Q2 2022 NanoString Technologies Inc Earnings Call
Centers and other selected financial data.
I'd like to remind everyone that next week, we'll be participating in both the Canaccord and UBS health care conferences, we look forward to having the opportunity to speak with many of you. There now I'll turn the call over to Brent.
Thanks, Doug Good afternoon, and thank you for joining us I'm pleased to report strong results from our second quarter during which we rapidly expanded our spatial biology customer base, while improving our commercial execution.
We booked orders for approximately 50 spatial biology instruments and the increase of about 65% year on year and 40% sequentially. We achieved the midpoint of our Q2 revenue guidance given the notice.
Even as our order mix shifted towards complex spatial molecular imagers, which we're currently building our backlog rather than generating current period revenue.
These solid Q2 results and strong demand for our novel platforms.
Score our continued leadership in spatial biology and have setup name is trained for a strong revenue growth in 2023 and beyond.
During the call today, I will provide an update on our commercial execution and the dynamics that we're seeing in the spatial market. I'll then provide an overview of our progress towards our strategic objectives before handing the call over to Tom to review the details of our financial results and our outlook for the balance of the year.
Our team has rallied behind the rigorous steps youre, taking to sharpen our commercial execution.
In terms of the sales team are settling into their new roles and are more effectively managing both short and long term instrument opportunities. We're pleased with the progress and the expected commercial execution.
To continue to improve during the third and fourth quarters of the year.
During June we added successful showing at the annual <unk> meeting, where spatial biology with a key focus and accounted for about 25% of all presentations and posters.
And our strength and our customers lead the field in terms of scientific content showcasing 20 scientific abstracts, including 15 for cosmetics. We also hosted our fourth annual spatial summit, which drew a standing room only crowd of more than 300 attendees in Orlando and another 300 plus researchers.
Who participated virtually.
The GBT conference also highlighted the degree to which the research community is being rapidly educated regarding spatial biology, no fewer than eight companies are marketing new spatial platforms, primarily single cell Imagers and the same product category is our cognex <unk>.
Against this backdrop several new market dynamics have come into focus first we're competing in a spatial biology land graph as researchers commenced of platforms and companies that will power their future research.
The simplest way to measure progress during this phase of market development that the pace of orders for new spatial biology instruments.
As a result total spatial biology instrument orders will begin to feature prominently in our guidance and reporting for the balance of 2022.
Second the combined energy of so many vendors marketing single cell Imagers is rapidly increasing customer interest in this product category.
As a result Fernando strength is that we are currently finding the volume of orders for our complex SMIC will be equal to or even greater than the orders for our well established geo mix DSP.
Rather than fight this market trend we embraced it.
Were equally pleased to place a cosmetics or genomics system as either one represents an expansion in our research community's commitment to our platform and an equally valuable revenue opportunities Fernando strength.
Third and most importantly, we believe that <unk> is well positioned to win the spatial biology land grab.
We provide a complete portfolio of spatial biology solutions that includes a whole transcriptome profiler and the high Plex imager integrated with a cloud based informatics suite.
All supported by Blue Chip partners, including Illumina lighter AD can biotech.
This portfolio provides researchers with a compelling ecosystem that can offer a solution for virtually any spatial biology experiment of scientists might design.
Now I'd like to provide an update on our strategic objectives, a year, which are tied to the individual products in our portfolio.
Our first objective is to drive genomic CFT further into the mainstream broadening adoption across multiple areas of biology discovery and translational research.
During the second quarter genomics instrument revenue grew about 10% sequentially.
<unk> readout for whole transcriptome assay continues to be the most popular application draw.
Living about 85% of new genomics placements.
Two thirds of systems were sold to translational researchers who represent our historical customer base. While one third went to discovery researchers who represent a new target market for us.
Instrument bundles increased in popularity and accounted for a record 35% of genomics instrument orders demonstrating that many new customers are jumping into our spatial biology ecosystem with both feet.
Most of these bundles included both a geo mix and cosmic system and several included all three of our platforms genomics conflicts and encounter.
