Q1 2022 NanoString Technologies Inc Earnings Call
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Yeah.
Hello, and thank you for attending today's me in Australia first quarter 2022 operating results conference call. My name is Selena and I will be your moderator all lines will be you got during the presentation portion of the call with an opportunity for questions and answers at the end if you will.
Like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to our host Doug Farrell Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone joining me on the call today.
Right.
Who is our CFO Tom Bailey.
Bailey earlier today, we released our financial results for the first quarter 2022.
During this call we may make statements that are forward looking statements about our financial projections.
Impact from Covid, 19, future business growth trends and related factors.
Capex for expanding and penetrating our addressable markets, our strategic focus and objectives, and then development status and anticipated success.
Product offerings forward.
Looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described in our SEC filings.
Results may differ materially we undertake no obligation to update these forward looking statements.
Later in the call and I will be discussing our financial results in 2022 guidance. We are prepared as a supplement to GAAP financial measures selected non-GAAP adjusted measures calculation of which are detailed in our press release.
The call all financial measures will be GAAP, unless otherwise noted.
You can also find reconciliations of GAAP to non-GAAP measures as well as the description.
The limitations and rationale for using each measure in today's press release.
Analysts and investors in building their models exhibits under the financial information tab of our Investor Relations homepage that include a presentation of our non-GAAP or adjusted measures and other selected financial data.
I'd like to remind everyone that we'll be presenting at the UBS healthcare conference in two weeks, we look forward to having the opportunity to speak with many of you there.
Now I'd like to turn the call over to Brad.
Yeah.
Thank you Doug good afternoon, and thank you for joining US spatial biology is one of the most dynamic and rapidly growing fields of science.
<unk> has established an early lead and we are continuously evolving our product portfolio and commercial approach to remain at the forefront.
Recently changes in our commercial approach have temporarily reduced the effectiveness of our sales process and our revenue visibility.
Yes, the actions underway to address these challenges and we are beginning to see some improvement.
In time, we believe we will emerge even stronger.
Our leadership position.
During the call today I will review, our recent challenges and outline our actions to address them all.
I will then review our continued progress towards our strategic objectives before handing the call over to Tom to review our financial outlook.
And then a shrink we pride ourselves on being clear eyed analytical and transparent about our performance with the benefit of hindsight. We believe that we have developed a firm understanding of the challenges we encountered in Q1.
And this understanding is guiding our path forward.
As we described during our April 12 call. We believe the two primary factors drove our Q1 performance first uneven sales execution during the fourth quarter resulted in an imbalanced between capturing Q4 revenue and developing our 2022 funnel of opportunities.
Retrospective analysis shows that our sales reps relatively less time in Q4, cultivating long term genomics instrument opportunities instead, focusing their efforts on capturing orders for a record 70, plus spatial biology instruments.
Tracing the impact into Q1 genomics instrument sales, we can see that those sales regions with the strongest Q4 performance delivered the weakest Q1 performance.
Second our commercial effectiveness was impacted by changes made in January to realign our expanded commercial team, which has grown by about 90, new positions over the past 12 months.
Our new mini team structure is the same approach that we believe is used by many of the largest and most successful companies in our industry.
And it's well suited to commercializing our portfolio of multiple platforms and reflects the approach used by our top performing districts last year.
The disruption caused by this rate alignment was unexpected and it can be traced through to several specific Q1 trends.
For example, a retrospective analysis has shown that instrument sales opportunities transfer between reps during the realignment had much lower close rates than those that were not transfer.
We also see that newly promoted account managers were less effective selling genomics instruments.
Compared to their veteran counterparts.
On the consumable side, the pace of quoting activity slowed relative to prior periods as reps transition between <unk>.
And the more junior consumable reps were not as effective in selling to key accounts as the previous account managers out there.
After further review of our Q1 results we've identified two additional secondary factors that impacted our Q1 performance.
One is that our sales team, but still learning how to allocate their time and effort across three product lines.
Since we transition from reactive sales of cosmic since spreads during Q4 to proactive sales of cosmetics and Q1, each individual sales rep has gravitated towards one spatial biology platform or beat up with those over achieving on cosmetics underperforming on genomics.
Another factor is that new genomics customers are taking longer than previously expected to reach their full consumed will run rate likely due to the strong uptake of the whole transcriptome Atlas, which requires more sequencing capacity and informatics capabilities.
Ramping consumable utilization from our most recently installed <unk> systems is impacting our overall average pull through.
We have put in motion a targeted set of actions that we expect to improve commercial execution over the next several quarters.
