Q2 2020 NanoString Technologies Inc Earnings Call
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Now I'd like to hand, the conference over to your Speaker today don't Farrell Vice President Investor Relations. Thank you. Please go ahead.
Thank you operator, good afternoon, everyone. Joining me on the call today is Brad Gray, our president and CEO.
Bailey our CFO.
Today, we released our financial results for the second quarter fiscal year 2020.
During this call. We may make statements are forward looking including statements about financial projections the impact of the covert 19 endemic existing and future collaboration.
At your business growth trends are related factors.
Prospects for expanding in penetrating our addressable markets.
Our strategic focus and objectives and development status and anticipate its extensive reason planned product offerings.
Looking statements are subject to risks and uncertainties many of which are beyond our control.
Putting risks uncertainties described from time to time in her as she sees filings.
Our results may differ materially from those projected and we undertake no obligation to update forward looking statements.
Later in the call Tom favorite, giving our financial results consistent with our most recent earnings release, we are prepared supplemental release.
To reconcile GAAP to non-GAAP measures. We believe this makes it easier to interpret compare our financial results.
That can be done in the financial tab of our Investor Relations page on our website.
<unk> press release includes details regarding the definitions and calculations are these non-GAAP measures reconciliation to the nearest GAAP measure.
As well as a discussion of the limitations rationale for using non-GAAP measures throughout this call financial measures will be gap unless otherwise noted.
I'd like to remind you will be participating in several virtual conferences in the third quarter and putting the you'd be at 2.0 conference later this week as well as being buried of Morgan Stanley healthcare conferences in early September.
And speaking with many of you then and now I'd like to turn call over to Brad.
Thanks, Doug.
Thank you for joining us today.
Everyone remains healthy and productive these challenging times.
I'm excited to have this opportunity to share what we've accomplished over the last few months.
To start by noting how proud I am the way that the Nanostring team adapted so quickly to the current operating environment, keeping our major R&D programs on schedule and maintaining the commercial momentum the geo mix launch.
During the call today I'll give you a snapshot of our key Q2 operating results.
On progress toward our strategic objectives before heading off to Tom Gallagher, our financial results and outlook.
The declining trend of the second quarter would be increased awareness and interest and spatial biology.
Demonstrated by a rapidly growing body publications robust attendance at our online seminars and expanded partnership eco system and extensive sell side analyst research coverage.
We strongly believe it spatial biology of the next major frontier and scientific research and that demonstrated the established leader enough.
We continue to extend the lead in this important generating strong demand for the Geo mix DSP. Despite the global pandemic as customers tell us that spatial biology experiments.
There was that the wish list as they were trying to middle lab.
This interest resulted in 22, new orders for gentlemen systems during Q2.
Last week's launch and Ngs readout for genomics DSD.
Fundamentally trend, yes, our market opportunity.
Any customers within the massive installed base and Ngs systems to expand their research into the realm of spatial biology to the purchase of a single automated solution.
Yes, yes, we don't capability allows us to rapidly it spans youngest adoption into discovery research a trend that was already underway in Q2, what about half of the Geo mix DSP orders from customers planning to make and she asked their primary retail platform for yield.
Given the disruptions caused by Cobot 19, only part of the strong demand for space, while she was reflected our future revenue.
At quarter end, we have more than 125 cumulative geo mix orders, which 93 instruments have been shipped 69 installed and users at 52 Geopunch sites had been trained.
The rates of Geo mix instrument shipment installations and trainings slowed during Q2 due to laboratory closures.
Same factors impacted Geo mix consumable revenue as many Jim It systems remain uninstalled are underutilized as customers reduce their onsite laboratory activities during Q2.
Meanwhile, Airport encounter business performed better than expected. Despite a substantial impact from cobot 19 strong didn't kind of instrument demand from biopharma customers and in Europe helped offset weakness in North America.
Encounter consumable demand was impacted by laboratory closures, but approved over the course of the core.
Encounter consumable orders were down 50% year on year during April and May demand recovered to about 75% 90 levels in June as researchers began returning to work and they continue to improve during July.
On a worldwide basis, we currently estimate the 30% of encounter customer labs are fully opened 60% or partially open and 10% remain closed.
Now I'd like to provide an update on the four strategic objectives, we laid out at the beginning of the year.
Our first strategic objective is to accelerate the adoption of Geo mix DSP and translational research, we're getting counter the preferred readout modality.