Consumable pull through for genomics was $77000 per system on an annualized basis and consistent with our seasonal expectations about 80% of the cost of genomics consumables were for RNA analysis as our whole transcriptome panel expand to reach beyond the cancer researchers who are.
Primary early adopters.
And may demonstrate an alumina launched a seamless cloud based workflow that employs the spatial improves the spatial.
Data analysis experience of customers using aluminum next Sikh platform.
To process samples prepare our genomics. This system includes an integrated push button run planning tool as well as automated downstream processing using the dragon bio it platform.
We believe that this simple fast end to end solution will improve customer productivity and experience.
Our genomics customers have already been tremendously productive.
As of the end of Q2, they had published approximately 130 peer reviewed publications using genomics and in July the added another 14 needle.
We continue to see positive leading indicators for genomics adoption as well.
Orders for new genomics test drives through our technology access program increased 20% sequentially from Q1 to Q2.
Genomics has driven about half the opportunities entering our spatial biology instrument funnel year to date.
Based on our funnel and improving commercial execution, we expect the pace of genomics instrument sales to increase in the second half of the year, even as new orders are split about evenly between genomics and conflicts.
Our second objective for 2022, just to launch complex as the leading molecular imaging platform the.
The excitement around complex continues to exceed our expectations we.
We took orders for more than 25 <unk> systems in Q2 about double the pace. The genomics was generating at the same point in its launch.
The synergy between our spatial biology platform and the appeal of our ecosystem is undeniable as evidenced by the fact that two thirds of our cumulative <unk> orders have come from customers, who will also adopted genomics.
Reflecting the breadth of excitement regarding cost mix. We are also seeing tremendous interest from customers who are engaging with demonstrated for the first time.
The second quarter more than 80% of Cognex, where it came from new customers half of these orders came from researchers working outside of oncology in areas, such as immunology neurology and a host of other applications.
These trends demonstrate that cognex is helping win the spatial biology land grab.
While researchers can now choose amongst several molecular imagers Hoffman leads with best in class performance metrics, including highest flex RNA the capability to image proteins robust data quality, all done and challenging ffbe tissue.
Although our emerging companies are seeking to promote their offerings. These entrants cannot match, our specifications product portfolio commercial channel brand reputation partnership ecosystem or financial resources.
We remain on track to begin shipping commercial cockpits instruments during Q4.
Earlier this week, we shipped our first beta system to a customer and are planning to ship to more.
To other customers this month.
Meanwhile, we're allowing customers to test drive cognex via our technology access program.
About 40% of these test products already generated in order for our cockpits instrument, while many others have provided data for grant applications that may support future complex floors.
Our third strategic objective for the year is to launch our atomics spatial informatics platform.
<unk> is an easy to use cloud based solution that enables image analysis data visualization global collaboration and highly scalable compute and storage capacity for both cosmetics mgo mix and.
In addition, atomics uses of flexible data structure ready to be examined using artificial intelligence and machine learning approaches.
We showcased at <unk> during the <unk> meeting and customer feedback was outstanding.
Researchers appreciated that we anticipated and address the challenge of managing large spatial biology data sets and we believe that <unk> provides an important differentiator between <unk> portfolio and the more limited offerings of our competitors.
We plan to launch Atomics during this fall.
Our fourth objective for 2022, that's a sustained growth for our encounter franchise.
Encountered as a foundational business that supports both our global channel and continued innovation.
In April we introduced our new encountered pro which incorporates a comprehensive cyber security solution and can be easily paired with roslyn, a collaborative data analysis platform.
These enhancements have been well received especially by our Biopharma customers.
We continue to introduce new panels to drive adoption in markets outside of cancer.
This quarter, we launched the cardiovascular disease panel, which is now the subject of a collaboration across five thought leading institutions.
We'll also expand our cell and gene therapy portfolio for encounter.
The integrating this application into our spatial platforms.
These applications are considered some of the most promising for developing the new next generation of therapies across many disease areas.
Now I'd like to turn the call over to Tom to review the details of our financial results and outlook.
Thanks, Brad and thanks, all for joining us today.
For the second quarter of 2022 product and service revenue was $32 million.