First we are increasing support for the sales team as they adapt to their new roles and structure, providing frontline reps and recently promoted these additional training and intense coach Inc.
And taking additional steps to ensure customer accounts had been fully transitioned between rents.
We're focused on balancing sales efforts across platforms and time Horizons. This involves closely monitoring individual sales rep activity via our CRM system as.
As well as specific incentives and programs to speed genomics site activation.
Finally, we're refreshing our marketing and sales team to do justice to the breadth and power of our spatial biology portfolio, we plan to better leverage our 115, plus genomics publications and to clearly differentiate between the use cases cosmetics NGL mix.
The commercial team has rallied behind these actions and we see some early indications that sales effectiveness is improving.
To date genomics instrument and consumable orders have improved relative to the same periods in Q2 2021 in Q1 2022.
As we described during our April 12 call, we expect a recovery in our commercial effectiveness to take a couple of quarters and this is reflected in our updated annual guidance. We are confidence that commercial performance, we will get back on track as the year progresses, and we remind ourselves that this is the same team that delivered record results in 2021.
In parallel to improving our commercial execution, we continue to strengthen our team. We recently appointed Dr. Theresa oil to our board of directors Dr.
Dr <unk> as senior Vice President of immuno oncology in cellular therapy for Bristol Myers Squibb.
It is based in the greater Seattle area.
<unk> is an immunologist with over 25 years of experience in the biotechnology and pharmaceutical industries developing novel therapeutics in areas of oncology and inflammation.
She brings deep experience and how life science tools are leveraged to advanced biological discoveries and I'll look forward to benefiting from her insights as a member of the board.
Turning to near term catalysts, we're looking forward to being back in person in Orlando for an action packed advances in genome.
<unk> and technology or <unk> meeting in a few weeks.
We will be hosting our annual pre hebt's spatial genomics summit on Monday June six and will launch between the event for those who can't attend.
Our summit will feature a keynote presentation by Chris Mason, a wild Cornell medicine, as well as presentations from several of our customers illustrating the synergistic choose of genomics in cosmetics and spatial biology research.
So that will be followed by a briefing for investors during which we will put the science into the context of our business.
Now I'd like to provide an update on our strategic objectives for the year.
Our first strategic objective is to drive genomics DSP further into mainstream research broadening adoption across multiple areas of discovery and translational research.
While we obviously did not sell as many genomics instruments as we had expected during Q1, we did increase adoption of our whole transcriptome Atlas and discovery research and demonstrate the value of genomics in the field of translational oncology.
The key Geo mix trends during the first quarter were very similar to what we saw in Q4, suggesting is there is no fundamental change in customer demand or the competitive landscape.
Academic customers continue to represent about 75% of genomics orders with the balance going to Biopharma companies.
More than 90% of genomics instruments were sold for Ngls readout.
On the consumable side of the business assays using in GFS readout accounted for about 75% of poultry.
One highlight of Q1 was the continued penetration of the discovery research market using the MAU whole transcriptome Atlas, which grew about 25% sequentially from Q4 to Q1.
Oncology research remains the number one application area for genomics and our impact in the field was on display last month at the American Association of cancer Research or ACR conference in New Orleans.
We had a record showing with more than 120th scientific abstracts across our three platforms.
The abstracts, which we're studying the abstracts for studies performed on genomics alone outnumber the closest spatial biology competitor by a factor of two to one.
Our second objective for 2022 is to launch cost mix as the industry, leading molecular imaging platform.
This was clearly a highlight for Q1 as demand for cost mix allowed us to capture more than 15 instrument orders.
Juruti of these orders came from existing genomics customers with the balance of the orders coming from researchers with just single cell genomics technologies in the past, but who are new to working with nano shrimp.
Approximately 90% of the instrument orders came from customers buying the system based on <unk> reputation in the cosmetic specs manuscript and public dataset without needing a test drive.
Cosmetics through our technology access program or tap.
That being said, we booked about 50 cosmic tap studies to date and completed about 20 of them were ramping up our tap capacity in order to give more customers the opportunity to test drive cost mix a strategy that worked well during the genomics launch.
The growth in our cosmic <unk> instrument sales funnel is exceeding our expectations and it is already twice the size of our genomics funnel at a similar stage of its launch.
Other other leading indicators of conflicts of interest in <unk>.
Customer interest in cosmetics are also strong.
During the first quarter alone. The paper described being the technology was downloaded over 5000 times, while the 500 gigabyte lung cancer dataset was downloaded over 300 times.
<unk> recently incorporated this datasets, what peer reviewed paper in nature biotechnology.