Overall, we're thrilled with the pace of our commercial and scientific progress and translational research during the second quarter translational research accounted for about half of Barclays. Your mix instrument borders and leading indicators suggest that our momentum will continue.
We are building our geometry instruments funnel with leads generated through webinars, such as our June virtual cancer Symposium, which featured 11 geo its customers showing the results experiences.
Webinars approved so effective that by mid year, we had already achieved our full year 2020 target for genome its lead generation.
In parallel a steady stream of peer reviewed publications demonstrates the prospective customers do you need power of the Geo mix system and translational research during the second quarter. There were six new York's papers, including several that use both specialty them judgments and ocean expression data from income highlighting a new and then.
Urging friend among translational research.
With 23 cumulative genome its publications, we're seeing a piece of scientific productivity at a similar to the early days a single cell biology.
This growing body of publicly available genomics data.
That's helped accelerate our sales cycle and increase the scalability of our sales process.
By giving translational researchers the confidence towards yeoman's systems for use with any kind of read out without taking a test drive by running samples for our technology access program worked out.
During Q2, only about 10% of customers. We plan to use you encounter as their primary readout ran a tap before ordering their instrument substantial decrease compared to about 30% of all Geo mix extra orders in 2019.
With all this momentum we're confident in our continued leadership and translational research.
Our second strategic objective is to expand Geo mix adoption into discovery research leveraging the platforms newly launched Ngs readout capabilities.
Solution vastly increases the reach of space will biology by allowing any lab with access to ngs to perform space will research with a geo mix DSP.
Immediately expands the number of genes, it's basically profiled into the thousands.
We believe that the launch of Ngs readout capability for Geo Whats the single most important bottom launch in the company's history.
The first assay that takes advantage of this new capability at the Canford Transcriptome Atlas four seats, yet, which profiled more than 1800 genes that are associated with over 100 Pappy pathways crucial for cancer research. It provides robust performance, but that's a p. tissue samples.
The primary format for oncology research and it is compatible with a wide range of next generation Sequencers from aluminum.
The TJ I say will be followed by the launch of our whole transcriptome assay, which will profile more than 18000 jeans and remains on pace for introduction VR technology access program in Q4, and a full commercial launch next year.
Because the Geo mix and yes, we don't capability in some new partner program plays a critical role in our entry into the discovery market by allowing prospective customers to experience the power of Geo mix in combination with Ngs prior to ordering and then.
The volume of new top projects for Ngs readout increased substantially from Q1 did you to NCS readout through to account for approximately 60% of all new type projects.
Interesting Geo mix use in discovery continues to be bolstered by the unique FFT compatibility of our system.
I described last quarter, we're collaborating with it doesn't leading research institutions are using she'll mix and their cobot 19 research.
During the second quarter researchers from the broker Institute presented a Tobin 19 study that you Geo mix and Ngs read out during an online in age seminar that was viewed by more than 2000 people.
Research on coping 19 provides an excellent example of the importance of FM PE and basic discovery, we have introduced new genomics protein and ornate panels that can be used to mackie biological pathways to specific regions within infected tissue.
Critically these assets are compatible with Sars.
To sample that must undergo an aggressive process.
Fixation and parents and embedding for safety.
As we enter the discovery market.
Being an ecosystem of partnerships to accelerate the adoption space will biology support a complete space will work flow and rapidly expand our menu of applications over the past few months Nanostring and aluminum co hosted a half dozen joints basal webinars that truth walk live attendance of more than a thousand researchers.
We announced today that you increased the value and ease of arrangements DSP systems would ngs, we're collaborating with aluminum to jointly develop software solutions powered by Illuminants advanced Dragon bio cheap bio I'd see platform.
By processing their documents and yes, David using Dragon technology customers works pretty well experience enhanced convenience and acute speed.
Which should translate into faster turnaround times, we expect to initiate early access program. Later this year. So please state soon.
Lastly, we also expanded our collaboration with biotech knees DCD Division.
To expand the application and pets and simplify the workflow for spatial biology, providing customers with a curated menu of already scope probes that had been validated for use with our cancer transcriptome outlets. This allows customers to use aren't a scope to visualize ornate and tissue at the single cell level and.
Turning to select regions of interest for profiling will join us.
The power of these ecosystem partnerships will be on full display on September 15, when we will host a virtual event called advancing science spatial Biology conference.