We sold about 50 spatial biology systems during Q2, an increase of approximately 65% as compared to be about 30 systems sold during Q2 of 2021.
Orders were comprised of more than 20 genomics systems and more than 25 cosmic systems.
Due to spatial biology revenue was $10 9 million, including genomics instrument revenue of $5 2 million and genomics consumables revenue of $5 $7 million.
Q2 annualized genomics consumables pull through was $77000 per installed system.
At the end of Q2, our <unk> installed base was approximately 350 instruments.
Our client mix are over 25, new system orders in Q2 added approximately $6 million of revenue backlog.
<unk> cumulative cognex total to over 60 orders and our cumulative <unk> revenue backlog grew about $14 million.
We expect to begin recognizing material revenue from our growing Cognex order book.
<unk> 2023.
Or encountered business, which includes all service Q2 revenue was $21 1 million.
Instrument revenue was $4 3 million consumables revenue was $12 2 million in Q2 annualized encounter consumables pull through was approximately $45000 per installed system.
Service revenue inclusive of all service contract revenue for all platforms and spatial biology tap revenue was about $4 6 billion.
At the end of Q2, our encounter installed base was approximately 1085 instruments.
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 other 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.
Q2, adjusted gross margin was 54% a decrease of 200 basis points as compared to Q2 of last year the year over year change in gross margins was mainly driven by investments, we're making in our manufacturing capacity in advance of the commercial launch of conflicts.
Adjusted R&D expense was $14 5 billion flat year over year, and adjusted SG&A expense was $32 million, an increase of 39% year over year.
The increase in SG&A year over year was driven primarily by the full run rate impact of investments made in our spatial biology related commercial initiatives, including the expansion of our Salesforce service and customer support groups.
Our adjusted EBITDA loss was $27 $5 million and our cash and cash equivalents were $272 3 million as of June 30.
Turning to guidance, we are updating our full year 2022 outlook to reflect the updated expected mix of spatial biology system orders and our current expectation of the pace of improvement in our sales execution.
For 2022, we now expect to receive orders for about 200 spatial biology systems consistent with previous guidance as updated in May.
While our expectation for the total number of spatial biology system orders unchanged. Our view of the genomics costs next quarter mix House, we now expect our order mix. This year to be comprised of approximately 100 genomic system orders and approximately 100 cognex system orders as compared to our last update which reflected about 140 genome.
Orders and about 60 cost X orders.
We have not included any material cost mix revenue recognition and our 2022 guidance as a result, we're adjusting our expected 2022 full year spatial biology revenue to $50 to $55 million to reflect our updated expected system order mix.
Our full year estimated pull through guidance for genomics unchanged from our previous range of 90% to $95000.
We also expect.
We continue to expect full year and counter revenue of $90 million to $95 million.
An estimated pull through of 50 to $55000 all unchanged from our previous guidance.
For total revenue, we now expect to record about $140 million to $150 million in 2022, reflecting the updated expected mix of spatial biology system orders.
Turning to margins and expenses, we are reiterating our previous full year guidance for adjusted gross margin, which we expect will be in the range of 50, 658% and operating expenses and we are therefore updating our expected 2022, adjusted EBITDA loss to a range of <unk> $75 million to $85 million from the previous range of 65 to 75.
Right.
For the third quarter, we expect to book orders for about 55, spatial biology systems, representing about 60% year over year growth with an approximate 50 50 mix of genomics in cosmetics.
Spatial biology revenue of 12% to $13 million.
Which in Q3 will only include revenue recognized from genomics instruments and consumables.
And counter revenue of $22 million to $24 million and total revenue of 34% to $37 million.
Finally, I'd like to comment on our setup for 2023.
The 100 causeway orders expected in 2022 combined with the 20 orders we received in 2021 with brings cumulative cosmic orders entering 2023 to about 120 total representing about $30 million of revenue backlog.
During 2023, we expect to recognize substantially all of this cost mix instrument backlog, while continuing to accumulate additional orders, which provides line of sight for 2023 revenue growth of more than 40% are.