Using it to demonstrate the ability of new algorithms to identify multi cellular programs marketing marketing immune activity and tissue remodeling.
Keep your eyes peeled for additional data releases in the months ahead, each of which will underscore the unique capabilities of cosmetics.
Continental remains on track to ship commercial instruments in Q4, and we expect cosmic <unk> hit several key milestones during the second quarter our.
Our beta systems have begun to arrive in Seattle, and we're putting them through our paces internally before shipping the first beta units to customers in June .
In addition, next month's <unk> conference will have numerous constantly updates, including 10 abstracts and oral presentations.
Our third strategic objective for the year is to launch our cloud based spatial informatics portal.
Facial experiments are data intensive creating up to one terabyte of data per sample.
By moving data to the cloud customers gain access to massive computing and storage capabilities that enables seamless collaboration across institutions for global consortia.
Our spatial informatics portal remains on track for launch later this year and will be compatible with both genomics and cosmetics.
We will be showcasing this portal at the <unk> meeting in June and we invite you to join US there to learn more.
Our fourth objective for 2022.
Pain, our encounter franchise.
At the ACR conference, we introduced our new encountered pro and customers were impressed with the enhanced functionality.
Customers need robust data security and approach provides a comprehensive enterprise wide cyber solution.
This is a critical requirement for our biopharma customers.
Along with this new version of the instrument, we have relevant gene expression panels used to monitor stem cell manufacturing vaccine production and car team Biotherapeutic development.
We're also co promoting the launch of the pro with Roslyn to provide the most advanced collaborative bioinformatics platform, one that harnesses the power of the cloud based on cloud based computing for complex multi year ohmic analyses, we've expanded our pharma sales team under a manager with a great track record of success.
And we see these changes starting to pay off.
Encounter remains a foundational platform for the company.
That supports our global commercial channel and our innovation engine.
With that I'll hand, it over to Tom.
Thanks, Brad and thanks, all for joining us today.
First quarter of 2022 product and service revenue was $30 8 million.
Spatial biology business Q1, genomics revenue was $9 $7 million approximately flat year over year.
Genomics instrument revenue was $4 $8 million in consumable revenue was $4 9 million.
Q1 annualized genomics consumable pull through was $76000 per installed system.
For Cognex, we secured over 15, new system orders Q1, bringing our total to over 35 orders.
For our encounter business, which includes all service Q1 revenue was $21 1 million a year over year decrease of approximately 3%.
And kind of instrument revenue was $4 3 million in consumable revenue was $12 6 billion.
Q1 annualized.
Consumable pull through was approximately $48000 per installed system.
<unk> revenue was about $4 3 million, representing 16% year over year growth and driven primarily by increased service contract revenue from our growing instrument installed basis.
At the end of Q1, our encounter installed base was approximately 1070 instruments with 20, new instruments installed during the quarter and our genomics installed base was approximately 295 instruments with 40, new instruments installed during the quarter.
Turning to margins and expenses I'll provide results on a non-GAAP or adjusted basis, which removes the impact of stock based compensation depreciation and certain one time items. Please refer to our press release as well as the exhibits we have posted to our Investor relations webpage for detailed information on how our non-GAAP or adjusted measures are prepared.
Q1, adjusted gross margin was 55% an increase of 300 basis points as compared to Q1 of last year.
Margins were positively impacted by growth in genomics GSP consumables and by initiatives, we have undertaken to improve our manufacturing efficiency.
These impacts were partially offset by investments we continue to make in manufacturing capacity for genomics in cognex.
Adjusted R&D expense was $15 million, an increase of 19% year over year, primarily driven by increased personnel and product development costs related to cosmetics and by investments in software and technology that will support data storage and analysis for customers across our spatial biology platforms.
Adjusted SG&A expense was $29 4 million, an increase of 40% year over year, driven primarily by investments made in our spatial biology related commercial initiatives, including investments to expand our sales force service and customer support groups as well as costs related to licensing and implementation of a new information technology.
Solutions to support our commercial operations and finance functions.
Our adjusted EBITDA loss was $27 $3 million and our cash and cash equivalents were $312 1 million as of March 31.
Turning to guidance for the second quarter, we expect revenue to be in the range of 31% to $33 million. This.
This range includes $11 million to $12 million of genomics revenue in 2000 $21 million of encountering service revenue with the bottom end.
The end of the range, reflecting sales performance similar to Q1 and with the upper end, reflecting improvement in the aggregate performance of our sales team in the latter half of Q2.
