Cytek Biosciences, Inc.

time I would like to welcome everyone to SciTech Biosciences second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. If you would like to ask a question during this time simply press star 1 followed by the number 1 on your telephone keypad. If you would like to draw your question

press

star 1 again. Thank you. I would now like to turn the conference over to Paul Goodson head of investor relations. You may begin.

Thank you operator. Earlier today SciTech Biosciences released financial results for the quarter ended June 30th 2024. 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 Wen Bin Zhang CEO and CFO Bill McComb. Before we begin I'd like to remind you that management will be making statements during this call that are forward-looking statements within the meeting 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 involved 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 SciTech issue 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. Reconciliation of the most directly comparable gap 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 live broadcast August 6, 2024. Once again I would like to invite investors and analysts to attend the industry and academic conferences, meetings and seminars where we will be exhibiting SciTech's products. There are 43 of these events planned throughout the remainder of 2024 in the U.S. and around the world. While these are primarily geared to the scientific community they may offer an opportunity to interact with users of our technologies to learn why SciTech's instruments are so highly valued by our customers. There is a cost to attend most events and we have a limited number of spaces to accommodate members of the financial community so if you are interested in attending please contact me. With that I will turn the call over to Wenbin.

Thanks Paul. Welcome everyone and thank you for your interest in SciTech. On the call today I will discuss our performance for the second quarter of 2024 and the progress achieved on our strategic initiatives to drive sustainable growth and profitability. Then I will turn the call over to Bill for a more detailed look at our financial results and our updated financial outlook for 2024 before we open it up for Q&A. Revenue in the second quarter was $46.6 million dollars, an increase of 4% compared to the first quarter and a 6% decline compared to the second quarter of 2023 which was especially strong as it captured some delayed orders from the first quarter of 2023. Collectively revenue for the first half of 2024 grew 5% compared to the first half of 2023. Revenue in the second quarter of 2024 was comprised of a continued strong double-digit growth in AMIR and APEC offset by weakness in the US market where we continued to experience a slowdown in orders and elongated sales cycles, particularly concentrated in the academic and government segments of the US market. Further, while weaker versus the prior year, the biotech, pharma and the CIO segments improved sequentially versus the first quarter. We believe our performance in this academic and government segment of the US market was impacted by turnover on our sales team in some sales industries, a slow funding environment and an overhand of excess capacity from pandemic-era spending. We are working aggressively to bolster our sales team. We believe the elongated sales cycle was primarily a result of these market factors and not as a result of a change in competitive dynamics. Importantly, we believe the fundamental drivers of long-term growth remain in place in the US market and expect it to normalize over time. Specifically, we expect the large install base of conventional technology for all psychomakers will be replaced over time with special instruments and will be a growth driver for phytek going forward. As a result of our Q2 results and the slower than expected recovery in the US market conditions, we are slightly narrowing our guidance range and now expect full year revenue in the range of $203 to $210 million. The presenting growth of 5 to 9% over the prior year. Bill will provide more details on our financial results momentarily. In the second quarter, we were pleased to achieve 30% growth in service revenue as compared to the same quarter in the prior year. Chosen by our increasing install base of instruments. As a reminder, we expect our recurring service revenue will be a strong growth driver for phytek longer term. Notably, over the last 12 months, we have leveraged the increasing scale of our service operations to boost the labor and overhead productivity. Based on these efforts, we substantially increase our service growth margins by 8% points as compared to a year ago. Overall, while ordering activity continues to be weak in the US and the market recovery was not at the pace we would like to see, we believe that the growth of our service operations remains strong. And we are making steady progress with new and existing customers in our pipeline. As we navigate this dynamic environment, we remain focused on driving sustainable growth and productivity. And essential to this objective is strengthening our position as a market leader in flow cytometry. Turning to our growth strategy, as a reminder, our focus is on four key pillars, each of which is integral to our long-term growth. Instruments, applications, bioinformatics, and clinical. In the second quarter, we expanded our global footprint with 147 instruments sold, reaching a total installed base of 2,656 units, including 299 amnets and the GUAVA instruments shipped since the acquisition of the Luminous Flow Cytometry and the imaging business. This total does not include the thousands of installed amnets and the GUAVA instruments sold prior to our acquisition of the Luminous product launch. We believe that this growing indoor base will serve as a durable foundation to drive adoption of our current and future product offerings and to deliver growth across our diversified revenue base. During the second quarter, we were excited to have announced our Enhanced Small Particle Detection Module, or ESP, a new product that can be added to new or retrofitted to existing aurora and northern lights instruments. This new capability allows our already powerful cell analysis system to provide further sensitivity and resolution improvements for detecting viruses and other sub-cellular particles, all while maintaining size as well-known high resolution and high parameter capabilities for cell analysis. By bringing improved speed and accuracy to the study of extracellular verticals, -to-cell communication and cell signaling in many physiological states, we expect to accelerate the pace of discovery, therapy and diagnostic development and benefit the scientific community as a whole. For SciTech, we believe these new capabilities will further distinguish our cell analysis solutions as the preferred choice among researchers and clinicians. Turning to bioinformatics, our main goal is to enable our customers to streamline their experiment workflow through our software tools, which drive adoption and utilization of our cell analysis solutions. Our success in bioinformatics can be measured through user engagement and demand for SciTech Cloud, one of our core bioinformatics offerings. We now have over 11,000 users of the SciTech Cloud, representing an average of about five users per installed SciTech SSP instruments. We are excited to share that just last week, we officially launched a powerful tool to automate panel design and expand the capabilities of the panel builder tool within SciTech Cloud, which we previewed during our last earnings call. Our new intelligent algorithm optimized for SciTech SSP technology that automates the environment of fluorocones tool markers, removing a labor intensive manual process. This tool will save researchers time and money by just starting their panel design process with a tool that suggests to optimize the panels in minutes. As a tool, we have enabled cytometry research from panel design to experiment setup to data acquisition, enabling researchers to design panels with ease, taking into account antigen densities, marker expression, and the reagent availability. It consists of a suite of integrated online software tools that streamline workflows, combining all special panel design tools in one place, which enables users to prepare experiments remotely. SciTech Cloud accelerates time to insight for a wide range of applications and is a vital resource in the research community. On the application front, in the second quarter, we were pleased to share that our one laser and two laser six color CBNK reagent cocktails received the China National Medical Administration approval for clinical use on northern light systems in hospitals, laboratories, and clinics across China. As a reminder, this is the first one laser based six color assay supported by SSP capability, which gives our one laser systems a competitive advantage against the more expensive two laser systems. These reagents help in diagnosing and monitoring various immune related conditions. Obtaining NNPA clearance is a significant milestone achieved through a rigorous process that validates the safety and efficacy of SciTech CBNK reagents. This achievement enhances our market presence in China and opens a new potential opportunities while strengthening our competitive advantage. As we continue to push forward new products and applications, we remain deeply focused on providing