Our balance sheet remains strong and we continue to be confident we have the resources to achieve cash flow breakeven, while sustaining our key investments in growing our spatial biology market share and leadership position.
Now I will turn the call over to Brad for our closing comments. Thanks, Tom.
<unk> is rapidly winning the most valuable properties and the ongoing spatial biology land graph.
We believe our market position will continue to grow stronger in the future.
Just on a broad portfolio unique ecosystem and strong financial position.
Because confidence does not yet shipping our progress is best reflected in the current growth of our spatial biology instrument orders and our outstanding setup of revenue growth for 2023.
Now we'd like to open the call for your questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad now.
If you would like to remove your question. Please press star followed by <unk>.
Apparent to ask a question. Please ensure your phone is on mute.
Hey.
The first question comes from Katherine Xu from pad. Please go ahead.
Catherine Your line is open. Please proceed.
So you're on mute.
Unfortunately, Catherine on the <unk> and <unk>.
We'll move to the next question.
We take the next question from Carl Mixon from Canaccord Genuity.
Please go ahead.
Yeah.
Hi, Alex vacation Im on for Kyle Nixon.
Thank you for the update.
Just curious if you could provide some color on the performance of the commercial team during the quarter.
Also some of your competitors had to make some.
What's their workforces recently are there plans to kickoff given some of the looming recession indicators also if so why are you still confident that this cost cutting won't hinder cognex commercial launch. Thank you.
Thank you for the questions first let me start with the color on the commercial performance I am pleased with the improvement in commercial execution that we saw in Q2 I'd highlight two areas in particular, one the commercial team is really transitioning well into their new roles that were signed back in January .
Perry.
They've all gone through bold specific training.
<unk> seen the teams worked together well each plane.
In addition that Theyre now assigned to.
We're also seeing more effective management of both short and long term opportunities, meaning clothing business in the current quarter, while continuing to develop a bundle for future quarters.
So that that performance.
It's been approved we've also seen a normalization in the performance of accounts that were transitioned from one rep to the other with the rules work for us during the first quarter that improved substantially in the second quarter and those accounts types are performing basically equally.
I do expect us to continue to improve our performance in the second half two areas that we're looking at in particular our <unk>.
I can assure that our our.
Our account managers, who come from our consumable sales background begin to become adjusted effective at selling our spatial biology instruments as our.
Account managers, who have instrument backgrounds arent I'm sure they will and finally, we're looking for improved performance from our most junior consumable reps, who are still coming up the curve and learning how to be field base sales.
Sales individuals.
So overall I'm pleased with the progress, but there's more still to come.
On your second question demonstrated does not have plans to cut costs at this time.
We believe that we have the right commercial infrastructure and people on staff, we expect to grow into that cost base nicely through the second half of this year and in particular with a large backlog of cosmetics revenue that we will enter 2023 with begins to run through our P&L. So we have no.
Plans for cost cutting at this time.
Okay.
Thank you so much that's.
Really good color there.
Just one more question if that's okay.
Curious about.
The atomics unless typically if you guys could possible updates on the bench testing and the multiple launch timing and also just.
Take a high level look at things.
So we always have been called the smartest.
Portal non op and streamlined workflows, but also if you could highlight some of the ways much Brooks.
<unk> portal differentiated from what we're seeing from competitors.
Thank you.
Yes, well, we think atomics is an underappreciated competitive advantage banana strength.
No other provider is making the investments administering is in cloud based solutions to manage the massive amount of data that spatial biology platforms. Produced. These are data sets that are so large that can't be easily emailed around from one research or the other so we need to create.
Spaces in the cloud where multiple users can dial in manipulate visualize analyze and store their data sets.
Atomics is.
Importantly will also tie together <unk> two separate spatial biology instrument platforms into a single sort of desktop.
All the informatics can be stored analyzed on the same basic platform, So electronics will launch.
Simultaneously with the commercial shipment of cosmetics, which is slated to happen in the fourth quarter of this year beta testing is ongoing feedback. So far has been excellent and we look forward to sharing more as time goes on.
Excellent. Thank you very much.
The.