This virtual conference will focus on the science that has enabled by carrying Geo mix with Ngs readout.
Will include presentations on our cancer Transcriptome Atlas and hold transcriptome Atlas from 10 different customers from leading centers such as the Road Institute Weill Cornell Medical School National Hospital, and that these roll Israel Deaconess Medical Center and the University of Vienna.
Yes, Brent is free to attend and opened to members of the investment community.
Our third strategic objective is to maintain the momentum of our encounter business by expanding our installed base, while maintaining maintaining consumable.
During Q2, we generated healthy instrument demand and grew our installed base of any towers for approximately 890 systems and increased 13% compared to a year ago.
Annualized consumable pull through dropped by about 40% compared to the prior year across both academic and Biopharma customers as research labs operated at reduced activity levels. Despite the totaling 19 impact consumable trends during Q2 were better than previously expected and there were some encouraging trends.
Most notably we are encouraged by demand for our immunology channels, which researchers abuse Intellibot 19 research, yielding a potent important publications.
Last month, the Journal Science public Scoping 19 reserve that was conducted by researchers from the past year Institute to use our immunology panel to find a blood based gene expression signature to identify patients at risk of severe 19.
[laughter].
Other important coping 19 study published and the New England Journal of Medicine by International Consortium was led by researchers from mass General Hospital.
We used our inflammation panel to revealed a mechanism through which cobot 19 causes severe damage to blood vessels and widespread on those.
To further support research studies such as these we recently introduced hopes response panel.
Wow scientist to stay the immune response to source she'll be too as well as any other passenger cabin.
This panel can be used in combination with October 19 genes bike and which has been ordered by more than 75 customers today.
Finally, we have also been working to expand the data analysis kids capabilities of encounter.
We began collaborating with on ramp bio informatics to build new analysis tools for encountered data into Rosalind.
Ill based analysis suite that facilitates data visualization.
Duration in collaboration to enhance the customer experience.
Our core strategic objective for 2020 as to identify the key applications for hybrid seek platform.
And to pursue partnerships that can support our emerging commercial strategy.
[laughter].
We remain an active partnership discussions regarding infectious disease applications.
I haven't seen in addition, our team continues to explore potential research applications for the unique sequencing chemistry.
We have developed.
The time remains confidential, but may offer new avenues of growth from high been seek based products in the future.
But to be able to provide more details on these opportunities around year end.
No I went to turn the call over to Tom to review the details or operating results for the second quarter.
Thanks, Brad and thanks, all for joining us today.
Second quarter of 2020 product and service revenue was 21.1 million representing year over year pro forma increased 2%.
Recall that our pro forma measures reflect the December 2019 transaction with their site whereby we now recognize about one third of the previous Prosigna revenue over the same unit sold.
Spite Tobin 19, Joe mixed demand remain robust and Q2 with instrument orders being stronger than expected or Q2 pro forma revenue growth was driven by Geo mix genomics revenue recognized of just over 6.7 billion about 6.3 million of that total was derived from instrument shipments at about 400000 from.
Consumables.
She always instrument revenue recognized during Q2 was modestly impacted by Tobin 19 with instrument shipments metered, depending on our access to customer labs or rate Agilents consumable shipments was also modestly impacted by reduced customer activity.
And counter against revenue was just over 3.5 million, 28% lower compared to Q2, nine Jain with revenue impacted by the inability to ship some orders as a number of customer labs reader, partially or fully closed during the quarter.
And counter consumables revenue was 7.9 million, 38% lower on a pro forma basis compared to Q2 19.
These results implied Q2 pull through was about 37000 were about 60% or 60 65000 pro forma guidance range.
Recall on our Q1 call. We stated that during April encounter consumable orders were about 50% lower as compared to April 2019, and that we plan for that trend to continue for the balance of Q2, while Mays results were consistent with Aprils June showed material improvement as more customers reopen their labs.
With June and counter consumable orders lower than let's say month last year by only about 25%.
From a geographic standpoint, or Q2 encounter consumable sales most heavily impacted by cobot 19 in North America, where we saw approximately 50% lower sales year over year.
Europe and Asia Pacific began recovering earlier during Q2 encounter consumable sales declined only about 15%, 30% year over year in these regions respectively.
Total service revenue derived from both encounter NGL mix related services was about 3 million for the quarter.