a

comprehensive cell analysis portfolio to our customers. A critical component of this mission is to expand and enhance our reach and capabilities. We look forward to continuing to provide our powerful cell analysis solutions to the scientific community to accelerate clinical progress and scientific discovery. With that, I will now turn the call over to Bill for more details around our financials.

Thanks, Wendon. Total revenue for the second quarter was 46.6 million, an increase of .6% from a particularly strong second quarter of 2023. First task revenue, which averages out this effect, grew 5% versus prior year first half. These revenue results reflect continued robust growth in international markets and in service revenue, with the decline versus Q2-23 being attributable to weakness in the U.S. instrument market. Product revenue, primarily instruments, declined 15% in Q2 versus prior year and 4% in the first half, which was driven by weakness in the U.S. market, particularly in the academic and government sector. Service revenue grew 30% in Q2 and 50% in the first half versus a year ago, driven by substantial growth in the install basis systems, meeting service contracts. Service business growth reflects how extensively our tools are being used on a daily basis across all disciplines. Turning to geographic market performance, total U.S. revenue declined 29% from a strong Q2-2023 and 15% for the first half of 2024 as product revenue weakness offset service growth. International markets grew strongly, with EMEA up 52% versus prior year and 51% for the first half, and Asia Pacific up 27% in Q2 and 16% for the first half as Cytex technology continued to gain traction as the full-spectral flow cytometry technology of choice for research institutions and biopharma companies worldwide. Growth profit was $25.4 million for the second quarter, an increase of 11% versus the first quarter, and a decrease of 10% versus a year ago. Gap growth profit margin improved to 55% in the quarter, up from 51% in Q1 due to the absence of inventory adjustments and improved labor and overhead productivity in service. Compared to a year ago, gap growth profit margin was down 2% from 57% due to higher product labor expenses offset by a substantially improved service growth margin due to labor and overhead productivity on higher revenue. Adjusted growth profit margin, which excludes stock-based compensation expense and amortization of acquisition- related intangibles, was 58% in the quarter, up from 55% in Q1, and down from 60% in the prior year quarter. Operating expenses were $34 million for the second quarter of 2024, essentially flat with Q1 at $33.7 million, and decreased 9% from $37.3 million in the quarter of 2023, driven primarily by lower R&D and sales and marketing expenses. Research and development expenses were $10 million for the second quarter, in line with $9.8 million in Q1 and down from $12.1 million in the prior year period. The decrease of $2.1 million was primarily due to lower headcount and engineering expense. Sales and marketing expenses were $11.7 million for the second quarter, a slight decrease from Q1 at $12.5 million, and down from $14.4 million for the prior year period. The decrease of $2.1 million was primarily due to lower headcount. General and administrative expenses were $11.7 million for the second quarter, slightly up from $11.4 million in Q1, and up from $10.8 million for the prior year period. The increase of $0.9 million was primarily driven by higher stock-based compensation expense. Loss from operations was $8.5 million for the second quarter, an improvement compared to a loss from operations of $9.1 million for the second quarter of 2023. This was driven by lower operating expenses in the current quarter, offset by lower gross margin versus the prior year. Net loss in the second quarter was $10.4 million compared to $4.4 million in the prior year. This was primarily due to a non-cash tax expense in the current quarter, driven by a lower effective tax rate and a consequent reversal of a Q1 tax benefit compared to a tax benefit in the previous quarter. The loss of $1.7 million in Q1 and $1.5 million in the second quarter of 2023. This was due to higher revenue and gross profit versus Q1 and lower operating expenses versus the year-ago quarter. The loss of $1.7 million in Q1 and $1.5 million in the second quarter of 2023. We remain committed to improving profitability going forward by driving revenue growth and controlling costs. Total cash and marketable securities increased by $7 million versus Q1 to $277 million due to higher adjusted EBITDA and efficient working capital management and despite spending $3 million