Next question comes from Dan Brennan from Cowen. Please go ahead Dan.
Okay.
Great guys. Thanks, Thanks for the questions here.
I guess, maybe first one would be just on genomics.
For second half pull through numbers, what's the visibility on getting to your full year numbers given the jumping off point right now with the first half of the year.
I think Dan as we commented the last quarter of the seasonal pattern that we're seeing right now is pretty consistent with the seasonal pattern that we saw for last year. So if you assume a seasonal pattern and pull through percentage change in Q3 Q4 like you saw in 2021 that gets you to our 90 to $95000.
Range give or take for the full year.
Got it okay and in terms of the shift here.
Cause mix, which has shown some nice really good order momentum, but kind of somewhat at the expense of genomics, which is a big question, Mark and kind of how these two products coexist complimentary of Carnival is like.
Maybe could you give us some color around how youre thinking about you gave some color on 2023, how do we think about the jumping off point for genomics as we get into 2023.
Yes. This is Brad Dan I'll take that one.
When we first characterize these two different product categories that the whole transcriptome profile in category.
From genomics and single cell imaging platform category for cosmetics, we estimated that our total addressable market it's about equal.
We said that there were about 7000 labs worldwide that could own both of these that these two systems in that most labs in the long term would need both capabilities the ability to look at all genes on genomics and the ability to get single cell resolution on cosmetics.
I think it's safe to say that we underestimated just how quickly the single cell resolution of Cognex would appeal to researchers and have them shipped for that to be their first special.
Spatial biology instrument purchase so that's what we're seeing right now we're seeing a lot of excitement about that resolution that excitement has been reinforced by years of marketing non spatial single cell biology, and by eight different competitors in the market all of whom are detailing researchers on this capability the great news for <unk>.
<unk> is that we're basically indifferent between which of those two instruments any customer chooses to order. We are not going to spend time talking to somebody who is interested in our cost mix out of that and into NGL mix just because one revenue recognized this year, we are happy that get our first platform into their lab.
With an expectation that in many cases, we will come back in subsequent years and sell in a second.
The other platform.
So I think as we enter 2023 youre going to hear US talk about total spatial biology instruments, rather than trying to project ended visual and installed base growth for the genomics versus the cockpits platform 2022 has taught us taught us that that mix is difficult to predict.
And then 2023, we will revenue recognize both will basically be in different to mix.
So that's a long winded way of saying.
We think that genomics has tremendous opportunity ahead of us that over time. These product lines should remain about equal in their total opportunity and thats. The instrument mix that we expect in the second half.
And that as Rev. Rec normalizes across these systems, the mix will matter less and less so.
Stay tuned.
And you've talked a lot about cosmetics.
<unk> owners.
Do you expect or have you seen any evidence although cognex is just seeing some orders now.
Three quarters now, but from those early orders other are there a fair amount of those that don't have a genomics, where you think you could follow up with a genomics does what's that conversation like.
Well.
As I outlined in my prepared remarks cumulatively over the approximately.
60, cosmic systems that we sold.
A large fraction half of genomic system either at the time that they purchased or bought in a bundle simultaneously as they've made a major investment.
In the.
Spatial biology for the first time.
I think that shows that it is possible for us to go in and placed both of our spatial biology systems and really make that lab, a very nano stream oriented spatial biology lab in the most recent quarter, though 80% of cost mix went to customers with whom demonstrate had never done before.
They didn't have encounters and they didn't have genomic systems. These tended to be traditional single cell biology, researchers who are using droplet based approaches from other providers in the past where eagle eager to get single cell resolution and their special So we are.
Seeing the opportunity for us to expand beyond our traditional installed base as well.
Maybe if I could sneak in one of the I'll add one more thing.
Cooperation.
Yes.
Dan Let me just add one more piece of color that I think could be helpful. We think a lot about cannibalization in the question of whether cosmetics is likely to cannibalize genomics in the long term one of the metrics that we keep a close eye on here is the rate at which new opportunities are.
<unk> added to our genomics and Kosmos bottles.
We started to see substantial.