Turning now to margins and expenses I'll be providing results on a non-GAAP adjusted basis, which removes the impact stock based compensation depreciation and certain onetime items.
Please refer to our press release as well as the exhibits posted to our Investor Relations web page, including a new key stats exhibit that lays out certain financial metrics for each of the last four quarters for information on our non gap or adjusted measures, including adjusted EBITDA our prepared.
Adjusted gross margin on product and service revenue was 52% approximately 700 basis points lower than last year.
Approximately 300 basis points of that change was driven by the lower Prosigna pricing you received for the bare site transaction.
The other 400 basis points of change was primarily due to greater instrument revenue as a percentage of our total sales mix with the acceleration of genomic sales and in part due to the reduced utilization of manufacturing capacity given lower encountered suitable demand during Q2.
Adjusted R&D expense was 13.7 million a decrease of 9% over the prior year. The decrease was driven primarily by reductions related to the verisign transaction and the termination certain collaboration agreements offset in part by expenses incurred for continued Geo mix product development efforts.
Adjusted ESG today expense was 17.1 million also a decrease of 9% over the prior year. The Q2 SG today expense decline was driven primarily by reductions relating to the vierra site transaction as well as expense savings realized from reductions in travel and trade show activities.
These savings were partially offset by or continued investment and Geo mix related commercial initiatives particular investments made in our customer experience in service group as well as in certain digital marketing initiatives.
Adjusted EBITDA loss was 19.7 million, an improvement of 4% compared to the prior year, reflecting our lower operating expenses offset partially this quarter or the cobot 19 impact on our revenue.
We ended the quarter with approximately 250 million of cash cash equivalents and short term investments.
Transitioning to guidance as a reminder, we announced on April six the suspension of our 2020 full year financial guidance with a continued uncertainty around the trajectory and economic impact to cope with 19, we will not be re initiating full year 2020 guidance today, we will offer Q3 guidance and will provide some commentary as to how.
How we're thinking about the rest of 2020.
For Q3, we currently expect product and service revenue of 25 to 28 million, which represents 26% sequential growth from Q2 with the midpoint of that range. This range assumes 18 to 20 million of encounter revenue and seven to 8 million jail Geo mix revenue.
In addition, we estimate that we will generate 20, plus fujio exporters in the third quarter.
As for the full year 2020 at this time, we expect Q4 will show improvement and sequential growth as compared to Q3, but that a full recoveries of business as usual and normal order and shipping patterns would occur at 2021.
As in Q2 instrument revenue recognition in the second half of the year could still be negatively impacted if customers are unable to receive shipments due to unexpected site closures Geo mix revenue recognized might also be impacted by the pace of our customer experience team's ability to install systems and trade customers, which is dictated by our.
Own safety and operational procedures as well as those of our customers.
We expect gross margins to be modestly higher in the second half of the year as compared to the first half through the expected recovery and consumable revenue and improve manufacturing capacity utilization.
Given our strong balance sheet position the cost reductions afforded to us by the parasite transaction and the market opportunity Special biology, we made an active decision to maintain our most critical investment initiatives at the pre cobot 19 levels.
As a result, our Q3 Q4 operating expenses on an adjusted basis are expected to be at or around the levels. We reported for Q2.
Now I'll turn the call back over to Brad for closing comments. Thanks, Tom spatial genomics is the next frontier and life Science research, but next generation sequencing, a decade ago or single cell genomics recently as spring is positioned to lead in this field operating a one stop shop that addresses the needs of discovery researchers.
Translational researchers and eventually diagnostic laboratory.
With our strong balance sheet and substantial commercial momentum basal biology more than offsetting the near term cobot nineg headwinds, we are well positioned for growth over the years to comp.
Finally were inspired to see increased uptake of both encounter angiomax and infectious disease and believed that the long term investment and life Science research has never been crucial I'll close by thanking our customers that are poised for the team York and unwavering commitment. They have demonstrated in these unprecedented times with that I'd.
To open up the line for your questions.
As a reminder to ask a question you will need to press star one in your telephone to withdraw your question press the pound key.
And your first question comes from a lineup Doug Schenkel from Cowen Your line is open.
Hey, good afternoon, guys and thanks for taking my question.
I didn't go back and double check the difference between GL next shipments and installs.
Let me as being a little higher than normal.
