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spk04: Today, and thank you for standing by, welcome to the SciTech Biosciences second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's 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. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Paul Goodson with Investor Relations.
spk00: Thank you, Operator. Earlier today, SciTech Biosciences released financial results for the quarter ended June 30th, 2023. 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 this call that are forward-looking statements within the meaning of the federal securities laws, including statements regarding Scitech'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 materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward Looking Statements in the press release CITAC issued today and in CITAC'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 of the most directly comparable GAAP financial measure may be found in today's earnings release submitted to the SEC. Except as required by law, Scitech 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 August 8th, 2023. Before I finish, I want to mention that we are planning an investor day in late November in New York, where we will look forward to sharing more about our business. We will update you with details as we get closer to the event. With that, I would like to turn the call over to Wenbin.
spk08: Thanks, Paul. and welcome everyone joining our second quarter earnings conference call. On the call today, I will discuss our results for the second quarter as well as our progress across our four key strategic pillars to drive growth. Then I will turn the call over to Patrick for a more detailed look at our financials and an update on our outlook for 2023 before we open it up for Q&A. Starting with our second quarter results, we achieved $49.7 million of total revenue, representing growth of 24% year-over-year. This included approximately $8.2 million of revenue from the product lines acquired from Luminex. Excluding acquisition-related revenue, our organic revenue was $41.5 million. Our results were driven by improvement across the US, particularly with our farmer and the biotech customers, where orders that were delayed at the end of the first quarter began to come in. Yet, we continued to see impact from our biopharma customers in Europe during the second quarter. Overall, while the macro environment continued to be somewhat challenging, These results are a testimony to our dedicated efforts to operate our business efficiently and effectively, all while further growing our sales across the globe, diversifying our revenue base, and executing on our product strategy. Patrick will provide more detail on our financial results momentarily. Cite 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. We are focused on driving growth and diversifying revenue streams. In addition, we expect our recent acquisition of referral cytometry and imaging business from Luminous will open new markets and applications. As we complete the integration of the acquired business over the course of this year, we are taking proactive measures to optimize our business operations and advance our overall strategy. I will share more details on our progress with the integration shortly.
spk07: As I have mentioned before, we operate our business according to four key pillars.
spk08: each of which is integral to our long-term growth. These pillars, which are instruments, applications, bioinformatics, and the clinical, help execute our overall strategy, and we believe will drive excellent growth over the longer term.
spk07: Starting with instruments.
spk08: During the second quarter, we placed 112 instruments from our organic site portfolio. Altogether, this installed base has now reached 1,878 instruments. This does not include the installed instruments of Amnesimaging and the Guava Microcapitalist product line acquired from Luminix, which also continued to grow during the quarter. Collectively, these organic and acquired instrument placements represent growth across diverse applications, spanning entry-level to high-dimensional cell analysis. We cater to a broad spectrum of customers and provide tailored applications to meet their specific needs. Looking ahead, we look forward to driving instrument adoption across our product portfolio. This growing infrastructure base We'll also create a receptive market for new instruments that we plan to launch in the coming years, leveraging SciTech's advanced technologies alongside the powerful technologies acquired from Luminex. During the quarter, we proudly shipped our 100th SciTech Aurora cell solar system, launched in June 2021. The scientific aurora cell solder builds upon the remarkable FSP capabilities of our aurora cell analysis system, delivering unparalleled high sensitivity performance at the single cell level. It empowers researchers to effortlessly and seamlessly resolve and sort even the most challenging cell populations, preparing discoveries and optimizing efficiency in cell analysis workflows. It is exciting to see how full special profiling analysis is taking hold and redefining the new normal in the field. This further motivates us to forge ahead with unwavering dedication, shaping the future of cell analysis. Turning next to applications, which include our reagents and kits. Revenue from reagents and kits continues to be a fast-growing product area, highlighting the increasing demand for our offerings, which are focused on making the user job easier, faster, and more accurate. We continue to actively collaborate with our partners to expand our reagent portfolio and develop application-specific kits.