Slowdown in the rate of new customers, who are interested in genomics relative to cost mix that would be an indicator of cannibalization, we do not see that kind of slowed down on a year to date basis. The number of new opportunities that we've added to the genomics in the cosmetics funnels are about equal and in fact, the number of GM.
Mix opportunities, we put in our funnel has increased year on year versus the same period.
I think that underscores the idea that in the long term both of these instruments are likely to be vibrant businesses and then most labs will need both the whole transcriptome and a single cell capability.
Right, but maybe one more follow up but is it fair to say the fact that the genomics numbers coming down. This year Cognex is going up that is that due to Jess you underestimated maybe or you overestimated. The demand. This year for you all mix or is it sales force capacity or just why.
That's interesting data point, but the genomic stepped down this year, what's the catalyst for that versus where we were a quarter ago.
So we think about it as total instrument opportunities in the year. So if you looked at our May guidance. The implicit guidance was about 200 instruments at that time, we thought it would be about 140 genomic systems that will be installed this year and about 60 cosmic <unk> systems.
What has changed in the period.
Is that it has become clear that that same 200 systems, which is consistent with previous guidance will be a 100 instrument and 100 instrument mix rather than a 140 <unk> 60 cosmetics nyx.
So I would say we properly estimated the total demand for spatial biology instruments during the year, but we misjudged the mix, which is more tilted at least at this point in time towards single cell biology systems, and as I've said I think in an answer to a previous question.
Reasons are several fold one is single cell biology, and a non spatial format has been a very productive area of science and there is a whole bunch of customers who are waiting for a spatial solution that provided that were coming in to the market for spatial biology and two is there is a lot of marketing of that product.
Category, that's happening right now with eight providers in the space and <unk> is winning I think a very admirable share of the overall volume of that demand.
Got it and then maybe last one I'll go back in the queue, but just for Cognex do you feel like as we get out say 12 months and more of these players get into the market that the concern from some is that theres going to be so many players the market will be kind of.
There'll be a lot of inertia from decision making.
Are you seeing that yet today.
Do you expect to see that just I know youre right now youre running the leadership position with Tom mix in the sales force and the product set but like do you expect in 12 months for there to be any degradation in your relative share or growth.
No quite the opposite Dan I think over time some of the smaller entrants in this market may no longer be meaningful participants.
I believe that our market leadership position will be reinforced and grow stronger through the success and elaboration of our.
Of our.
Product pipeline and that like in the NCS market.
There'll be a consolidation around a small number of standards and <unk> will absolutely be one of those.
The sales cycle right now on Imagers on Cognex is incredibly fast we of course weren't talking about this platform really even publicly 12 months ago and here we are out selling.
And the most recent quarter genomics in terms of number of units our customers are being very decisive about.
Using our platform we have.
Believe that has to do both with its superior specifications and with <unk> brand reputation.
And overall space legal system.
Great. Okay. Thanks, guys I appreciate it.
Next question from Catharine <unk> from Baird. Please go ahead Catherine.
They are Catherine.
And with it.
We are there to just self catherines lines I will move on to the next question.
We have a question from Jeff.
Hey, Jeff Silver from Morgan Stanley .
Hey, guys. This is adamant on patients. Thanks for taking the question just circling back to the mix of Cognex and genomics wins that are expected.
Okay.
I understand what drove the excitement behind cognex, but I just kind of want to parse out I think you guys had previously said that sales reps, we're having problems balancing new products in the portfolio and some of them are gravitating more towards cosmic <unk> versus <unk> I'm. Just wondering if any of that played into this dynamic youre seeing today.
That's a great question and a good follow up to some of our commercial execution improvements during the first quarter, we did see a bifurcation within our sales force between those reps, who gravitated to sell NGL mix and those reps have gravitated to selling cosmetics.
That bifurcation largely disappeared in the second quarter all of our reps are enjoying success across both platforms.
But overall net net.
Cosmetics slightly outsold genomics during the second quarter, but through work in training and repositioning of our platforms. Yes, we feel that every rep is positioned to sell each of these platform successfully in fact, most of the time when we enter a customer.