And I didn't go back to construct that but I'm not if I'm right I'm just wondering if that's just a function of shipments.
More backend loaded than normal with obviously could be explained by the pandemic.
In a different thinking about this right and that observation right. If I couple that with your comments on the outlook.
Green.
You know at that and what you did ordered why.
Is it right to conclude that.
Momentum can go back built over the course of a quarter or maybe even more and I know in a board notable way than what you saw or like a counter.
Yes. Thanks for the question, Doug certainly Weve extreme experienced increased momentum in Q2 overall fourg elements I think the and that really is a product of as we said both a sense that the data is now publicly available demonstrating what the system can.
Do with encounter readout and growing excitement and anticipation of the Ngs readout launch will be affected in the past couple of weeks.
I don't think Q2 was unusually backend loaded with respect to Geo mix order flow if thats what your inferring.
From some of the numbers however, our ability to ship installing train geo mix customers and up and systems. In Q2 was strongly inhibited by BYD Cobot 19, So I mean, just to go to over the numbers in the first quarter, we shipped 27 systems installed 23.
And trained 21 labs that was what we really have to capacity to do in a situation, where we had good lab access and where you know our customers are happy to welcome vendors ended our labs to do the work.
The second quarter, we were able to only shipped 20 to install 14 and train five labs and that really wants because many of our customers themselves were not in their own labs during the second quarter and those were there we're not eager to welcome.
Outside employees into their labs for Fourq for the set for protecting the safety of their on site employees. So that is primarily the reason for the lower shipments install and training on the site, where weve lack of lab access from Golden 90.
That's helpful. Thank you for all that entail.
And then you are probably a good segue to I guess a couple of questions regarding.
The availability our next equipped and yes, and thanks for all that detail in your prepared remarks.
I'm just wondering.
Over the next quarter.
One how do you expect us to impact demand for end of calendar instruments if at all.
And from an order mix standpoint, and I apologize if I Miss within your prepared remarks are you still kind of in that 70, the burden ratio our existing to new customers and if so would you expect that to recall.
In a good up on more pronounced brand now they have and yes capability out there and yelp.
Yes. These are great questions, Doug. Thank you I'll take the second question first.
The Ngs readout capability has absolutely change the mix of geometries customers shifting away from only be primarily being able to sell into existing encounter users, which was in the past as you noted 70% of our new sales up to two being able to ship and sell answer.
Amounts to a majority of customers who were not necessarily encounter users in the past so in the second quarter about half of our new orders were for Ngs readout capability and that was many of those were from new customers and then only and only a small number of those that remained for encounter maybe about half of.
The encounter.
Readout orders that we received well we're for bundles with encounter systems and half were four from customers, who already had encounter. So as you can see it shifted some closer to a 50 50 mix between new and existing customers and I expect that to grow overtime and of course, that's what's.
So exciting and enabling about the Ngs launch it allows geo mix to break beyond the 900 or so encounter installed base into that approximately 20000.
Illumina sequencer installed base.
Increasing our serviceable market by 20, EPS and stuff.
In terms of your first question about the demand for encounter I do not think debt the launch of Geo mix Ngs, we'll have a near term effect on encounter demand.
I'll be overall, we're selling encounter systems for a whole host the reasons not just for genomics read out if you look over the last year or so only 15% to 20% of new encounter orders were associated with Geo mix bundles.
And we expect that to continue at continued in Q2, we expect more of those in Q3.
I do not think we'll see a falloff in encounter demand, it's meaningful from a from the Ngs readout and then of course to the extent, we do if we weren't too that the angiomax opportunity and Ngs. So vastly outweighs the encounter opportunity that I think that would be manageable in the overall context to the company.
Okay. Thank you guys really principally taking the question.
Your next question comes from a line Tyco Peterson from JP Morgan Your line is open.
Hi, guys. This is Casey on for Tyco, maybe just to start can we talk about the conservatism that's baked into threeq guidance at the low end of your your Geo mix guide is essentially flat quarter to quarter. So maybe can you talk about.
What's what you guys were thinking sort of.
Given that God.
Yes.
Thanks, a quick question Casey I wouldn't necessarily call conservatism as I outlined in my answer to Doug's question, our ability to to recognize revenue from Geo mix is a function of how much access to customer laboratories. We have we now have because we in the second quarter our ability to install.
