Good day, and thank you for standing by. Welcome to the Cytek Biosciences Second Quarter 2023 Earnings Conference Call. [Operator Instructions] 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.

Thank you, operator. Earlier today, Cytek Biosciences released financial results for the quarter ended June 30, 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 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 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 Cytek issued today and in Cytek'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, Cytek 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 8, 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.

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 4 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 improvements across the U.S., particularly with our pharma and the biotech customers, where others 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 macroenvironment 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. Cytek 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 the flow cytometry and the imaging business from Luminex 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…

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 28. This was our first full quarter of recognizing revenue from these product lines. Organic revenue, excluding the acquired products 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…

Thanks, Patrik. Cytek 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 Cytek. It is their excellence, hard work and [share], the belief in our important mission that drives strong progress. We believe Cytek 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 around -- under our 4 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. Operator?

[Operator Instructions] Our first question comes from Andrew Cooper with Raymond James.

This is Noah [ph] standing in for Andrew. My first question is that given all the noise with the funding environment, I'm just curious to see what you're seeing on that front with your second quarter results coming in pretty healthy as well as a contrary tone relative to others in the space? So what are you seeing on that front?

Yes. So what we've seen is that the overall -- especially 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 think the -- 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.

And if I can get one more in. Are you -- like is there any disparity in what is working in the current macroenvironment in terms of, let's say, higher end versus lower end? Because it seems like FCI did pretty well and the core Cytek as well. But does anything jump out on that front in terms of higher versus lower end products performing in a certain way?

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 increase of demand for the sales order, which is a high-end product.

Yes, absolutely. And the cells [order] definitely is an area that we have enjoyed some healthy growth here.

Our next question comes from Matthew Sykes with Goldman Sachs.

This is Eve Kozlowski [ph] on for Matt. 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?

Well, that's a great question. Yes. So obviously, the -- looking at the -- first of all, looking at the macroenvironment 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 on -- again, on continued demand of our analysis, but also accelerated demand for the Cell 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.

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, that help your positioning versus local competitors?

Actually, Q2 overall, our China business continued 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 the lower end, which we don't really overlap that much.

Our next question comes from Steven Mah with TD Cowen.

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?

Actually, as you recall, and 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 pharma business during the Q2. On the other hand, we will continue to see elongated sales cycle from pharma, biotech. Nevertheless, the business remains over there. It just takes a longer time to close.

And just to dig in on what you said. So you're still seeing elongated sales cycles then?

Relatively speaking -- Yes, correct. Relatively speaking, it takes a longer time and for us to close the deal. But they are not gone. They are still there. The demand is still there.

So you're not -- so is it still the case that you're still seeing 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?

Yes, correct.

And then if I could sneak in one more question. You talked about specifically some European weakness. Could you give us a little bit more color about market dynamics ex U.S.? I know you already talked about China, but more specifically, some of the European weakness that you mentioned?

Yes. So it's true that the European business has been a little bit lagging behind the U.S. and APAC at this point. Yet, typically, the European market is much stronger in the second half. So we expect that market to pick up in the next 6 months.

Our next question comes from Tejas Savant of Morgan Stanley.

This is Edmond [ph] on for Tejas. I 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?

I think... Yes, even in the tool space, you may see the difference between the current reagents revenue versus tool. And clearly, we continue to enjoy the incentive plan happen, starting from Q3, Q4 last year. And now 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 a lot 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.

Yes. 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 fact that we have -- So overall, I think we should expect to see continued demand compared to maybe some other tool companies.

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 Amnis imaging capabilities?

I think these are 2 different products, like 1 year the high end of the market, focusing more for these customers in the discovery or collabs and comparing to the Northern Life or Guava features. So we do have teams actually working on these 2 subjects in parallel. We have different teams on different projects.

And then, Wenbin, you alluded to potentially larger addressable market now that you have these Luminex products in your portfolio. Could you clarify on that a bit?

As you can see, clearly, previously, our organic products focus more towards pharma, biotech and those discovery and translation, while Guava more towards industry QC, those type of entry-level customers. Now -- combining these 2, now we have a product portfolio that can meet the needs across varieties of user base applications.

So has your overall TAM changed since your prior views?

Not really over TAM has changed. It's just we have more targeted products to focus on different user base.

Our next question comes from David Westenberg with Piper Sandler.

So sorry, I'm going to go ahead -- since familiar topic on China. I don't know if you can quantify it, but the remaining assumptions in the guide on China. I don't know if you want to give us a number or say it's steady state from what you had. But just to really help us understand, like, maybe if there is further slowdowns or further commentary, how much of that guide would be at risk in that?

Yes. So David, we don't really break out the guide this way. But we've revised 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 region. So I will maybe leave it with that.

And continuing on with the guidance, and 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 your guidance for $25 million to $30 million, if I kind of take that same run rate, like I would assume a little bit of growth or acceleration from what you had in this quarter. Is that the right way to think about it? Was I getting the -- was I reading the press release correctly when I'm looking at that?

It doesn't work that way. Typically -- and 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 Luminex 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.

Can you talk about, if there's been any surprises, positive or negative, from the portfolio now that you've had it since February? And then kind of continuation of that question, how is 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 opportunities to rationalize the sales force or reorganize the sales force from here?

I'm not really surprised, but we do have learned a lot through this integration, right? And especially regarding to the technology embedded in the Luminex product portfolio, more we see the value of this acquisition. And we do feel -- and it's going to help us not just for this year, or actually for the years to come.

And since I think I am the last of 5, I'll squeeze in one more because I can do that. So on the reagent, you used the word fast-growing in the prepared 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? That's my last question.

Yes, David, it's growing faster than the -- our total revenue. Yes.

I am showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.