to repurchase our shares in the quarter. With healthy cash reserves, no meaningful debt and positive operational cash flow, we continue to operate from a position of strength and can fully support our global growth initiatives. As I mentioned above, one important use of our strong cash flow and cash position has been to repurchase our stock. Accordingly, in June, we announced an authorization to repurchase $50 million of our stock. During the second quarter, we repurchased approximately $2.7 million worth of Cytec stock in open market transactions at a weighted average price of $5.99 per share. Shares we purchased under these programs are canceled, leaving us with 131.5 million shares outstanding as of June 30, 2024. Now turning to our outlook for the full year 2024, which went then reported at a high level earlier. We are continuing to see market pressures impacting our revenue expectations, including order delays across North America. At the same time, we are seeing signs of normal spending patterns returning to Europe and Asia Pacific. Due to these more mixed market conditions, we are narrowing our full year revenue outlook to a range of $203 million to $210 million, representing overall growth of 5 to 9% over the full year 2023 and assuming no change in currency exchange rates. We continue to expect modest growth across our products and service lines, and growth rates continue with historical spending patterns at our customer base in the second half of this year. In addition, we do not expect to be GAAP net income positive for the full year due to our outlook for slightly lower gross profit, higher stock-based compensation expense, and lower other income. We expect Cytec's GAAP net loss to be in the single-digit millions range for the full year 2024. It remains our objective to deliver positive net income for the next decade going forward. Cytec also expects to generate positive cash flows from operations in 2024. With that, I will turn it back over to Wenbin.

Thanks, Bill. I want to close by thanking our Cytec team for their continued commitment to delivering cutting-edge We are serving very attractive end markets across healthcare, and I'm confident that we are strongly positioned to drive our growth strategy forward with continued execution across our key strategic pillars and focus on delivering sustainable growth and profitability. I want to thank everyone

for

joining today's

call, and we will now open

it up for questions. All clear, Bill. Thank you.

The floor is now open for questions. If you have dialed in and would like to ask a question,

please

press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question,

simply

press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Tages Sivant with Morgan Stanley. Please go ahead.

Hi, this is Jason on Tages. Thank you for taking our questions. Could you talk a little bit about your order book and visibility into the second half? At midpoint it seems to imply a 55 to 56 percent second half ramp to achieve the guidance. Could you provide some color on what gives you confidence in this ramp? Are you baking in any benefits from the stimulus in China? Are there any budget flushed by

Q?

So any assumptions about your confidence?

This is Bill.

We baked in a, you know, broadly a continuation of both current market conditions and a typical quarterly spending pattern. You'll notice if you look at the prior years, second half and in particular fourth quarter, that those represent more than 50 percent of annual revenue. So we don't see any reason why that typical quarterly pattern or first half, second half pattern would be any different than prior years. And our guidance represents five percent growth over last year at the low end and low double digits at the top end, which is broadly consistent with our overall year to year growth rate.

Yeah, just add on top of that, the China impact is not baked into this forecast or guidance.

Got it. Thank you. Appreciate that. Then I guess a follow up question. Just with the SCI acquisition now seeing as anniversary, could you provide us with an update on your development roadmap with Guava and Amnus? And as a follow up, where do you currently stand on the development of imaging FSP?

Guava, as you know, was never a primary reason for the acquisition. Although we have kept Guava for the reason that some of the Guava customers would like to stay, continue on what they have been familiar with. But our next site, and we continue to assess the customer demand and needs on the imaging site. And this is part of the reason for the acquisition. And we are continuing to work on integrating the imaging capability onto the FSP product.