For the full year, we are updating our product and service revenue guidance to a range of $150 million to $160 million.
For genomics, we are updating our full year revenue guidance range to $60 million to $65 million, representing annual growth, 16% to 25% and an updated full year estimated range of 90% to $95000.
We're encountering and service we are updating our full year 2022 revenue guidance range to $90 million to $95 million, reflecting annual revenue that is flat over the prior year at the midpoint of the range and pull through that would trend to the conservative end of our 50% to $55000 full year estimated range.
The ends of our total updated range are driven primarily by potential differences genomics instrument revenue.
The bottom end corresponds to a conservative scenario in which the close rate on opportunities in our genomics instrument funnel remains at a lower level experienced during Q1 through the balance of 2022.
Upper end corresponds to a scenario in which actions underway resulted in improvements to close rates in the second half of the year.
Turning to margins and expenses, we are affirming our previous full year guidance for adjusted gross margin.
We expect we'll be in the range of 56% to 58%.
We're making no changes to our previous full year adjusted operating expense guidance ranges with.
With our updated revenue guidance and these gross margin and expense ranges. We are updating our expected 2022, adjusted EBITDA loss to a range of $65 million to $75 million from the previous range of $55 to $65 million.
Our balance sheet remains strong and we are confident we have the resources to sustain our key investments through the current period challenges for our revenue and to achieve cash flow breakeven.
Now I will turn the call over to Brad for closing comments. Thanks, Tom <unk> market opportunity is compelling and we are confident in our ability to capture it spatial biology is going to be a critical technique and biological research over the next decade and laboratories are steadily building out their capabilities.
Demonstrating is poised to remain the leading provider of spatial biology solutions based on our company's strengths such as brand reputation commercial reach and financial strength as well as the unparalleled breadth and quality of our product portfolio. We invite you to join US at the <unk> meeting in June where you can see the power and synergy of our spatial <unk>.
Allergy product portfolio for yourself.
We're ready for questions afterwards.
We will now begin the question and answer session.
To ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to turn that question. Please press star followed by team again to ask a question star one.
A minder speakerphone, please remember to pick up your handset before asking your question. We will pass your brief last question sorry to start.
The first question comes from Daniel Brennan with Cowen. Please proceed.
Great. Thanks, Thanks for taking the question guys.
The first one would just be just trying to look at the quarter itself. We placed 40 genomics you did $4 8 million in Internet revenues.
If my math here as me and implies an ASP somewhere in 120000, maybe we're doing something wrong can you just walk us through the <unk>.
Pricing on genomics in the quarters, if that number is correct. It's well below what you guys are tracking at.
Hey, Dan Thanks for the question, let me clarify the difference between revenue recognition and installation of genomic systems. So during the quarter. We installed 40, new genomics systems, many of which had been sold and revenue recognized during the fourth quarter. So.
The revenue recognition associated with Q1.
Genomics instruments was on a smaller number of additional orders.
And our Asps for genomics was stable in Q1 relative to prior periods.
Got it okay. Thanks, Brad.
I thought you're going to get caught up in terms of more placements were equal.
Two shipments, but okay. So for Q2 on the guide just what's what's being assumed NGL mix given we're kind of in line with you on the full year, but our Q2 guide definitely below us overall and counter a little bit about the genomics products. So within the $11 million to $12 million. What are you assuming for placements in total.
Yes, we typically don't give that kind of detail on a quarterly basis, Dan, but I think I would say two things.
Per my comments at the bottom end of the range assumes close rates consistent with Q1, the top end a bit of improvement.
And we would also be reasonable to assume that you would see sequential growth in both instruments and consumables relative to what we did in Q1. So if you're modeling Q2 within our guidance range of those would be good guidepost for you to use I'll add one thing on top of that Dan. If you look at our historical consumable pull through for genomics intends to strength.
<unk> seasonally over the course of the year. So it's fair to assume that Q2 consumable pull through for genomics will be closer to the bottom end of the range strengthening over the course of the year.
With near the top of the higher end of the range and.
In the second half.
Got it and then and then Im trying to drag you talked about throughout the call a few times.
Where some of the incremental data points that youre seeing that suggests everything's in order and it just kind of working through the sales force realignment issues could you just maybe.
Speak to kind of what was communicated give us a little more color on anything related to PC.
I think folks there's a heightened awareness towards is there something going on in the competitive landscape or is it really just the sales force realignment. So what can you say regarding April and then even made to date and anything about the sales funnel that would reflect that.
That you feel good about kind of what's in front of you in terms of demand basis.
Yes, maybe I'll break that question into two parts.