Our discussion now I wouldn't call it either <unk> or our cosmic sales call is a nano spring spatial biology sales call because we have the leading platform in both the profile of an image category as well as the genetics, we were able to go in from a very strong position talking about the type of science that that customer was performing.
Spatial and helping them navigate the which are the systems is the right first system investment where that lab and that's really what our sales reps are doing successfully now.
Got it and then Brad circling back to the Euro.
Beta instrument for Cognex that shipped in August I believe that was initially planned for shipment in June I was wondering if you can comment on what comparability here.
Actually what caused the delay the primary cause of the delay would be availability to the customer.
You can imagine many customers go on vacation in the summer when.
When we install the system, we want to have.
Several weeks of that customer's full attention to install to train and to get the utilization of that system going and the best time for that particular customer was to start in August .
Got it that makes sense and then on.
Back to your comment earlier about.
And the most recent quarter, 80%, 80% of the Cognex orders went to new <unk> customers and these guys are typically single cell with where researchers I was just wondering out of the 80% of customers that would at cognex. How many of them are currently performing spatial profiling.
That's a good question I don't have a quick answer to that at this stage, but I would guess, it's a minority I mean space will profiling is so new that most customers who by any of our systems are making their first investment in that new capability. So.
My expectation would be that.
That that is a relatively small number of them are doing spatial profiling today and most are adopting it for the first time.
Got it Super helpful. Thank you for the time.
Next we have a question from Donald <unk> with Stifel. Please go ahead Dan.
Yeah, Hi, guys. Thanks for the questions some dial and issues here. So apologies if you've touched on these but Brad to what extent is bundling of the two systems playing a role in the orders that you're driving and is there anything in the product and service outlook that reflects a pricing change on the deal mix.
Hey, Dan Thanks for the questions.
Bundling has become an important tactic for us about 35% of the cost of the genomics orders during the quarter were bundled I'd say.
Of that 35% probably 25.
25 of the 35 was cosmic plus genomics orders, so people, who were kind of doubling down on the nano spring spatial biology franchise, and that's really a great sign for US we're happy to see that.
In fact.
As a further answer to some of the cannibalization questions before when we look at dialogues with customers that began as genomics dialogues, where they ended up buying a cost mix more time than not they ended up buying a cognex in a bundle with a geo mix rather than switching from genomics food costs. So.
It's another great indication that this is not cannibalization, but rather synergy.
So bundling is helpful. Our standard bundling discount is about 15%. So it does not materially change the asps of our platforms.
And so it.
No we are not modeling any meaningful change in ASP for genomics in the second half of the year.
Okay helpful.
Maybe on consumables pull through for genomics I appreciate Tom's comments on seasonality, but just overall.
What are you hearing from customers about usage it sounds like you're on your way with the commercial team fixes, but that was more of an instrument issue I believe in consumables pull through was 77000. So what is it that seems to explain that step down from the mid 90% level that you saw for last year.
Hello.
The first thing that explains the step down.
Is the fraction of systems that are relatively newly installed as we mentioned on our may call.
<unk> observed a pattern that debt.
It shows that customers require quite some time for victims come fully effective and running their new genomic system. This is a more pronounced issue with those customers who are using the whole transcriptome Atlas.
Require that connectivity to an illumina sequencer, and very often auxiliary storage and compute capacity to deal with the large datasets and so as.
The pace of instrument placement has increased.
Throughout the launch so too has the fraction of.
New.
Of our installed base that is relatively new and that is.
<unk> modestly suppressing.
The overall growth and pull through that we bind otherwise be seeing we have an initiative.
That's focused on what we call site activation working to support the customer and building up their own workflow and learning how to design experiments.
<unk>.
Working in terms of site activation modestly improving in the second quarter, but it's going to take some time before we see that play through on overall average pull through.
Okay, I mean, if I could just push you a little bit on that I mean, youre, placing fewer genomic system now.
Than you were in the past so shouldnt you have been seeing the impact on the consumables right last year, when you're replacing more genomic systems on the consumables pull through I mean, it would seemingly be less of a factor now given that you are in the twenties range than you were in the 30% range last year.