Thank you. And if I may ask one more, so you noted weakness among academic customers in the US. Could you talk a bit about the intra-quarter trends that you saw play out? Did you see the cadence get better or worsen throughout the quarter?

As you can see, this trend has been continuing even from Q1 through Q2. Of course, this partially also we have indicated due to some of the turnover of our sales representative in some of the countries in North America. We are addressing this subject and we feel sales is not being lost. It's just not being pushed too close. We will see it to come back.

Thank you. I appreciate the time,

guys. Your next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Hi, this is Evie from Ad. Thanks for taking the questions. So my first is, can you give us more color on the delayed orders that were captured in the quarter? What would the growth have been excluding those orders? And then is there a risk that elongated sales cycles continue to delay orders in the back half of the year?

As you can see, in the first year, we actually experienced a great growth in Europe and EMEA. But we do have seen the kind of elongated sales cycle in North America and this evidently continued in Q2. And this time we don't foresee this will improve over the next couple of quarters for the year, but our guidance has already included this factor.

Great. Thank you. And then can you talk through with potential replacement cycle coming up, like where we are in this cycle and given your large install base, when we could start to see this come through, maybe some detail on like your average instrument age versus historic trends of when those start to be replaced?

I think this replacement cycle is not just to replace our own instrument deployed quite a few years ago. And also a replacement of other conventional instruments now already actually far more of those instruments in fact in the field we feel we are going to benefit from replacing those instruments.

That universe of when we talk about replacement instruments, the opportunity is primarily constituted by the thousands of conventional flow cytometry instruments that are out there. We think about 50,000 in total. So it's the replacement of those instruments as they reach end of life that constitutes the most important

replacement opportunity. Very

helpful. Thank you.

Your next question comes from the line of David Wessenberg with Piper Sandler. Please go ahead.

Hey guys, thanks for taking the questions. This is John Onfordave. Can you give any commentary on the instrument mixture in the quarter, what the starting performing instruments were, and if you have any commentary on consumables across the instruments, that would be appreciated. Thank you.

I

think we saw strength across all of our categories of instruments with particular strength this quarter in the Northern Lights instruments.

That

category

was probably the best performer. With respect to consumables,

I assume you are referring to reagents. That continues to be a mid single digits proportion of the overall business. So it doesn't really have a significant impact on growth rate. As we said in the past, it grows broadly in line with the

rest of the portfolio. Thank you.

Do you have any thoughts on when capital budget appetites might start to stabilize more or potentially turn more positive in the US?

I think actually looking at the segment, while we see the kind of weakness in the elongated sales cycle on the academic and government side, we do see farmers start to come back and clearly we see the improvement in Q2 versus Q1.

Great. Thank you.

Again, if you would like to ask a question,

press

star one on your telephone keypad. Your next question comes from the line of Chad Witkowski with TD Cohen. Please go ahead.

Hey, this is Chad on for Steve and Ma. Can you just help contextualize how the bioinformatics improvements and the automated panel design impact instrument consumable demand and sort of break that out among geographic and customer end markets? Is there more or less sensitivity to these improvements in certain segments? You

know, the bioinformatics is a platform that to really help our users to leverage the instruments and the regions we have. The special panel which have just launched, in fact, it automates the panel design, especially for the high complex panels and typically takes a lot more time for the users to optimize. Now we have a system, a tool that will really enable them to speed up their development. Afterwards, not only enable them to optimize basically the kind of like a virtual experiment on our platform, it also enables them to purchase the new agents afterwards. So through this process, we feel that they help our users provide a full set of solutions for our customers to leverage the full special technology site has provided.

That's helpful. And just to pivot sort of to instruments, obviously the new facility, this manufacturing facility open is related to instrument production. So does this create sort of a risk to gross margin just given that fixed cost is already on the books? And could you maybe speak to how you're thinking of the margin cadence sort of in the back half of the year and beyond?

The new facility costs of that are already included in our fixed costs. So there's no, we don't see a specific downside risk to gross margins from that. And then as to gross margin cadence, you know, last quarter we said that we expected to move back closer to where our gross margins were. Last year. And so in this quarter, we moved out adjusted gross margin moved up to 58%. And, you know, that compares to 60% in Q2 of last year and 59 for the balance of the year. So I think we've recovered most of the margin, a large portion of the of the margin gap versus last year. And I think while, you know, its revenue grows, we would hope for some margin benefit that the benefits should be fairly modest from this point

forward. Thanks for the time,

guys. Ladies and gentlemen,

that concludes the Q&A session and today's call. Thank you all for joining. You may now disconnect.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank

you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you for standing by. My name is Luella and I will be your conference operator today. At this time, I would like to welcome everyone to SciTech Biosciences Second Quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one, followed by the number one on your telephone keypad. If you would like to withdraw your question,

press

star one again. Thank you. I would now like to turn the conference over to Paul Goodson, head of investor relations. You may begin.

