Thank you for standing by, and welcome to the Cytek Biosciences First Quarter 2022 Earnings Conference Call. [Operator Instructions]. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Paul Goodson, Investor Relations. Please go ahead, sir.

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the quarter ended March 31, 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 e-mail to investors@cytekbio.com. Joining me today from Cytek are Wenbin Jiang, CEO; and Patrik Jeanmonod, 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 Cytek's business plans, strategies, opportunities and financial projections. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Cytek issued today and in Cytek 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, Cytek disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, May 11, 2022. With that, I would like to turn the call over to Wenbin.

Thanks, Paul, and welcome, everyone, joining the call today. I want to start by thanking the incredible Cytek team for their dedication and execution as we close out the first quarter of 2022. On today's call, I will begin with a brief overview of our company. Next, I will discuss our recent progress since the end of 2021. And finally, I will turn the call over to Patrik for a more detailed look at our financials. For those of you new to the Cytek story, we are a leading cell analysis solutions company advancing the next generation of cell analysis tools by leveraging novel technical approach to create our full special profiling or FSP platform. Our FSP platform includes instruments, reagents, software and application services and utilizes the full spectrum of fluorescent signatures to deliver high resolution, high content and high sensitivity cell analysis. Our technology and solutions address some of the key limitations of conventional methods. While flow cytometry is a widely used tool for single-cell analysis, conventional flow cytometry and the early approach to special flow cytometry have been challenged as they are able to detect only a few markets in a single tube. Their limited dimensionality, suboptimal resolution, low throughput, high cost for performance and with a significant technical expertise required to operate their systems has limited scientific progress in the advanced cell analysis field. By contrast, Cytek is transforming the full cytometry industry through technology disruption. Our patented FSP technology expands the number of colors that can be analyzed and optimized sensitivity and accuracy through our novel optical and electronic designs that utilizes an innovational method of life detection and distribution. This novel technological application allows us to address the inherent limitations of other technologies by providing a higher density of information with greater sensitivity, more…

Thanks, Wenbin. Total revenue for the first quarter of 2022 was $35.1 million, a 44% increase over the first quarter of 2021. We continue to see demand across the entire portfolio of Cytek offerings, including service revenue that has more than doubled from 1 year ago as instruments come off their warranty. Gross profit was $20.2 million for the first quarter of 2022, an increase of 39% compared to a gross profit of $14.5 million in the first quarter of 2021. Gross profit margin was 58% in the first quarter of 2022 compared to 60% in the first quarter of 2021. Adjusted gross profit margin in the first quarter of 2022 was 61% compared to 60% in the first quarter of 2021 after adjusting for stock-based compensation expense and amortization of acquisition-related intangibles. Operating expenses were $22.5 million for the first quarter of 2022, a 69% increase from $13.4 million in the first quarter of 2021. The increase was primarily due to expenses to support continued growth of the business including further investment in sales and marketing, R&D and costs related to operating as a public company. Research and development expenses were $8 million for the first quarter of 2022 compared to $5.1 million for the first quarter of 2021. Sales and marketing expenses were $7 million for the first quarter of 2022 compared to $4.3 million for the first quarter of 2021. General and administrative expenses were $7.5 million for the first quarter of 2022, an increase from $4 million for the first quarter of 2021. Loss from operation in the first quarter of 2022 was $2.4 million compared to income of $1.1 million in the first quarter of 2021. Net loss in the first quarter of 2022 was $2.2 million compared to income of $0.1 million in the…

Thanks, Patrik. Cytek has continually demonstrated our commitment to developing tools to advance the next generation of cell analysis. I would like to express my deep gratitude for the team we have here at Cytek. Their excellence and share the belief in this important mission drives our progress. I'm excited to announce that Cytek will be participating in the CYTO 2022 conference in early June in Philadelphia after the event was held virtually for the last 2 years. And later that month, we will be hosting our first Analyst Day in New York City. Stay tuned for further details as we are excited to host this event and share further updates on our strategic objectives and the progress towards our growth. With that, we will now open the call up for questions. Operator?

[Operator Instructions]. Our first question comes from the line of Max Masucci from Cowen & Company.

Just a quick one. on guidance. It would just be great to hear what to achieve the high end of that range, what you need to see in terms of regional demand trends, any expectations for some of the COVID lockdowns end up progressing. And then if you could just make any mention of expectations for specific instrument placements, whether you expect strength in certain instrument or another, that would be great.

Yes. And I can take that first question, Max. Thank you. So well, we expect to carry the momentum forward based on what we've seen in Q1. We've continued to see very strong demand on the key instruments, the Aurora top of the line, the northern light, and as we roll out the reagent business as well. So overall, I think our guidance for the year remains in that range with [indiscernible] under 168.

Great. Second question, it would be great to hear any metrics that you can share to describe the adoption you've seen from the 25 color immuno-profiling kit and whether the adoption has trended, how that adoption has trended compared to your internal expectations?

We don't have metrics about adoption handy with us at this point. We'll think about providing that at the upcoming analyst meeting.

Okay. Great. A final one, open-ended question. Can you just give us a progress update around some of your efforts in MRD monitoring and whether it's logical for us to expect a dedicated MRD monitoring reagent kit application sometime here in 2022? Or is that more of a 2023 and beyond type situation?

Okay. I'm going to take that question. Actually, this is one of the R&D project currently we studied and by our scientists and together with our partners, but we expect we'll have more data to be shared towards the end of the year.