spk07: In June, we launched
spk08: The C4 Milo-derived suppressor cells, or MBSC kits, optimized on our FFT platform, significantly broadening the application menu for our customers by offering them enhanced capabilities and flexibility in their research and analysis. With this launch, we are addressing a wide range of research needs across various applications particularly in cancer research and development, where myeloid-derived suppressor cells play a crucial role. Broadening our manual of application is a critical part of our strategy that helps us both meet the needs of our existing customers and helps us attract new customers seeking comprehensive solutions. The breadth of our applications can be seen across the wide range of peer-reviewed publications that include our technology. During the second quarter, there were 139 new peer-reviewed publications mentioning SciTech, bringing the all-time number of publications to over 1,300. With the growing number of peer-reviewed publications featuring our product, Researchers are embracing sci-tech's innovative solutions to drive advancement in scientific research. As an example of how significant some of these research efforts are, two recent papers highlight the power of our technology in immunooncology applications. The first paper, published by biotechnology companies and AI for bowel in cancer immunology research elucidates the signaling mechanism of melanoma tumors that are resistant to immune checkpoint inhibitors. They also showed how their therapeutic candidate developed using synthetic biology techniques improved on the natural therapeutic properties of innate cytokines. The second paper published in the In Nature by Clinton Shumes at the Cedars-Sinai Medical Center describes how bladder cancer cells adapt to survive and identify biomarkers for improving cancer immunotherapy.
spk07: Bioinformatics is our third strategic area.
spk08: A key part of our bioinformatics strategy is enabling our customers to streamline their experiment workflow. To that end, we are excited to share that the user engagement and demand for the SiteCloud, launched late last year, has been doing exceptionally well. SiteCloud's digital ecosystem offers a comprehensive suite of special panel design tools seamlessly integrated into a centralized platform. This cutting-edge solution empower the researchers to prepare and optimize their experiments remotely, streamlining the process from panel design to data acquisition. The accelerated time to insight is invaluable across a broad range of applications, from immunology to oncology, infectious diseases, and inflammatory diseases. The success of Cytocloud not only benefits our extensive existing user base, but also pave the way for future users as we continuously enhance its capabilities, incorporating data management, sharing, and analysis features. With Data Cloud at the forefront, we are poised to revolutionize single-cell analysis to drive groundbreaking discoveries and to propel scientific research to new heights. One topic we have not discussed previously is sci-tech's use of artificial intelligence and machine learning to enhance the value of our instruments. Sci-tech cell solders use machine learning to optimize sorting as well as to analyze droplet shape, automatically making flow rate adjustments and performing other functions. The Omnics AI software is based on deep machine learning and is a modified version of an AI platform that won the ImageNet challenge.
spk07: Turning to our clinical opportunities.
spk08: Several of our products are approved for clinical use in both China and the European Union, where our most common sale for clinical applications is the Northern Lights TLC system. accompanied by our growing seafloor reagent product portfolio. In both China and the European Union, the clinical market is an attractive long-term business opportunity for SciTech. As a reminder, we are preparing to submit our product for FDA clearance in the U.S., where we believe our powerful FSP platform is cleared will bring enhanced diagnostic power and visibility to the benefits of patients by providing doctors a clearer and more detailed view of each patient's condition. Part of our clinical strategy is to collaborate or partner with other organizations for development of clinical applications. These partnerships underscore our commitment to providing customers with comprehensive solutions and driving innovation with cutting-edge technology. We are actively engaged with partners for opportunities across product development and the clinical kit advancement. To that end, we are excited to share about our initiative with the Swiss Pro Cytometry School and the Geneva University Hospital focusing on minimal residual disease or MRD detection in leukemia and lymphoma. We are working diligently with the Geneva University Hospital to harness the potential of MRD analysis using our advanced technologies and tailored solutions. As we continue to collaborate with key partners and institutions, we remain dedicated to expanding our clinical reagents offering and furthering our full solution provider mission. Now, I would like to spend a moment to discuss our progress with the integration of Luminex flow cytometry and imaging business. As we have shared, this acquisition provides important contributions to our technological abilities product range, customer base, and commercial reach. After approximately five months into integration, we have completed several important milestones and still have some key steps ahead of us. Our Amnesty operations in Seattle are now fully integrated and functioning. We are pleased with the smooth transfer of operations. Additionally, we have made remarkable progress in independently manufacturing the Wawa product line. The transfer of Wawa manufacturing to SciTech facility is nearing a successful completion. This strategic move enables us to consolidate our manufacturing operations, which in turn is expected to yield substantial cost-saving advantages for the company. driving improvement in growth margin for GuaBa instruments. We are confident that the final stage of this transfer will be executed seamlessly. From a commercial perspective, we have cross-trained our commercial personnel on the new technologies, that is, AMNES and GuaBa products to CISED employees and the CISED products for our new team members from Amnes and Guava. In addition to cross-training, we launched a cross-selling plan targeted at SightTech FSP, Amnes, and Guava products. With our integrated commercial team, we are enhancing our ability to offer comprehensive solutions to our valued customers. We continue to be excited by the value of the Luminix acquisition in both the near and the long term. The near-term value of this acquisition consists of the significant cross-selling opportunities and the service operational efficiency improvements with the fully integrated sales and the customer service team. In the longer term, there are a number of new products we plan to introduce by combining FFP imaging and the microcapillary technologies. SciTech's acquisition and the integration of the Amnex and the Guava product lines has provided a great opportunity for SciTech to transition from a technology-oriented company to a market-driven business. Historically, our operations have been guided by the technology we have developed. with the foresight to recognize major market opportunities for our full-spectral technology in disease research, drug development, translational medicine, and clinical applications. While these opportunities are abundant and growing, we now have a larger addressable market and the new product opportunities through Omnics and Guava. To better address these markets, We have combined the original SciTech sales team with the Omnibus and Guava sales team, which will significantly increase our global reach. With that, I will now turn the call over to Patrick for more details around our financials.