First what gives us confidence that the reasons, we outlined on the call are in fact, the reason for the Q1 hundred performance and that Theres, not something going on at a macro or competitive level.
Really the traceability of our Q1 trends back to very specific changes that we made in our commercial approach.
Those correlations are just too strong to be coincidental and Furthermore, we just don't see any changes in the competitive environment that would account for the slowdown. We saw in Q1 are our competitive loss rate was low and consistent with prior periods our transition rate from GE.
<unk> cosmetics was low and consistent with.
Prior periods.
And the weakness that we experienced was across all parts of our business, which would not be consistent with a competitive threat.
Maybe my first point.
On the question of sort of Q2 quarter to date trends I mean things are off to a good start.
I described in my prepared remarks, both genomics and instrument and consumable orders.
Are moving through the quarter at a pace that Mitch.
Materially improved over both the prior year period, and the way that the year started in Q1, but we're only about five weeks into the quarter. So it's too early to declare victory.
Some of the commercial changes that.
We're growing into or still going to take time, and I think you'll see that reflected in both our Q2 and full year guidance.
Got it Okay and then maybe last one we're just being I will get back into queue would just be.
As we think about genomics and Cognex I think you've talked about just there that youre not seeing any.
Anything abnormal in terms of.
The cosmic tortillas versus your tracking from genomics, but I think thats something.
We'll learn more about <unk>, what what could you speak to again, giving us more.
Factoids little from customers or any any anything youre seeing in terms of publications or drawdowns that would reflect that these two these two products are complementary carnival.
Well.
I think the strongest evidence of the complementary nature of genomics in cosmetics comes from the nature of the orders for <unk> to date about three quarters of our orders have come from accumulatively have come from customers, who either already owned genomics or bought.
Cognex in genomics together in a bundle and I think you would not see customers doing that if they did not believe that these were complementary solutions.
Also I'd like you to come to <unk>, all three of our oral presentations on cosmetics will also include genomics data and they will show real scientific experimentation. How these two technologies are going to be used together, you'll also have the chance at our spatial genomics summit to see for customers.
Talk about their tool synergistic use these two platforms together, so I think the order trend that supports the.
The complementary nature, and if you come to Orlando, you'll have a chance to speak to a number of scientists were finding these two technologies complementary in their real experimentation.
Great. Okay. Thanks, guys I'll get back in the queue.
Thank you. The next question comes from Dan areas with Stifel. Please proceed.
Afternoon, guys. Thanks for the questions Brad just to put some context, maybe to the scope of the changes what percentage of the sales force roughly speaking is now in the new role.
And then can you just expand on what you meant by some reps not cultivating the long term spatial relationships and instead focusing on the near term sale does that mean that once the purchase was made the follow through just wasn't there in order to drive the recurring revenue stream.
Yes, let me take the second question first Dan So when we talk about the imbalance in the sales effort in the fourth quarter, Here's really what we mean.
Our instrument sales reps.
<unk> frequently visiting and cultivated those customers who work due to purchase instruments during the fourth quarter.
But they were not spending time with customers who are early in their evaluation of genomics and were due to purchase their instruments during 2022.
Remember the sales cycle for a genomic system is between six and nine months, our sales reps need to be in contact continuously with customers over that period lengths and if they focus only on those customers who are purchasing instruments in the current quarter they'll underinvest in the long term cultivation of future.
Quarters instrument purchases and that will come back to haunt them and that is what we saw take.
Take place in the fourth quarter.
On the question of the fraction of sales reps in new roles.
I think the.
The answer is because.
Is that the majority of our sales reps.
Had the rules change now it doesn't necessarily mean, they're titled changed it doesn't necessarily mean their customer list.
Changed materially, but it does mean that we're now asking them to do has evolved and the reason is we moved from an overall structure where individual sales reps.
<unk> with the same customer multiple individual sales reps interacting with the same customer and one coordinated way too many teams or account management structure, where a single account manager coordinates the way that our sales reps interact with a customer in a way that makes that customers' lives simpler.
And allows us to deliver better service.
It impacted almost every body in terms of the way that they work.
And.
That's part of what it's going to take some time to grow into.
Okay helpful. Maybe.
Maybe just as a follow up you were pretty clear last quarter about the belief that the full commercialization of cosmetics.
Would not take place until the fourth quarter do you see that being mid fall or or more like the holidays and I'm not trying to split here hairs here on an eight week period.
But I am wondering about the ability to just use system availability as a competitive strength.
Just in the sense that you can say hey, there are a bunch of new instruments out there to look at but here's one that you can be installing and using meaningfully before year end.