Well you have to remember that very large volume of orders that we had.
Last year were all in the second half right. So those sites.
Of the 50, plus for instance orders that we had in the fourth quarter. Most of them were not installed into the first and activate it until the second quarter.
According to the normal cadence of how ship install and activation work.
So in fact.
That huge bolus of instrument orders from last year are exactly the sites that are suppressing pulls room now.
Okay, maybe just one more since we're hopefully we're at the end of the Q&A here is there anything that you think you would run into manufacturing capability wise on cognex in other words, if orders sound like they are trending.
Pretty nicely would you run up against any constraints.
On the production side at all or we should be aware of.
We're working very hard Dan to make sure we don't.
As our.
<unk> internal forecast for the volume of instruments has been revised upward we've been working very closely with our contract manufacturer so pre purchase parts.
For the for the assembly of systems.
And identifying parts that are at risk and even having the custom manufactured in small batches. So that we can.
Be sure that we're able to fulfill demand. So we don't have any line of sight to the supply chain constraint at this time, but we are working hard to make sure that remains the case.
Yeah, Okay I appreciate the answers thanks Brent.
Okay.
And we have a follow up question from Dan Brennan from Cowen. Please go ahead Dan.
Hey, guys, just maybe one or two more.
Just on the macro anything you are seeing given the global economy. What it's doing have you seen any causes a longer sales cycle and have you baked anything into the back half of the year given the expectation is for the economy to likely get worse from here.
Yes.
Rapidly growing product category like spatial biology, you'll macro factors are probably in the noise.
China certainly is a factor that we see China, the lockdowns in China without a doubt it slowed down.
The commerce and the scientific activity in that region for us and probably play through to the tune of $5 million to $1 million a quarter.
For Us China is a relatively small part of <unk> business, it's more of a growth opportunity for us as a company and it is a current drag on our overall outlook.
Have not seen the challenges.
And in Europe that some of our colleagues have talked about.
No.
So I.
I think it's relatively modest in terms of what the macroeconomic impact has been for us.
I do think a recovery in China is built into our second half guidance not a miraculous one because it's a relatively small part of our mix that we're starting to see improvements there and we hope they'll continue expect they'll continue.
Got it and then and then just on free cash I know you guys have talked about confidence in getting to free cash flow positivity I guess with the balance sheet cash you have your stock that youre spending a little bit just kind of remind us.
Given the increasing focus on capital preservation, and nor just capital like pathway. How do we think about your cash balance today and what the burn rate looks like as we move forward.
Yeah, I think the most important factor in that data to consider as a big backlog of cosmetics revenue, we're entering into next year.
Combined with the comments that we've made about moderating our expense growth and growing into our base of expenses in 2023, and particularly you can see we've already started to do that with R&D, where we had flat year over year growth in R&D expenses. So when you take the cognex backlog and expected revenue for next year run at over what our existing expense basis.
As we start to get to the math that you need to get to pretty quickly to see our cash balance more than adequate.
To get us to profitability, we're still thinking about that in the revenue range. We've talked about previously are in the $3 million to $400 million revenue range somewhere in that Zip code.
We would reach cash flow breakeven resources readout of our planet.
Get us there.
Got it and then and then maybe final one just on cosmic <unk> pull through I think you've talked about.
Good placeholders with genomics dogs I know, it's early but any color on how we think about the use case for cosmetics and is there a headroom on cosmic <unk> to increase the sample throughput at all since it sounds like that could really maybe unlock some new markets as well. Thanks.
Yes, Dan it for modeling purposes, I would say modeling kosmos pull through as similar to genomics is still the best answer we're in a position to give you until we've begun to see actual utilization on that system.
The question of what throughput if possible and whether there are opportunities to increase our throughput in.
The answer is yes, we are working on techniques that would allow us to increase the number of samples that are process, where are we on that system and expect to hear more on that as time goes on.
Yeah.
Great. Thanks, guys.
Thank you and have a final reminder.
Okay.
Thank you so much so I'll now hand, the call back over to our speakers for any closing remarks.
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694, the Companys idea is the same for both it's four to six 771.
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