spk05: Thanks, Wenbin. Total revenue for the second quarter of 2023 was $49.7 million. a 24% increase over the second quarter of 2022. This included approximately 8.2 million of revenue from the products and services acquired from the Luminex transaction, which closed on February 28th. This was our first full quarter of recognizing revenue from these product lines. Organic revenue, excluding the acquired product and services was 41.5 million, an increase of 3% compared to the same period of 2022. While the macro environment was still somewhat challenging during the second quarter, we did see improvements across the U.S., particularly with our pharma and biotech customers, as orders that were delayed at the end of the first quarter began to materialize. On a non-GAAP constant currency basis for the quarter, revenue was $50 million. Gross profit was $28.2 million for the second quarter of 2023, an increase of 15% compared to a gross profit of $24.6 million in the second quarter of 2022. Gross profit margin was 57% in the second quarter of 2023, compared to 61% in the second quarter of 2022. Adjusted gross profit margin in the second quarter of 2023 was 60% compared to 64% in the second quarter of 2022 after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles. Operating expenses were $37.3 million for the second quarter of 2023, a 47% increase from $25.5 million in the second quarter of 2022. The increases in OPEX were primarily due to expenses related to increased headcount from the Luminex acquisition and personnel-related expense across R&D, sales and marketing, and G&A. Over time, as revenue increases, we expect these expenses to become a smaller portion of our overall revenue. Research and development expenses were $12.1 million for the second quarter of 2023 as compared to $8.4 million for the prior year period. Sales and marketing expenses were $14.4 million for the second quarter of 2023 as compared to $8.4 million for the prior year period. General and administrative expenses were $10.8 million for the second quarter of 2023, as compared to $8.6 million for the prior year period. Loss from operation was $9.1 million for the second quarter, compared to a loss from operation of $0.9 million for the second quarter of 2022. Net loss in the second quarter of 2023 was $4.4 million compared to net loss of $0.7 million in the second quarter of 2022. Additionally, adjusted EBITDA in the second quarter of 2023 was positive $1.5 million compared to positive $4.8 million in the second quarter of 2022 after adjusting for stock-based compensation expense. Cash, cash equivalents, and short-term investment were 298.8 million as of June 30th, 2023. Now turning to our guidance for 2023. We continue to expect our full-year revenue to be in the range of 205 to 220 million, representing overall growth of 25 to 34% over full-year 2022. This is comprised of revenue from our existing organic business to be in the range of 180 million to 190 million and a total of 25 to 30 million of revenue contribution from the business acquired from Luminex. This assumes no change in the rate of foreign exchange as well as some continued impact from elongated sales cycle from our biotech and pharma customers. With that, I will turn it back over to Wenbin.
spk08: Thanks, Patrick. SciTech has continued to demonstrate our commitment to developing tools, reagents, and the software to advance the next generation of cell analysis. I would like to express my deep gratitude for the team we have here at SciTech. It is their excellence, hard work, and shared belief in our important mission that drives strong progress. We believe SciTech is particularly well positioned to address multiple opportunities given the power of our advanced technologies, the strength of our capital base, the growing awareness of our extended product portfolio, and the extraordinary talent of our employees. I'm confident that our daily work aligned under our four pillars adhere to and execute our overall strategy. I want to thank everyone for joining today's call, and we will now open it up for questions.
spk04: Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Andrew Cooper with Raymond James. Andrew, go ahead with your question.