Thank you, operator. Earlier today, SciTech Biosciences released financial results for the quarter ended June 30th, 2024. 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 CFO Bill McComb. Before we begin, I'd like to remind you that management will be making statements during this call that are forward-looking statements within the meeting 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 SciTech Issue Today and in SciTech Spylings 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 live broadcast August 6, 2024. Once again, I would like to invite investors and analysts to attend the industry and academic conferences, meetings, and seminars where we will be exhibiting SciTech's products. There are 43 of these events planned throughout the remainder of 2024 in the U.S. and around the world. While these are primarily geared to the scientific community, they may offer an opportunity to interact with users of our technologies to learn why SciTech's instruments are so highly valued by our customers. There is a cost to attend most events, and we have a limited number of spaces to accommodate members of the financial community. So if you are interested in attending, please contact me. With that, I will turn the call over to Wenbin.

Thanks, Paul. Welcome, everyone, and thank you for your interest in SciTech. On the call today, I will discuss our performance for the second quarter of 2024 and the progress achieved on our strategic initiatives to drive sustainable growth and profitability. Then I will turn the call over to Bill for a more detailed look at our financial results and our updated financial outlook for 2024 before we open it up for Q&A. Revenue in the second quarter was $46.6 million, an increase of 4% compared to the first quarter and a 6% decline compared to the second quarter of 2023, which was especially strong as it captured some delayed orders from the first quarter of 2023. Collectively, revenue for the first half of 2024 grew 5% compared to the first half of 2023. Revenue in the second quarter of 2024 was comprised of a continued strong double-digit growth in AMIR and APEC, offset by weakness in the US market, where we continued to experience a slowdown in orders and elongated sales cycles, particularly concentrated in the academic and the government segments of the US market. Further, while weaker versus the prior year, the BioTech, Pharma and the CIO segments improved sequentially versus the first quarter. We believe our performance in this academic and the government segment of the US market was impacted by turnover on our sales team in some sales industries, a slow funding environment, and an overhang of excess capacity from pandemic error spending. We are working aggressively to bolster our sales team in this area. We believe the elongated sales cycle was primarily a result of these market factors and not as a result of a change in competitive dynamics. Importantly, we believe the fundamental drivers of long-term growth remain in place in the US market and expect it to normalize over time. Specifically, we expect the large in-store base of conventional technology for cyclone makers will be replaced over time with special instruments and will be a growth driver for cycle going forward. As a result of our Q2 results and the slower than expected recovery in the US market conditions, we are slightly narrowing our guidance range and now expect full year revenue in the range of $203 to $210 million, representing growth of 5 to 9% over the prior year. Bill will provide more details on our financial results momentarily. In the second quarter, we were pleased to achieve 30% growth in service revenue as compared to the same quarter in the prior year, driven by our increasing in-store base of instruments. As a reminder, we expect our recurring service revenue will be a strong growth driver for side deck long-term. Notably, over the last 12 months, we have leveraged the increasing scale of our service operations to boost the labor and overhead productivity. Based on these efforts, we substantially increased our service growth margins by 8% points as compared to a year ago. Overall, while ordering activity continued to be weak in the US and the market recovery was not at the pace we would like to see, we believe that the underlying demand for our cutting-edge analysis solutions remains strong. And we are making steady progress with new and existing customers in our pipeline. As we navigate this dynamic environment, we remain focused on driving sustainable growth and productivity. And essential to this objective is strengthening our position as a market leader in flow cytometry. Turning to our growth strategy, as a reminder, our focus is on four key pillars, each of which is integral to our long-term growth, instruments, applications, bioinformatics, and clinicals. In the second quarter, we expanded our global footprint with 147 instruments sold, reaching a total installed base of 2,656 units, including 299 armlets and the guava instruments shipped since the acquisition of the luminous flow cytometry and imaging business. This total does not include the thousands of installed armlets and guava instruments sold prior to our acquisition of the luminous product lines. We believe that this growing indoor base will serve as a durable foundation to drive adoption of our current and future product offerings and deliver growth across our diversified revenue base. During the second quarter, we were excited to have announced our Enhanced Small Particle Detection Module, or ESP, a new product that can be added to new or registered to existing aurora and northern lights instruments. This new capability allows our already powerful cell analysis system to provide further sensitivity and resolution improvements for detecting viruses and other subcellular particles, all while maintaining size at well-known high resolution and high parameter capabilities for cell analysis. By bringing improved speed and accuracy to the study of extracellular particles, -to-cell communication and cell signaling in many physiological states, we expect to accelerate the pace of discovery, therapy, and diagnostic development and benefit the scientific community as a whole. For SciTech, we believe these new capabilities will further distinguish our cell analysis solutions as the preferred choice among researchers and clinicians. Turning to Bioinformatics, our main goal is to enable our customers to streamline their experimental workflow through our software tools, which drive adoption and utilization of our cell analysis solutions. Our success in Bioinformatics can be measured through user engagement and demand for SciTech Cloud, one of our core Bioinformatics offerings. We now have over 11,000 users of the SciTech Cloud, representing an average of about five users per installed SciTech FSP instrument. We are excited to share that just last week, we officially launched a powerful tool to automate panel design and expand the capabilities of the Panel Builder tool within SciTech Cloud, which we previewed during our last earnings call. Our special panel tool is a proprietary new intelligent algorithm optimized for SciTech FSP technology that automates the assignment of follow-cones to markers, removing a labor-intensive manual process. This tool will save researchers time and money by just starting their panel design process with a tool that suggests to optimize the panels in minutes. As a reminder, SciTech Cloud supports flow cytometry research from panel design to experimental setup to data acquisition, enabling researchers to design panels with ease, taking into account antigen densities, marker expression, and reagent availability. It consists of a suite of integrated online software tools that streamline workflows, combining all special panel design tools in one place, which enables users to prepare experiments remotely. SciTech Cloud accelerates time to insight for a wide range of applications and is a vital resource in the research community. On the application front, in the second quarter, we were pleased to share that our one laser and two laser six color TBNK region cocktails received the China National Medical Administration approval for clinical use on northern life systems in hospitals, laboratories, and clinics across China. As a reminder, this is the first one laser based six color assay supported by FSP capability, which gives our one laser systems a competitive advantage against the more expensive two laser systems. These regions help in diagnosing and monitoring various immune related conditions. Obtaining NNPA clearance is a significant milestone achieved through a rigorous process that validates the safety and efficacy of SciTech TBNK regions. This achievement enhances our market presence in China and opens a new potential opportunity while strengthening our competitive advantage. As we continue to push forward new products and applications, we remain deeply focused on providing a comprehensive cell analysis portfolio to our customers. A critical component of this mission is to expand and enhance our reach and capabilities. We look forward to continuing to provide our powerful cell analysis solutions to the scientific community to accelerate clinical progress and scientific discovery. With that, I will now turn the call over to Bill for more details around our financials.