It's too early for us to parse the fourth quarter and determine what we will be actually shipping those instruments and I do feel confident we'll have instrument availability, but we will meet our route the shipment of those new systems in an orderly fashion I don't believe that system.
In the fourth quarter is a critical competitive factor I believe.
Customers are evaluating the imager class.
Based on the reputation of the company, who stand behind that imager, the publicly available data sets and description of how the technology works.
And.
The data that's being presented in real time at meetings like <unk>, So I'm not I'm not worried about.
Feeling compelled to ship a large number of instruments in the fourth quarter on a competitive basis.
Okay, and just lastly, Tom any any.
No change to cosmic revenue is not really falling into the back half of the year on that note.
That's correct, Dan Yes, no changes no no cost with revenue in 2022, and our guidance that's correct. Okay very good. Thanks.
Thank you. The next question comes from Julio <unk> with J P. Morgan. Please proceed.
Hi, good afternoon, Thanks for taking my question.
So looking at the gym that Scott.
It looks like you're not assuming much benefit is to recapture in the second half of the year.
So I wonder if you could give an update on the German corridors.
Has any of them being lost to competitive placement and.
And what any internet recapture.
But the second half of the year represent upside to your guidance.
And Julia this is Brad.
So first.
We do not see an increase in competitive loss NGL mix, the number is low and consistent with previous periods.
We do actually when we look at our guidance imply.
Imply a substantial step up in the growth rate of genomics revenue in the second half I believe if you take our Q2 guidance and our full year guidance. You can you can infer that our first half growth rate on genomics is relatively flat.
As implied by the guide, but then it steps up to between I think 11% and 35% growth rate in the second half.
At the bottom and top end of the range respectively. So we are expecting that these actions we have underway will.
<unk> have an impact on our commercial execution. After a couple of quarters and that is built into our guidance.
Got it.
And as you push Jill next beyond the early adopters.
Obviously, youre now generating peer review publication.
Well the ATB to increase while we have that.
I Wonder do you that next tier of.
Our genomics customers require any.
Sales and marketing approach do you expect any differences in the sales cycle from six to nine months that you've typically seen with previous customers.
I do think that we need to tweak our sales approach to reach the mass market with genomics.
I think I don't believe that requires any structural changes obviously, we've added a large number of sales reps to be able to reach them I think the number one thing we can do to help this.
Maybe early majority segment understand where GM its fits is to improve the way that we communicate that relative use cases of genomics versus the.
The imagery class, including cosmetics and the way that we use the large number of peer reviewed papers to illustrate specific use cases that appeal to each individual researchers. So this simplification of the way we describe the spatial biology platforms and their relative.
Users and what I'll call. The web innovation of our peer reviewed papers is a major focus for our marketing organization today, but I believe we will have an increasing impact over the second half of this year.
Got it very helpful.
And then lastly on the sales.
Steve I believe you mentioned in prepared remarks that some reps are dedicated to <unk> and others on cost next.
Given where the products are in their respective lifecycle with I assume most of the sales team is focused on till next now that as the cough Nick's franchise, well does that mean, you need to shift genomics fracs over two kaufmann and how are you thinking about the potential transition down morale.
Let me clarify my earlier remarks, Juliet, we do not separately dedicated sales reps to Geo mix versus cosmetics, we have special sales specialists, who are able to describe the entirety of our portfolio for spatial biology, but what we have observed is that <unk>.
<unk> reps tend to have a favorite some of them you'll feel most comfortable selling genomic systems, which they've been doing successfully for some time other sales reps have gravitated to the excitement of the cockpit systems.
And part of what we're doing with our training and our coaching and are monitoring of Salesforce activity through our CRM system is helping our sales reps find the balance.
The appropriate balance of selling both of those instruments.
Target in each one line to the applications and the customers for which it is most appropriate.
Got it that's helpful. Thank you.
Thank you. The next question comes from Paul Nixon with Canaccord. Please proceed.
Great Hey, guys. Thanks for taking the questions. So just on the Geo mix guidance like you were saying a moment ago Brad.
Yes.
Second half.
Guidance implies I think it's like two thirds of the total year revenue proteomics last year that was 60 could you just kind of walk through what gives you confidence that you can kind of drive that growth I think you mentioned, 11% to 35% growth year over year in the second half of the year I mean, it's kind of a competitive obviously in the second half there's other factors Cvs coming off the sales force realignment could you just walk through.
What gives you confidence in that growth.
Yes, I think if you look at the first half second half split.
