Third Quarter 2026 Earnings Conference Call - CYTEK BIOSCIENCES INC

Financial Performance:

• Q3 2026 revenue totaled $53.2 million, representing a 2% year-over-year increase.
• GAAP gross margin expanded significantly to 59% in Q3 from 53% in Q2 2025 and 53% in Q3 2025, a 600-700 basis point improvement driven by lower overhead from the Seattle-to-Singapore manufacturing transfer, reduced material costs, and lower tariffs.
• Service revenue grew 13% year-over-year to a component of the $19.1 million combined service and reagent revenue, which now constitutes 36% of the 12-month revenue total.
• Total operating expenses reached $39.6 million (up 8% YoY), heavily impacted by $3 million in legal expenses related to patent litigation; G&A expenses rose 14% YoY to $18.4 million.
• Net loss narrowed to $6.1 million from $5.5 million in the prior year quarter, though Adjusted EBITDA declined to $0.7 million from $2.5 million in Q2 2025 due to lower investment income and higher OpEx.
• Cash, cash equivalents, and marketable securities stood at $256 million as of September 30, 2026.

Guidance and Future Outlook:

• The company is narrowing its full-year 2026 revenue guidance range to $208–$211 million, maintaining the midpoint.
• Full-year 2026 Adjusted EBITDA is expected to remain near break-even, supported by a strong Q4 seasonal rebound and a projected $3–$4 million decrease in legal spending.
• Q4 2026 revenue is forecast to be meaningfully higher than Q3 due to standard year-end purchasing cycles and continued service growth.
• Management anticipates outgrowing the market and peers in 2027, driven by the Borealis launch, low-to-mid-range instrument expansion, and improved profitability.
• A broader commercial launch for the Borealis analyzer (with integrated imaging) is planned for fiscal year 2027.

Business Segments and Product Lines:

• High-end instrument revenue grew over 30% YoY, led by Aurora Evo placements which nearly doubled year-over-year; combined Aurora and Aurora Evo placements rose 23% YoY.
• Academic and government customer revenue surged 38% YoY to $24.5 million, with U.S. instrument sales in this sector growing over 60%.
• Biopharma, CRO, and distributor revenue declined approximately 17% YoY to $28.7 million, largely due to weak macroeconomic conditions in APAC/China and the strong prior-year comparison.
• Borealis, a 7-laser, 60-color cytometer with integrated imaging and seafloor reagents, saw doubled participation in its early access program during Q3.
• SiteCloud launched a new "SiteCloud Premium" tier for end-to-end cloud analysis, bringing the total user base to nearly 30,000 (up 20% since the start of the year).
• Total installed instrument base grew to 4,073 units, with 140 new instruments added in Q3.

Market and Competitive Landscape:

• U.S. market revenue grew 12% YoY, driven by strong demand for high-throughput, high-end profiling instruments.
• EMEA revenue returned to modest growth (1% YoY), ending a two-quarter decline, while APAC (including China) grew 5% sequentially but remained 25% below Q3 2025 levels.
• Management believes the flow cytometry market has moved past earlier headwinds to a generally positive growth environment.
• The company aims to maintain technology leadership in high-end instruments while aggressively expanding its mid-to-low-range instrument and reagent portfolio to capture broader market share.

Risks and Challenges:

• Patent litigation remains a key risk; while a jury found infringement for three claims and no infringement for the fourth, management plans to file post-trial motions to overturn the fourth claim's "doctrine of equivalence" finding.
• The company has postponed the implementation of a new business unit structure to early 2027 to mitigate near-term operational risks.
• Geopolitical and macroeconomic instability in APAC and China continues to negatively impact regional revenue performance.
• Legal expenses are expected to fluctuate significantly depending on the resolution of the patent case.

Management Commentary and Tone:

• Management expressed strong confidence in Q3 execution, citing it as the best third-quarter gross margin performance since 2023.
• Tone was optimistic regarding the long-term technology pipeline, specifically the Borealis platform and the expanding SiteCloud ecosystem, viewing these as significant competitive moats.
• Leaders emphasized that the patent litigation verdict does not affect product operations, shipping, or product offerings.
• Management reiterated a focus on delivering operational leverage and reduced G&A spend in the coming quarters.

Analyst Questions and Answers:

• Guidance Composition: Service revenue is expected to continue growing at a low double-digit rate in Q4, with product revenue filling the remainder of the guidance range.
• 2027 Outlook: While specific 2027 guidance will be provided in late February, management expects to outgrow the market and peers, driven by the Borealis launch and portfolio investments.
• Market Status: Analysts inquired about market flatness; management stated the market environment is currently positive with abated headwinds compared to early 2025.
• SiteCloud Strategy: Management clarified that SiteCloud is designed to increase customer stickiness and facilitate full solution adoption (instruments, reagents, data) rather than being a primary direct profit center itself.
• Biopharma Demand: Despite the Q3 decline in the broad category, management remains positive on U.S. biopharma, citing a potential year-end budget flush and the suitability of Aurora Evo for high-throughput needs.
• Supply Constraints: Management indicated supply chain stability, stating they generally ship all booked orders within the quarter and are increasing production rates for Borealis and Aurora Evo to meet demand.

Other Key Points:

• The new "Seafloor" proprietary reagents, paired with the Borealis analyzer, enable 60-color panels in a single tube, supporting nanoparticle analysis.
• The manufacturing transfer from Seattle to Singapore is now fully complete, realizing full cost and flexibility benefits.
• Post-trial motions in the patent case are expected to reduce legal expenses by $3–$4 million in Q4 2026.
• The "doctrine of equivalence" finding on the fourth patent claim does not currently restrict sales, as the patent applies only to instruments made in or imported into the U.S.