Thanks, Wendon. Total revenue for the second quarter was $46.6 million, an increase of 4% versus the first quarter, and a decrease of 6% from a particularly strong second quarter of 2023. First task revenue, which averages out this effect, grew 5% versus prior year first half. These revenue results reflect continued robust growth in international markets and in service revenue, with the decline versus Q2-23 being attributable to weakness in the U.S. instrument market. Product revenue, primarily instruments, declined 15% in Q2 versus prior year and 4% in the first half, which was driven by weakness in the U.S. market, particularly in the academic and government sector. Service revenue grew 30% in Q2 and 50% in the first half versus a year ago, driven by substantial growth in the installed basis systems meeting service contracts. Service business growth reflects how extensively our tools are being used on a daily basis across all disciplines. Turning to geographic market performance, total U.S. revenue declined 29% from a strong Q2-2023 and 15% for the first half of 2024 as product revenue weakness offset service growth. International markets grew strongly, with EMEA up 52% versus prior year and 51% for the first half, and Asia Pacific up 27% in Q2 and 16% for the first half, as Cytec technology continued to gain traction as the full-spectral flow cytometry technology of choice for research institutions and biopharma companies worldwide. Growth profit was $25.4 million for the second quarter, an increase of 11% versus the first quarter, and a decrease of 10% versus a year ago. Gap growth profit margin improved to 55% in the quarter, up from 51% in Q1, due to the absence of inventory adjustments and improved labor and overhead productivity and service. Compared to a year ago, gap growth profit margin was down 2% from 57% due to higher product labor expenses offset by a substantially improved service growth margin due to labor and overhead productivity on higher revenue. Adjusted gross profit margin, which excludes stock-based compensation expense and amortization of acquisition-related intangibles, was 58% in the quarter, up from 55% in Q1, and down from 60% in the prior year quarter. Operating expenses were $34 million for the second quarter of 2024, essentially flat with Q1 at $33.7 million, and decreased 9% from $37.3 million in the second quarter of 2023, driven primarily by lower R&D and sales and marketing expenses. Research and development expenses were $10 million for the second quarter, in line with $9.8 million in Q1, and down from $12.1 million in the prior year period. The decrease of $2.1 million was primarily due to lower headcount and engineering expense. Sales and marketing expenses were $12.3 million for the second quarter, a slight decrease from Q1 at $12.5 million, and down from $14.4 million for the prior year period. The decrease of $2.1 million was primarily due to lower headcount. General and administrative expenses were $11.7 million for the second quarter, slightly up from $11.4 million in Q1, and up from $10.8 million for the prior year period. The increase of $0.9 million was primarily driven by higher stock-based compensation expense. Loss from operations was $8.5 million for the second quarter, an improvement compared to a loss from operations of $9.1 million for the second quarter of 2023. This was driven by lower operating expenses in the current quarter, offset by lower gross margin versus the prior year. Net loss in the second quarter was $10.4 million compared to $4.4 million in the prior year. This was primarily due to a non-cash tax expense in the current quarter, driven by a lower effective tax rate and a consequent reversal of a Q1 tax benefit compared to a tax benefit in the prior year quarter, and to a lesser extent, lower net other income due to foreign exchange losses. Adjusted EBITDA, which excludes stock-based compensation expense and foreign currency impacts, increased to $2.9 million for the second quarter, compared to a loss of $0.7 million in Q1 and $1.5 million in the second quarter of 2023. This was due to higher revenue and gross profit versus Q1 and lower operating expenses versus the year-ago quarter. We remain committed to improving profitability going forward by driving revenue growth and controlling costs. Total cash and marketable securities increased by $7 million versus Q1 to $277 million due to higher adjusted EBITDA and efficient working capital management, and despite spending $3 million to repurchase shares in the quarter. With healthy cash reserves, no meaningful debt, and positive operational cash flow, we continue to operate from a position of strength and can fully support our global growth initiatives. As I mentioned above, one important use of our strong cash flow and cash position has been to repurchase our stock. Accordingly, in June, we announced an authorization to repurchase 50 million of our stock. During the second quarter, we repurchased approximately 2.7 million worth of Cytec stock in open market transactions at a weighted average price of $5.99 per share. Shares we purchased under these programs are canceled, leaving us with 131.5 million shares outstanding as of June 30, 2024. Now turning to our outlook for the full year 2024, which went then reported at a high level earlier. We are continuing to see market pressures impacting our revenue expectations, including order delays across North America. At the same time, we are seeing signs of normal spending patterns returning to Europe and Asia Pacific. Due to these more mixed market conditions, we are narrowing our full year revenue outlook to a range of 203 million to 210 million, representing overall growth of 5 to 9% over full year 2023 and assuming no change in currency exchange rates. We continue to expect modest growth across our products and service lines and growth rates continue with historical spending patterns at our customer base in the second half of this year. In addition, we do not expect to be gap net income positive for the full year due to our outlook for slightly lower gross profit, higher stock based compensation expense and lower other income. We expect Cytec's gap net loss to be in the single digit millions range for the full year 2024. It remains our objective to deliver positive net income going forward. Cytec also expects to generate positive cash flow from operations in 2024. With that, I will turn it back over to Wenbin.