All systems that had been shipped and trained users on their systems was so slowed that we now have quite a backlog of systems that are still sitting and rates at customer sites and systems that have been installed, but where the users have not yet been trained.
And that is expected to continue as we have limited customer access during the third quarter as labs are very careful about letting our staff in.
While they're still worried about managing Tobin 19 exposure. So the guidance that we have and the third quarter really relates to whats the responsible pace of new instrument shipment.
And installation given the barriers to installation and training.
I would not call our our bookings guidance Conservative I feel really good about guide to Tom's commentary about 20 plus orders in Q3.
I mean, I think what you'll see is.
We have tremendous launch momentum coming out of Ngs, that's partially offset by the normal seasonality in the summer months.
Turning point losses, a great number.
We feel really good about the momentum we have there.
Okay, Great and then maybe just could you quantify at all and you sort of called the 19 research revenue you saw in the quarter, whether it be from the immune response outlets that they are.
And if anything else that that customers are using nanostring products to research called input.
Yes, it's very small, it's probably less than a million dollars or maybe a million dollars at most I would say.
We're very proud of the use of the encounter technology for Kobin 19 research. We think it shows a great. It's a great way to showcase the geo mix ability to contribute in discovery.
What's unique.
Compatibility with FF PE, and it's a great way to showcase encounters ability to profile the immune system.
Being said, it's still a very small part of our business.
And we Didnt I would not say that Nanostring had a major coburn 19 tailwind away some of the other club deal.
Businesses in our industry did.
Okay. Thank you.
Your next question comes from a line of Catherine Sheltie from Baird. Your line is open.
Hey, guys congrats on the quarter and thanks for taking my question I guess first you talked about around 60% of your customers being personally open I'm sure. It varies by customer pretty significantly what's kind of the average activity level and those lab partially open.
Yes.
We have to estimate that just as just as you would Catherine I'd say a good guess is maybe on the order of 50%.
Right so.
That 60% of our labs is maybe doing 30% of the overall business call. It.
Then the other labs that are open that 30% or fully open are operating at full capacity that gets you pretty close to the.
The overall utilization and.
Pull through utilization relative to historical benchmarks that we see which I think.
Tom said remind me was about 60% or so that's right.
Okay great.
Yes, but that's great.
And then for Jeremy orders nice to see does pick up sequentially and hit your pretty cold guidance for the second quarter, Oh, the third quarter numbers slightly below 25 pre closing side, but given your first half quarter hit that original outlook in what was a very challenging time do you think you could still feasible.
That that that 90 ish order number for the year.
Yes, I think I think it's feasible Catherine that we could so I don't think we want to guide that we will.
The the laboratory customer environment is still very dynamic and uncertain.
You know we know that.
We had a great Q2, we have great launched momentum and Ngs that if we were to have another up upswing and overall infection rates, if academic medical centers, where to go back into a lockdown situation. You know we would you would experience disrupted sales cycle. So we typically are I think it.
Possible that we would get back to 90 that would represent for us are really fabulous outcome for a year thats been disrupted by October 19. So we are not currently guiding that that guidance should be considered withdrawal.
Okay, Great and then maybe just one more as we see more and more.
Going into customers for using the MTS without just from my best friend.
About the pulled some differences between those users reading out on it and telling Iverson sequencer.
Yes, we have not given commentary or guidance on what the expected pull through will be for a system that is read on Ngls. We believe it has the opportunity to be higher that's because in part the the price point of the consumables that we're selling it.
And is more than two assets on a per sample basis would it would be for encounter some even at half the number of samples processed per year in ngs read out system would generate as much pull through as an encounter system I think what we're looking forward to seeing is it'll take quite a few quarters to see that's what we'll update you.
As is appropriate is the behavior of customers, who have adopted in the ngs readout in the type and the volume of research that they're doing but it's still going to take us a few quarters to actually get those systems installed get those sites trade and to begin to observe what customer behavior looks like but certainly ngs readout has the capability.
For higher pull through by virtue of the price point of the up.
Okay, great. Thank you.
And again, if you like to ask a question press Star one of your telephone and your next question comes from the lineup Dan Brennan from you, but yes. Your line is open.
Great guys. Thanks, Rob Thanks for taking the questions.
Maybe just as we look ahead to Q3 in some of the color in Q4 like how are you thinking about or what are you assuming in terms of the pace of lads reopening that you're baking in for that outlook.