Congrats on the continued momentum.

Our next question comes from the line of Matt Sykes from Goldman Sachs.

Maybe, Patrik, just first one for you on gross margins. Could you talk about the progression over the course of the year. I think Q1 was a little lower than we were expecting, but still high on a relative basis. So can you just talk about what you're thinking in terms of gross margin progression particularly as any reagents or sort of Auroras or other higher margin revenue starts coming through over the course of the year?

Yes. Thanks for the question. So as we continue to scale as an organization capture some economies of scale, overall, margins should continue to increase. We're also launching, as you know, the reagent business, that's typically a higher gross profit margin. So our expectation is that the gross profit margin will continue to build over time despite some pressure that we're seeing in the supply chain environment. So we laid the focus trying to keep that gross profit margin moving up.

Got it. And then in terms of instrument mix, I know in previous quarters, you've talked about maybe Aurora out-selling Northern Lights. And can you give us any sense for, at least for this quarter, what the kind of mix of instruments looks like from a high level just so we can look at some of the trajectories of each of the instruments?

Yes. So the Aurora top of the line remains the large majority of our instruments. Second, obviously, becoming the Northern Lights family. And then behind that, we have the cell sorter coming in as well.

Got it. And then just last question on the cell sorter. It sounds like it's making good progress. I think in previous quarters, you talked about kind of the flow cytometry instruments providing a good groundwork for selling a cell sorter. Could you talk maybe a little bit more about customer feedback? I know there was a competitor launch in the last quarter or maybe a little bit before, just kind of feedback to your cell sorter product offering and any other color you can provide on that?

Yes, I will take that question. And typically, it takes quite a few months, right? First, we have the initial setup plan and work with the customers to help them to start the experiment normally. And for the publications, it takes probably about 12 to 18 months to see something really start to show up. So at this time, we don't have anything we can share publicly, but you should expect to see something you mentioned.

Our next question comes from the David Westenberg from Piper Sandler.

Congrats on a really good quarter. So I'm going to continue a little bit with Max's question, but I'm going to ask it differently, and hopefully, maybe you can answer it this way. When you're talking about the adopters or your early adopters of in your reagent business, would you care to maybe give a profile of what they look like? Are they pharma, academic, maybe the types of projects they're working on, disease indication? Anything to help us kind of understand who might this like lower hanging fruit customer might look like and if we can apply it to maybe some of the customers that you might get in the future?

I think both types of customers exist actually, as you can see from our customer portfolios, more than 50% of our customers, [indiscernible] customers are pharma biotech, right, and the rest are academia. So we actually work with both set of customers trying to get our reagents into their hands. I think currently, it's going very well, as I mentioned. And even though it's still a small portion of our overall revenue, but the growth rate is quite high. So we are very pleased about the progress so far.

Got it. I appreciate that. I asked this last quarter, and I guess you did see some new competitive launches earlier in the year. At this point, are you seeing any impacts on the business? Or are you seeing the customers at least maybe freeze or take a look at other products?

As you can see, based on the momentum we have seen, clearly, we can't see any impact to our business.

Our next question comes from the line of Tejas Savant from Morgan Stanley.

So maybe just to start with sort of operational and supply chain challenges in China. This has been something that's come up on a bunch of other tools companies earnings given the COVID lockdown situation there. And I know you don't have much of a revenue sort of exposure there to the region, but it's an important sort of clinical priority for you, and you've got supply and manufacturing exposure there. So just curious as to why it is that you feel you're relatively well insulated there? And could that sort of could prolong lockdowns here, for example, change that situation?

Actually, this is a very difficult project. However, we have planned very well, and this is already taken into account in our financial model and also because of the structure we have built into our process as indicated with the inventory with the manufacturing planning, I think all of those have been taken into account. So at least if the market stays as is, our situation stay as is, we don't foresee any real impact to our business for the year.

Got it. That's helpful. And then Wenbin, this is more of a broader industry question really. What is your exposure to MidCap Pharma, if any, if I remember right, I think academic versus pharma exposure for you was roughly 50-50. But specifically, early-stage companies or perhaps even pre-revenue companies, what do they constitute in terms of your funnel? And are you seeing any signs of weakness there?

Not today, I think, still quite healthy in our financials.

Got it. Okay. And then in terms of just where exactly do things stand on sales reps for the reagent business? And how are you thinking about the ramp there? And then a related question, not just for sales reps, but broadly speaking, how are you factoring in wage inflation here into your forecast?

Yes. Definitely, there is a impact regarding the inflation, but this has already built into our financial model. So we have taken measures to deal with this. I indicated we have leveraged our global resources and with regarding to various logistics and as well as cost to mitigate whatever the inflation or the credit we have to encounter. So, so far, this has been managed, we don't really foresee any real impact to what we have presented.

Got it. And then in terms of the sales ramp for the reagent side of the business Wenbin?

I think, yes, this is -- actually the reagent is a faster-growing sector of our business right now. And it's doing very well now.

Got it. And then one final one for me here. In the past, you've mentioned the replacement cycle nature of the industry and you sort of punching above your weight in terms of gaining share every time also cytometer comes up for replacement. Are you seeing the number of units coming up for replacement as a whole go down this year? Or perhaps, I mean, just tighter scrutiny from customers as they think about CapEx purchases?

That's a great question. And I think based on our funnel, definitely it's still within what we think we can do, and there's no real impact to our current forecast right now.

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