spk01: Hey, everyone. This is Noah standing in for Andrew. um thanks for taking my question my first question is that given all the noise with the funding environment um i'm just curious to see what you're seeing on that front you know with your second quarter results coming in pretty healthy um as well as you know a contrary tone relative to others in the space so what are you seeing on that front yeah so what we've seen is um um another by the way that's patrick thanks for the question so
spk05: What we've seen is that the overall, especially here in the U.S., we've seen increased demand, and we've been able to turn those into sales. But we have also seen bigger pharma coming in. So overall, I wouldn't say the funding is back, but we've seen a quarter that was more in line with what we would expect compared to our Q1 numbers.
spk01: Awesome. Thank you. And if I can get one more in, are you, like, is there any disparity in what, you know, is working in the current macro environment, you know, in terms of, let's say, higher end versus, you know, lower end? Because it seems like FCI did pretty well in the core of SciTech, you know, as well. But does anything jump out on that in terms of higher versus lower end products performing a certain way?
spk05: I would say that, and I'm going to also let Wenbin chime in, but overall I think we had a spread of all the instruments, and obviously we are seeing now an increase of demand for the cell solder, which is a high-end product.
spk08: Yeah, absolutely, and the cell solder definitely is an area that will have enjoyed some healthy growth here.
spk01: Awesome. Thank you so much.
spk04: Our next question comes from Matthew Sykes with Goldman Sachs. Matthew, go ahead with your question.
spk03: Hi, this is Evie Kozlowski on for Matt. Thanks for taking my question. So what gives you confidence in your guide given the pickup of growth implied for the back half versus the first half of the year? And what kind of visibility do you have for the remainder of the year?
spk05: Well, that's a great question. Yeah, so obviously the... Looking at the, first of all, looking at the macro environment and with the probability of a recession going down, I think we feel more upbeat about the second half. Having more boots on the ground with the combined sales team and being fully trained, that gives us increased confidence. But we also expect to see accelerated growth in the instrument sales, again, on continued demand of our but also accelerate demand for the self-sorter, which has been very well received. Remember, we crossed that 100 instrument mark just a few months ago, so we see continued demand for that. Finally, also expecting continued growth on some of the recurring business that we have. The service business has been very strong for us. So a number of items that will drive the growth in the second half.
spk03: Okay, great. That's helpful. Thank you. And then China, I know last quarter you noted particular strength in that market. Has that continued and has there been any changes to the competitive environment there? And also, does your additional investment in facilities there help your positioning versus local competitors?
spk08: Actually, Q2 overall, our China business continues to enjoy the healthy growth comparing to the same period last year. And Indeed, there are local competitors coming, but they are mostly in the entry level and lower end, which we don't really overlap that much.
spk04: Okay, that's helpful. Thank you. Stand by for our next caller. Our next question comes from Steven Ma with TD Cohen. Stephen, go ahead with your question.
spk09: Oh, great. Thanks for taking the questions. A follow-up question on the U.S. pharma and biotech strength that you saw. Could you give us a sense, was it broad-based amongst your customers, or was it weighted to a certain profile of the customer, such as, like, emerging biotech versus larger companies that were catching up?
spk08: Sure. Actually, as you recall, we had some delay in order during the last month of Q1. And quite a lot of those actually came back in Q2. That actually helps us with regarding to our overall farmer business during the Q2. On the other hand, we will continue to see elongated sales cycle from farmer biotech. Nevertheless, the business remains over there. It just takes longer time to close.
spk09: Okay. And just to dig in on what you said, so you're still seeing elongated sales cycles then?
spk08: Relatively speaking, yes. Yes, correct. Relatively speaking, and it takes longer time for us to close the deal. But they are not gone. They are still there. The demand is still there.
spk09: Okay. Right. Okay. So you're not, uh, so you're, is it still the case that you're, you know, you're still saying demand, you're not necessarily losing business. It's just that the sales cycle is being elongated. That's still what you guys are saying.
spk08: Yeah, correct.
spk09: Okay. Got it. And then, uh, if I could sneak in one more question, uh, you know, you talked about, uh, specifically some European weakness. Uh, could you, could you give us a little bit more color about, uh, market dynamics X, X, U S I know you already talked about China. but more specifically some of the European weakness that you mentioned? Thank you.
spk05: Yeah, so it's true that the European business has been a little bit lagging behind the U.S. and APEC at this point, yet typically the European market is much stronger on the second half, so we expect that market to pick up in the next six months.
spk07: Okay, thank you.
spk04: Please stand by for our next question. Our next question comes from Tejay Savant of Morgan Stanley. Tejay, go ahead with your question.