Yes, so for Q3, Yeah, I think we're basically guiding Q3 off the currently open laboratory environment.
Our Q3 guide assumes that utilization rates on the consumable front for encounter are similar to what we actually saw in July which was a slight improvement over June June was at 75%.
You know of 2019 levels.
So that's that's what's baked into Q3, I don't think we're baking into the warmest upswing and lab opening the part the reason for that is of course, we're in August and we're in this summer season, you know I don't think we should expect a lot of labs to be in the reopening phase and the August timeframe, we don't yet know what September will break.
For Q4, I'll I'll, let Tom take take the question on Q4 I.
I think that in my prepared remarks, we talk about.
About some continuing modest improvement relative to Q3 as we get into Q4. So I think that you just extrapolate sequentially from that.
I don't think that we at this point believe we'll be in full recovery mode. In Q4 based on what we see but we do expect based on what we've seen out there to be continued improvement throughout the year debt.
Got it and then how would you characterize the impact on.
That makes this quarter from coupled with interest transpired I mean, obviously you had solid orders you already talked about the inability to get into labs and.
Placed boxes, but just in terms of AI is it is it possible to quantify it from a I mean, you know what do you order is still negatively impacted from the inability to get in front of customers or were you know in terms of the pull through just just kind of wonder if you can kind of give us a high level view of how Q2 was negatively impacted from Cowen.
Yes, so I'd say in the order front, then I would say there is negligible impact I mean, the great thing about special biology is it's a very urgent priority for customers out there most of our customers who submitted those 20 or so orders this quarter.
We're we're powering through and doing it despite coping 19 challenges there were experiencing because they wanted access to that capability as soon as they anticipated getting back in the lab into three or Q4, So I'd say no impact on bookings.
There was a substantial impact on revenue.
I mentioned earlier in my in my answers, certainly, we shipped and installed and train fewer systems than we would have otherwise.
About five systems fewer than we would've last quarter. So you can kind of bigger that's at least a billion dollars and instrument revenue impact in Q3.
And then our.
Consumable pull through was certainly much lower in Q3 that would have been.
At labs actually been active actively using their system.
And that's going to carry through to Q3 as well because many of those instruments that we shipped aren't yet being used because they either have had been installed for theyve been installed but to users having been trained so we'll continue to carry with us.
Suitable headwind for Copel for Geo mix that sort of the cumulative effect of slow installation and training on geometry systems and you know I don't know how to quantify that it could be on the order of a few hundred thousand up $2 million.
Got it maybe one more just in terms of when you laid out the Tam for the discovery recently, so I think it was called two and a half to one of the have done and so 1.6 or 1.7 times and I think go back and look through the math behind that obviously, just the Tam analysis, but given kind of enthusiasm so far hefty orders placed for sure.
For discovery and you're talking about you know, you're you're kind of highlighting the 20 fold increase in kind of boxes that you could sell on top of just how do you think about thus far from the early stages of discovery variably seeds of discovery is that still valid or do you think there's more you know kind of agreed or upside opportunity on the discovery side than you initially kind of guiding to thanks.
Yeah, I think we previously under estimated that total addressable market and discovery.
When we built that Tam, which must be I don't know couple of years old now spatial biology was a brand new concepts or the market need was late and we were just beginning to understand it I think what we've come to learn more recently is that spatial biology is sort of the flip side of the coin to single cell biology.
A lot of the same researchers and the same problems that have embraced disassociated tissues in the single cells and then analyzing them will we think rapidly embrace a capability to do that same kind of analysis, while keeping the tissue intact. In addition at the time, we did that are now.
Just as we did not yet know that we were going to be able to offer a whole transcriptome asset capability for geo mix with Ngs read out, we imagine being constrained to only targeted capabilities and as we bring that whole transcriptome solutions a market in 2021.
I will allow us to appeal not just to the cancer and immunology researchers who we've engaged within the past but to people working on any kind of biological problem, even there in a human for a mouse sample and that really starts to bring in nearly every research for the world. So yeah, we have not update.
They did a revised our Tam estimates, but I think you're right to suspect that we have underestimated the addressable market in discovery.
Got it thank you.
Your next question comes online have Dan Arias from Stifel. Your line is open.
Afternoon, guys. Thanks, Brad just following up on one of your last points there on on where you can install and train obviously, the 10% of lab that are close or not in the picture, but are you able to sort of give a split on the other 90% accessible versus an acceptable for your engineers.
