ben, and Patrick. Moving to our first question, Patrick, you talked about the greater portion of sales in the commercial customers causing the shift from maybe Q3 to Q4. Could you talk about maybe what that level was in terms of commercial customers, in terms of percentage and what it's become? And should we be thinking in terms of going forward more seasonality in the business on a regular basis for kind of annual revenues?
spk04: Yeah. So, Matt, thanks for the question. So, as you know, I mean, we are heavily linked to seasonality as a business. And when I look at our business in the last two years, what we've typically seen is the second half to be stronger, with the force quarter to be substantially stronger as well, which we expect to see transfer this year, looking at our funnel and some of the activity we have in the works. The commercial aspect is we've seen an increase in the commercial activity of biotech and So the expectation is that this will also continue in due fall.
spk05: Just to add on top of that, if you look at our overall distribution between academic and industrial customers, in fact, this year compared to last year, the shares of industrial customers has increased quite a lot, and that certainly also contributes to the timing of the orders for this year.
spk08: Got it. And then as you look at the expansion you've made in Europe and APAC this quarter, and I know, Wenbin, you made a statement about when the CCO made a plan about expanding into Europe was one of the first plans that they made. Could you maybe talk about the customer segments where you're having early success driving that higher level of penetration in those markets? Is it the biopharm and biotech or are there other
spk05: Other customer segments that are driving that growth in Europe and a pack specifically And actually if you look at both Europe and in our international Sales in fact has increased substantially this quarter comparing to the power quarters primary driven of course by the industry customers as you can see right now and because overall uh customer uh moving toward more and more toward this type of customers right now and in addition actually in china we also see a great part of the sales moving into clinical as well got it and just my last question just can you give us any sense in terms of um the cell counter and how that progress is going i know you've called it out in previous quarters that
spk08: The launch went very well, and the momentum is really good. Any additional color you can provide on the cell counter specifically?
spk05: You mean the sales order?
spk08: Sorry, sales order, yeah.
spk05: It continues to increase, although we don't really separate the number of sorters from the analyzers, but the share of sorters is increasing, yes.
spk04: Maybe I can just add to that. Sequentially, actually, the number of sodas that we've sold have also increased quarter to quarter. So we are seeing continued demand and strong demand for the sub-sodas.
spk08: Got it. Thank you very much.
spk03: Thank you. Our next question comes from David Westenberg of Piper Sandler. Please, go ahead.
spk02: Hi, thank you for taking the question. So I'm going to ask something similar to what Tejas asked and maybe a little bit different way. Just in terms of the slippage from Q3 to Q4, I think, you know, usually you talk about backlog or instrument order lead time being, you know, three months. So are you fairly comfortable with the fact that almost all of those Q3 expectations aren't a Q4. I just want to start with just that.
spk04: Yeah, so the way I would answer is we have seen actually a higher funnel level at this point, so that's the reason why we feel very confident about our Q4 activity. Okay, perfect. That is helpful.
spk02: And, you know, we're not the best models on Wall Street, so it could be our mistake here, but the instrument placement number did beat us, but the service revenue, or I mean the product revenue, missed us. So is there something going on with Mix you want to maybe note, or is it maybe something on ASPs, or am I just a terrible modeler? And the last one is acceptable.
spk04: I won't say that. So the service revenues have come out very strong as a result of just more instruments coming out of warranty. On the product side, your model might be off a little bit, but it could be a combination of both the ASP number of instruments you have in your model. So I'm not exactly sure how to answer that question.
spk02: Okay, got it. And then I'm going to lastly go on to what you're talking about outside the U.S., you know, the investments you made outside the U.S. Can you talk about, you know, how many markets you're maybe not in relative to TAM outside the U.S.? And I don't know if maybe I can ask this, make this a little bit more clear. What part of markets, like what percent of markets do you feel like you're not yet accessing?
spk05: um because of sales and um you know can can you talk about you know some some of the needs to to invest in those geographies and and i'll i'll stop after this one uh i think uh first years in the u.s definitely and uh there's a large chunk of uh clinical market we are not in and we are working on this uh internationally we have just started the clinical uh penetration into European market. Probably it's going to take us a few quarters to see some meaningful results. China, we have done very well, in fact, across our research and clinical side. And then it's the clinical reagents, which is another area we think there's a great potential opportunities for SciTech in both China and Europe. Of course, the US is linked to our overall clinical
spk03: Thank you. And our final question comes from the line of Max Masucci of Cohen. Please go ahead.
spk07: Hey, this is Joe on for Max. Uh, gross margins came in ahead of our model in the quarter and saw a really nice growth, both year over year and sequentially. It'd be great to just get some detail into the B here.
spk04: Yeah, I think it's continued management of, um, um, Supply chain is continued management of what we call the excellence manufacturing process, taking full advantage of global footprint. So a number of vectors here that we're working on that are helping us. So overall, thanks for pointing that out, but we are very pleased with the post-profit margin as well.
spk07: Got it. And then during the analyst day, I believe you mentioned that recent sales, the percent of total revenue could end up in the mid to high single-digit range in 2022. I was wondering how that's shaping up against expectations and if there's any additional color you could offer for demand in your range of business in the quarter. Thanks. Yeah, we're on track to watch that, yes. Got it. And then lastly, in the Q2 call, there was mention of inventory levels. we're at an all-time high around $45 million. Just curious how that trend is in the quarter, and will it keep building or kind of wind down in Q4?
spk04: Yeah, so the expectation is in Q4, it should be flat-ish over Q3.
spk03: Great.
spk04: Thanks for taking the question.
spk03: And thank you. That does conclude the Q&A session and our conference for today. Thank you for participating. You may now
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