Implied in our updated guidance you get a total revenue split of about 40% in the first half and 60% in the second half.
Pretty close to that.
If you look back at 2020, which because of the COVID-19 pandemic was a year, where we similarly had a slow start to the year with an acceleration in the second half.
About the same first half to second half split that we would have seen in 2020. So.
I think it is not without precedent in a year, where you experienced challenges in the first half that that will leave in a second.
I guess, that's the first statement.
The second is <unk>.
Confidence that.
<unk>.
Remains.
A tremendously powerful spatial biology platform.
The peer reviewed papers.
As evidence for how powerful that can be are coming out at a very rapid pace.
We do believe that we'll be able to continue to distinguish genomics from the imager class of products, that's coming out and that many customers will feel that they eventually need both capabilities.
So many of ours already have and that this will this will allow us to have.
Good recovery in the second half.
Great that's helpful and.
You were asking Brad the genomics pull through slower due that WTS.
That dynamic can you just kind of walk through that one more time in the higher price point that the workflow is more complex I guess.
Importantly, do you expect that is going to be the new normal as customer shift towards Dmitry I think thats, obviously, a trend that you would like to see and would you view this.
The full year genomics pull through guidance does conservative, but it does seem that far off from the original guidance for 2010.
Yes, let me clarify my prepared remarks again tile so.
In the long term, we expect customers using the whole transcriptome Atlas assay to have strong consumable pull through on genomics that being said we've observed that it takes multiple quarters for customers, who are adopting wth to reach their revenue run rate. The reason is.
Setting up a laboratory to run WCS is complicate it involves gaining access.
At appropriate sequencer.
Creating a data pipeline that goes.
It goes from that Illumina sequencer back into the genomic system.
And then in many cases setting up a facility servers with extra storage space for processing capability to handle the large datasets and as a result, those new customers, who are embracing Wpa take multiple quarters.
Slowly grow up their consumable pull through and that dilutes. The overall average pull through of our installed base and that's the effect that we've begun to see and to quantify and reflected in our guidance.
None of this changes our long term expectations about what genomics pull through can be over time.
But in the periods, where we're placing large numbers of instruments, we're going to continue to see that dilutive effects.
Got it okay. Thank you for the clarification, if I could just ask a really quick follow up.
I know utilization was soft in Q1 for Jim and I heard a 75% of the pull through was for NDS readout could you just talk about recent trends for protein based on RNA base today for policy research and.
I guess what are you seeing in the current <unk> installed base and how do you anticipate that kind of a box throughout the rest of the year.
Yes, our estimation of the overall total addressable market for spatial biology is that it's about one.
One third protein two thirds RNA.
Most of our customers who were the early adopters of genomics.
Wired it for use with encountered readout and protein based assays and <unk>.
Those still account for about 25% of our overall consumable pull through and I would expect it to stay based on our stay at that level in the quarters to come.
As protein will remain an important part of what people do on the system.
Okay. Thanks, so much.
Thank you. The next question comes from Catherine Schulte with Baird. Please proceed.
Hey, guys. Thanks for the question first.
First you mentioned in your prepared remarks that for genomics instrument sales regions with the strongest Q4 performance delivering a weaker Q1 performance.
I guess now that you've had time to dive further into the results how much of the genomics instrument.
That's driven by those regions underperforming versus our prior impact that was perhaps the results of the January realignment.
It's a great question, Catherine I'd say that the.
The underperformance of those regions that build to cultivate long term opportunities in Q4 was really only part of the explanation for the Q1 weakness of genomics. It does not fully explain the shortfall relative to our expectations.
Clearly the change in our commercial.
Organization further reduced our ability to capture and close on the opportunities that we have there.
Okay got it and in terms of the actions you are taking you mentioned specific incentive programs to speed gentlemen site activation.
Just talk through what those incentives and programs are specifically.
Sure.
In terms of incentives, we have special pricing in place for new <unk> sites, who are able to get activated and get up and running on whole transcriptome assays early so we're providing a motivation.
To get their workflow setup and their informatics in place.
In terms of.
Pricing, we can offer the customer in parallel we formed kind of a tiger team of internal manner stirring people who are helping.
We are closely coordinated.
The efforts to bring sites up quickly and to make them more effective all the way from the shipment of the instrument the installation of the instrument the training at the end of the users on the instrument and importantly, the planting of those first critical experiments.
To help get people with experience on the system quickly and to build their momentum.
Got it thank you.
Thank you. The next question comes from Tejas Savant.
Morgan Stanley . Please proceed.
Hey, guys good evening.