And then just on the sale side, what kind of lead times are you communicating to customers at this point when it comes to just.
Delivery.
And how much do you think you can compress that if we sort of they operate on infections here in the second half the year.
Yes, so maybe I'll do the lead time would first so yes.
I think we're currently carrying.
Backlog.
Of about 30.
Limits instruments that have been ordered but not yet shifts so that the so call. It yeah, that's a quarter and a half at current run rates right. So that's four or five months of lead time, we hope that lead time will go down as we can get in to laboratories in sort of clear get get installed and training.
Don we could begin to dial up the shipment pay certainly that shipment pace, it's not constrained by our own supply its constrained only by our ability to get into people labs in installments right, but yeah, four or five months is the current communication or that we're giving.
It's hard for me to estimate the on a general basis.
What our lab access is today because it changes.
Really literally weekly and it depends less on the status of the lab, then sort of where they're located what their institutional policy is.
During most of the second quarter, we kept our field service engineers off the road both for their own safety and for the safety of our customers.
Mehdi customer labs did not what our people and they locked down much the same way.
Our office buildings have and I'm sure you're you're a your employers have as well.
So we are experimenting with a number of novel approaches.
Such as.
Remote trainings that are delivered by video to deliver by teleconference. But you know you still have to get in there and install systems physically there's no way to do that remote so I'm, sorry, I don't have a more satisfactory answer for you on that and it really does change. We you can rest assured that we are motivated in our customers are motivated doug's do ever.
Anything we can get those systems up and running productive and starting to generate insights.
Yep, Okay. I appreciate that and then maybe can you just expand a little bit on the drag in partnership.
And then maybe what you think about whether or not this is the start of a more expensive collaborative effort that you have with those guys them just comes to thinking about the ecosystem and where they might want to throw their support on on applications and where the growth is going forward.
Yes, I certainly won't speculate about larger relationship with any specific company in the future, but from the beginning of the Geo mix launch going back to HCR 2019, we have said very clearly that we wanted to have a whole network ecosystem of partners out there who helped us anticipate.
And address.
Challenges on the work flow or to help make the geo mix system as powerful as they can be and just to remind you. We haven't we have a set up now for partnerships.
We have a light up biosystems from from Dan Urban helped automate the slide preparation steps using their bond like a bond Rx systems, we have.
Abcam the world's largest provider of antibodies, who helped us rapidly scaling up our protein assays technology for the proteomics assay is we have biotech. These HCV group. So as I mentioned are helping us visualize or days for selection or regions of interest those three partnerships have actually been placed number eight.
She months that have been very productive.
Yes, a little bit partnership is of course, new and we think is I've been very appropriate one at the moment of our Ngs readout launch and the rationale for US is really twofold. One is you know both both alumina and Nanostring are motivated to get the word out on spatial biology, because it helps drive demand both for their next there.
Their latest Sequencers and for our government systems and it helps reassure customers that are products works seamlessly together and too as you know we're both motivated to demonstrate the power of these by a wide t. solutions that alumina has invested heavily in and for US the benefits of course fat.
For turnaround times for people.
Compute processing reassurances about just how silky smooth the workflow is going to be in the future.
For people, who choose to use genomics and alumina together, so I'd describe it ends up.
Partnership the aluminum partnership being off a really great start.
We certainly enjoy working with them and we'd be happy to do so and expanded ways in the future. Most importantly. This is this partnership helps solve some important issues that can be phase for our customers and reassure them than our technologies workstations.
Okay I appreciate that.
I could just stick one more in there it sounds like you're going to be talking about the whole transcriptome product in September at your summit is there the potential for some early rabbits revenues from those products for that product in Fourq you either from the top program or maybe for some early.
Hit usage or is it just best to think of that its 2021.
I think it's best to think about as a 2021 revenue contributor, but we will have the task program for whole transcriptome open in the fourth quarter, but the revenue contribution in the fourth quarter from that will be de minimis, mostly we'll be taking borders for those projects probably to filling those orders in a way that's revenue recognizable not unfolds.
21, so I wouldn't look to model lending revenue associated with that and the current year, but it will be a very important driver of revenue and Geo mix instrument adoption and 2021 of your.
Okay very good thank you.
There are no further questions at this time Mr., Doug feral I turn the call back over to you.
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