Thanks, Bill. I want to close by thanking our Cytec team for their continued commitment to delivering cutting edge tools, reagents and software to empower the scientific community to advance the next generation of cell analysis. We are serving very attractive end markets across healthcare and I'm confident that we are strongly positioned to drive our growth strategy forward with continued execution across our key strategic pillars and focus on delivering sustainable growth and profitability. I want to thank everyone for

joining today's call and we will

now open it up for questions. All favor. Thank

you. The floor is now open for questions. If you have dialed in and would like to ask a question,

please

press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question,

simply

press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Seyjess Sivant with Morgan Stanley. Please go ahead.

Hi, this is Jason. Thank you for taking our questions. Could you talk a little bit about your order book and visibility into the second half? At midpoint it seems to imply a 55 to 56 percent second half ramp to achieve the guidance. Could you provide some color on what gives you confidence in this ramp? Are you baking in any benefits from the stimulus in China? Are there any budget flushed by assumptions? Thank you. Any assumptions about your confidence?

This is Bill.

We baked in a, you know, broadly a continuation of both current market conditions and a typical quarterly spending pattern. You'll notice if you look at the prior years, second half and in particular fourth quarter, that those represent more than 50 percent of annual revenue. So we would, we don't see any reason why that typical quarterly pattern or first half, second half pattern would be any different than prior years. And our guidance represents five percent growth over last year at the low end and low double digits at the top end, which is broadly consistent with our overall year to year growth rate.

Yeah, just add on top of that, the China impact is not baked into this forecast.

Got it. Thank you. Appreciate that. Then make us a follow up question. Just with the SCI acquisition now seeing its anniversary, could you provide us with an update on your development roadmap with Guava and Amnus and as a follow up, where do you currently stand on the development of imaging FSP?