spk06: Hey, guys. This is Edmund on for Tejas. Thank you for taking my question. Appreciate all the color here on China so far, but I just wanted to dig into this a little bit more. It sounds like it's been performing very well for you guys, but your tools peers are noting deteriorating conditions in China. So I'm just wondering what's causing this difference in views or what you guys are seeing. Are you guys being insulated to a certain degree by innovation versus other products?
spk08: I think, yeah, even in the tool space, you may see the difference between recurring reagents revenue versus tool. And clearly, we continue to enjoy the incentive plan happened starting from 2003 to 2004 last year. Coming back to see how it's going to perform during the second half of the year, this is still something we are assessing, and indeed, I think there are lots of difficulties that we have been hearing about in China, but how it might impact us in the second half is still something to be seen.
spk05: Yeah, and I would just add to that, Edmond. Flow is not a new technology, so we are also enjoying a demand for replacement. We are enjoying also demand because of the spectrum that we have. So overall, I think we should expect to see continued demand compared to maybe some other tool companies.
spk06: Got it. That's very helpful. And on the last call, you guys noted that there were certain features of the Guava that need to be implemented into the Northern Light before you guys can accelerate the conversion of the user base. Can you provide some more details on that? And I was just wondering, how are you guys balancing between incorporating these features into the Northern Light to drive that user base's adoption versus focusing on the next generation platform that you're going to develop with the ATNIS imaging capabilities?
spk08: I think these are two different products. One is the high end of the market focusing more for customers in the discovery or collapse. And comparing to the Northern Lights or Guava features, so we do have teams actually working on these two subjects in parallel. We have different teams on different projects.
spk06: Got it. And then, Wenbing, you alluded to a potentially larger addressable market now that you have these Luminex products in your portfolio. Could you clarify on that a bit?
spk08: As you can see clearly, previously, our organic products focused more toward pharma biotech and those discovery and translational, while Guava more toward industrial QC, those type of entry-level customers. Now, combining these two, now we product portfolio that can meet the needs across varieties of user base applications.
spk06: So has your overall TAM changed since your prior use?
spk08: Not really overall. TAM has changed. It's just we have more targeted products to focus on different user base. Got it.
spk07: Thank you.
spk04: Stand by for our next question. Our next question comes from David Westenberg with Piper Sandler. David, go ahead with your question. Hi.
spk10: Thank you, guys. So, sorry, I'm going to go with a familiar topic on China. I don't know if you could quantify it, but there are many assumptions in the guide on China. I don't know if you want to give us a number or say a steady state from what you had, but It would just really help us understand maybe if there is further slowdowns or further commentary, how much of that guide would be at risk in that. Thank you.
spk05: David, we don't really break out the guide this way, but we've reviewed our guide as we do all the time, and we still feel good about where we are with the guide for the year. considering the funnel, and we look at the funnel looking at all the regions. So I will maybe leave it with that.
spk10: Okay. Great. And continuing on with the guidance, and, you know, I realize there's some integration between the Luminex flow cytometry products and the legacy products, but I think you called it out as $8.2 million of the Luminex revenue in Q2. I think you're guiding for 25 to 30. If I kind of take that same run rate, like I would assume a little bit of growth or acceleration for what you had in this quarter, is that the right way to think about it? Was I reading the press release correctly when I was looking at that?
spk08: It doesn't work that way. Typically, you know the business, right? Typically, we are a third-month company, and most of the orders come in during the third month. But on the other hand, from Luminix's perspective, right, we only have about 10 months for the year. And so if you work that numbers pretty much that will get to what we have projected for the whole year. Okay.
spk10: Okay. Um, great. Um, can you talk about if there's been any, you know, surprises, positive or negative from, from the portfolio now that you've had it since February and then, you know, kind of continuation of that question, you know, how's the integration going with the sales team? Is there any synergies that you're getting there that maybe you didn't call out at first? And is there any, you know, opportunities to, you know, rationalize the sales force or reorganize the sales force from here?
spk08: Not really a surprise, but we do have learned a lot through this integration. And especially with regarding to the technology embedded in the Lumines product portfolio, more we see, more we see the value of Lumines uh, this acquisition and we do feel, and it's going to help us, uh, not just for this year, for actually for the years to come.
spk10: Got it. And, you know, since I think I am the last of five, I'll squeeze in one more cause you know, uh, can do that. Um, so on the reagent, use the word, uh, fast growing in, in, in the, uh, in the prepared, um, remarks, So can we assume when you're using that kind of commentary, this is growing faster than instruments here? Is that the assumption now? And thank you. That's my last question.
spk05: Yeah, David, it's growing faster than our total revenue.
spk10: Yes.
spk04: Thank you, guys. I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
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