So Brad I appreciate it I appreciate all the color yard that you've provided on on the Max order funnel, but I was wondering if there's any sort of like quantitative metrics that you can share in terms of the vintage of that funnel right. So if you think about the split between the near term opportunities versus the longer term opportunities it sounds like.
It's skewed heavily towards longer term opportunities earlier in the first quarter to what extent has that balance now being restored to perhaps where it was.
In <unk> last year.
I think you're asking about what we would call the maturity of our sales DNA.
Where are those.
The opportunities and customers and their overall sales cycle I would say some of the immaturity of our sales model that we had exiting 2021 continues to persist and our sales funnel in 2022 and that is reflected in our in our guidance. So we're continuing to try to advance.
Those customers through their purchase process.
Not as mature as I want it to be yet.
<unk>.
One other comment on sort of sales cycle, though I've recently, just this morning took a look at the.
The overall sales cycle for those instruments that we have taken orders for quarter to date.
Continues to be no evidence that the sales cycle for genomics is extended so it's really just a question of.
Getting our sales team imbalance between cultivating long term opportunities, including the ultimate current opportunities and letting those purchase processes play through as they do.
Got it that's helpful.
And then in terms of.
Helping new reps ramp on new accounts.
Any specific changes that you've instituted just to help them stay on track and get through that process I remember after the pre announcement do you sort of mentioned to us things like sort of a day one week, one month, one target and plan and making sure. They stay on track any any further details around these formalized processes.
Four handle words that you can elaborate on.
No I think.
It's obviously not rocket science, it's just that it is hard work that someone has to stay on top of and make sure. It happens in a timely fashion.
We have.
Revised our Onboarding approach for all new sales reps and the ways that the incumbent reps will help them come up to speed.
Those processes have been.
<unk> completed.
Kind of advisers in a territory planning tool.
That's being actively used today.
Again.
So the starting point that will help our consumable reps get to know their accounts.
We believe that over the next several quarters that will improve their overall sales effectiveness.
Got it.
And then in terms of what you just mentioned earlier on the call Rad around cleaning and monitoring.
Reps to make sure that that is a balanced focus across all three of your platforms.
Is that translating into any sort of new incentives, you're putting in place now to optimize for that behavior or is it mainly just a push around.
Monitoring and training.
Yes.
Our sales reps are paid on a quarterly basis, so their incentive compensation plans should.
Over the long term reward them for a balanced performance over time horizons that being said, many reps need coaching and management and controlling to help them stay on track and not over invest in near term opportunities and underinvest in long term. So really the primary mechanism for achieved.
Net balances provide a clearer visibility about the individual rep and our manager on how they're spending their time in.
How active they are with certain instruments.
The opportunities at different stages of the funnel and then just.
Helping them find the right balance by coating.
Got it Super helpful. And then one final one on the guide for me for Tom.
Tom can you just elaborate around just assumptions around.
Biopharma, but not so much a budget flush, but just health of the biopharma spending environment in the back half of the Theres been some concerns around some cracks in the mirror there.
On the broader landscape and then off of that 7 million that you've shaved off on the encounter side of things in the guide was that essentially all related to the sale of restructuring or was there any incremental downside from omicron as well.
On the on the encounter piece that changes I think we are.
It's all related to our execution issues on the guide.
There's no incremental impact from any macro factors that we assumed.
The encounter guidance.
Got it and on the Biopharma point.
Ballpark guess on the Biopharma points on bio Biopharma is.
As you know in any given quarter.
The 10% or a little over of our total revenue. So most of our revenue comes from academic and large pharma and other institutions outside of kind of a small biopharma that are most impacted by the current capital markets environment. So we don't think that plays a significant factor into where we will land for the year and so thats not fat.
Third into our guide either nor is there any budget flush type of behavior.
Layered into our guidance the quarterly pattern is recall when we gave guidance for the year back in March we expect to be.
System.
Through the quarterly progression as we saw in 2021, albeit at a lower starting point.
For this year than we originally expected.
Got it very helpful. I appreciate the color guys. Thanks.
Thank you.
That concludes the Q&A session and I would like to pass the conference back to Doug Farrell for additional remarks.
Thanks, everyone for joining us today, if you did miss any portion of the call I expect to replay to be posted in the next two hours yourself that'll be up through the 17th of May to access the replay. Please dial 86681394 O three.
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Thanks again for your time and that concludes our call.
Goodbye.
That concludes today's nano shrimp first quarter 'twenty operating results conference call. Thank you for your participation you may now disconnect your lines.
Okay.
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