Guava, as you know, was never a primary reason for the acquisition. Although we have kept Guava for the reason that some of the Guava customers would like to stay, continue on what they have been familiar with. But on the next slide, we continue to assess the customer demand and needs on the imaging side. And this is part of the reason for the acquisition and we are continuing to work on integrating the imaging capability onto the FSP product.

Thank you. And if I may ask one more, so you noted weakness among academic customers in the US. Could you talk a bit about the intra-quarter trends that you saw play out? Did you see the cadence get better or worsen throughout the quarter?

As you can see, this trend has been continuing even from Q1 through Q2. Of course, this partially also we have indicated due to some of the turnover of our sales representative in some of the territories in North America. So we are addressing this subject and we feel sales is not being lost. It's just not being pushed too close. We will see it to come back.

Thank you. I appreciate the time,

guys. Your next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.

Hi, this is Evion from Ad. Thanks for taking the questions. So my first is, can you give us more color on the delayed orders that were captured in the quarter? What was the growth, what would the growth have been excluding those orders? And then is there a risk that elongated sales cycles continue to delay orders in the back half of the year?

As you can see, in the first year we actually experienced a great growth in Europe and EMEA. But we do have seen the kind of elongated sales cycle in North America and this evidently continued in Q2. And at this time we don't foresee this will improve over the next couple of quarters for the year, but our guidance has already included this factor.

Great. Thank you. And then can you talk through with potential replacement cycle coming up, like where we are in this cycle and given your large install base, when we could start to see this come through, maybe some detail on like your average instrument age versus historic trends of when those start to be replaced?

I think this replacement cycle is not just to replace our own instrument deployed quite a few years ago. And also a replacement of other conventional instruments now already actually far more of those instruments in fact in the field we feel we are going to benefit from replacing those instruments.

That universe of when we talk about replacement instruments, the opportunity is primarily constituted by the thousands of conventional flow cytometry instruments that are out there. We think about 50,000 in total. So it's the replacement of those instruments as they reach end of life that constitutes the most important

replacement opportunity.

Very helpful. Thank you. Your next

question comes from the line of David Wessenberg with Piper Sandler. Please go ahead.

Hey guys, thanks for taking the questions. This is John Onford-Dave. Can you give any commentary on the instrument mixture in the quarter, what the starting performing instruments were, and if you have any commentary on consumables across the instruments, that would be appreciated. Thank you.

I think we saw strength across all

of our categories of instruments with particular strength this quarter in the Northern Lights instruments.

That

category

was probably the best performer. With respect to consumables,

I assume you are referring to reagents. That continues to be a mid single digits proportion of the overall business. So it doesn't really have a significant impact on growth rate. As we said in the past, it grows broadly in line with the

rest of the portfolio. Thank you. Do you have any

thoughts on when capital budget appetites might start to stabilize more or potentially turn more positive in the US?

I think actually looking at the segment, while we see the kind of weakness in the elongated sales cycle on the academic and government side, we do see farmers start to come back and clearly we see the improvement in Q2 versus Q1.

Great. Thank you.

Again, if you would

like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Chad Witowski with TD Cohen. Please go ahead.

Hey, this is Chad on for Stephen Ma. Can you just help contextualize how the bioinformatics improvements and the automated panel design impact instrument consumable demand and sort of break that out among geographic and customer end markets? Is there more or less sensitivity to these improvements in certain segments? You

know, the bioinformatics is a platform that to really help our users to leverage the instruments and the regions we have. The special panel which have just launched, in fact, it automates the panel design, especially for those high complex panels and typically takes a lot more time for the users to optimize. Now we have a system, a tool that will really enable them to speed up their development. Afterwards, not only enable them to optimize basically the kind of like a virtual experiment on our platform, it also enable them to purchase the new agents afterwards. So through this process, we feel that they help our users provide a full set of solutions for our customers to leverage the full special technology site has provided.

That's helpful. And just to pivot sort of to instruments. Obviously, the new facility, this manufacturing facility open is related to instrument production. So does this create sort of a risk to gross margin just given that fixed costs already on the books? And could you maybe speak to how you're thinking of the margin cadence sort of in the back half of the year and beyond?

The new facility costs of that already included in our fixed costs. So there's no, we don't see a specific downside risk to gross margins from that. And then as to gross margin cadence, you know, last quarter we said that we expected to move back closer to where our gross margins were last year. And so in this quarter, we moved our adjusted gross margin moved up to 58 percent. And, you know, that compares to 60 percent in Q2 of last year and 59 for the balance of the year. So I think we've recovered most of the margin, a large portion of the of the margin gap versus last year. And I think while, you know, as revenue grows, we would hope for some margin benefit that the benefits should be fairly modest from this point forward.

That's helpful. Thanks for the time,

guys. Ladies and gentlemen, that concludes the

Q&A session and today's call. Thank you all for joining. You may now disconnect.