Q4 2022 NanoString Technologies Inc Earnings Call
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Okay.
Good afternoon. Thank you for attending today's nano strong fourth quarter and fiscal year 'twenty. Two operating results call. My name is forum and I will be your moderator for today's call.
All lines will remain muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad.
It is now my pleasure to pass the conference over to our host Doug Farrell Investor Relations of nano strain Mr. Farrell. Please proceed.
Thank you operator, and thanks for joining us today on the call with me today is Brad Gray our president.
Our CFO Tom Bailey earlier today, we released our financial results for the fourth quarter and fiscal year ended December 31 2022.
During this call we may make statements that are forward looking statements.
Actual and operating projections future business growth trends.
Other factors.
Presentations regarding future operating results and future cash flows and current and future instrument orders prospects for expanding and penetrating our addressable markets.
Our strategic focus and objectives as well as the development status and anticipated success of recent product offerings.
The impact of macroeconomic.
Forward looking statements are subject to risks and uncertainties, including those described in our SEC filings. Our results may differ materially from those projected we undertake no obligation to update any forward looking statements.
Later in the call. So I will be discussing our financial results and guidance for 2023 be prepared as a supplement to GAAP financial measures selected non-GAAP adjusted measures. The calculation of which are described in detail in our press release throughout this 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 limitations and rationale for using each measure in this afternoons press release.
Analysts and investors who've done new models, we are supposed to exhibit the financial information tab.
Of our Investor Relations homepage that include a presentation of our non-GAAP or adjusted measures and selected other financial data.
I'd like to remind everyone that we'll be participating in the Cowen Healthcare conference in Boston next week.
In addition to our Fireside corporate discussion brand philosophy participating in a panel and I'll focus on AI is genomics and drug discovery on Tuesday afternoon. We include participants from Nvidia and generative medicine, we look forward to having the opportunity to speak with many of you then I would like to turn the call over to Brad.
Good afternoon, and thank you for joining US today, we are thrilled with the momentum that's building in the spatial biology market.
<unk> currently offers researchers the most compelling portfolio of spatial biology solutions and we believe the ongoing innovations will continue to extend our lead.
As we begin 2023 mutually both growing demand and a substantial backlog and believe that we are poised for strong revenue growth.
Again by recapping, some highlights from our fourth quarter and fiscal year 2022, before outlining our priorities for 2023.
2022, with a year of transition for spatial biology is the arrival of single celled Imagers, both expanded demand and shift in mix within the market.
With our best in class Cosmic spatial molecular imager, we were able to capitalize on this trend and grew our total spatial biology instrument orders by 50% year on year to approximately 250 systems across cosmetics and our genomics digital spatial profiler.
And the process, we broadened our customer base beyond the core oncology researchers who we've served in the past reaching discovery researchers who've embraced single cell biology.
This has allowed us to generate about 70% of our confidence orders from customers who are used to demonstrate.
Our finish to the year was particularly strong during Q4, we generated orders for more than a 105 faithful instruments and began delivering the first cost mix shift commercial shipments.
As of yearend, we had captured orders for around 180, cognex instruments and built our revenue backlog valued at approximately $40 million.
We also saw tremendous scientific momentum as we surpassed 7000 peer reviewed papers enabled by our technologies, including approximately 200, using our spatial biology platforms.
<unk> was featured in the December 2022 issue of nature biotechnology.
The high resolution single cell image of already and protein from cosmic tracing embracing the terminals cover.
Kosmos was also recognized as one of the top 10 innovations by the scientists bankruptcy in their annual survey highlighting products that are poised to Revolutionise research and advanced our scientific understanding.
Our spatial biology, <unk> also reached one maintenance stream media.
January issue of National Geographic, which contained an article on Egypt, which highlighted Alzheimers research for Wake Forest University Medical center, using both genomics and cosmetics to perform high resolution mapping of brain tissue.
As we begin 2023, we're convinced that our early mover advantage the scalability of our technologies and our product innovation engine put us in a leading position in the spatial biology market.
Now I'd like to provide an outline of our strategic objectives for the year ahead.
Our first objective for 2023 is to rapidly penetrate the spatial biology market base.
Facial biology was nature's method of the year, just two years ago and the field is still in its infancy.
We estimate that the addressable market and spatial biology research alone is valued at $6 billion across 7000 labs, only 5% of which had been penetrated to date.
Our focus is on winning share as this market develops, but capturing instrument orders and making our customers successful.
We kicked off 2023 by providing important updates on our spatial biology product portfolio and roadmap.
The advances in genome biology of technology Congress or ADT.
Spatial biology featured prominently at HPT this year, representing about 25% of the total presentations and posters for.
For the second year in a row demonstrates at the most spatial biology studies of any technology provider almost double the number of spatial abstracts of our nearest competitor.
<unk> provides a perfect venue in which to build our brand with basic discovery researchers who are still getting to know demonstrate.
We capitalized on the opportunity to be the gold sponsor for this year's meeting.
Could not be more pleased with our showing.
Following the conclusion of the meeting consulting firm that <unk> published a survey of attendees that rated spatial biology of the most exciting space with.
With net of strength, the most mentioned company.
During the meeting we achieved three key objectives first we publicly demonstrated our electronics spatial informatics platform.
<unk> is a flexible open source cloud based informatics platform that provides a secure scalable storage and analysis for spatial biology, researchers think of as the icloud of nano shrimp spatial biology ecosystem.
Customer interest in atomic is extremely high and we have conducted dozens of atomic demos during the meeting.
Feedback from the customers was extremely positive.
Who have already ordered a cosmic system cannot wait to get their hands on the total solution provided by cost X plus of topics.
Researchers appreciate that <unk> allows them to focus on the science and avoid the headaches of building and maintaining their own compute and storage infrastructure.
Thomas also provides this highly scalable storage and compute power for a fraction of the upfront cost of onsite capabilities, making the decision to move data to the cloud and easy one.
Second we used <unk> to unveil our cosmic assay roadmap, which will continue to set the standard for flex flex.
<unk> is the term used to describe the number of unique genes or proteins that a platform can analyze we.
We believe plex system, most critical differentiator in the special Imager class as it directly determines the amount of information generated from precious samples.
Our belief that flex is the number one attribute is grounded in a real world experience is when we have offered customers using our cosmic <unk> technology access program.
Joyce between our 1000 flex assay for cheaper and faster turnaround times 100 Plex assay.
Every single customer opted for the higher Plex assay.
The flex provided by Cognex already stands head and shoulders above the competition with our currently available 1000 flex assays offering twice the amount of data per sample as images from other manufacturers.
As we showed at http. We're pushing flex further and faster than anyone expected.
We revealed our 6000, plus human RNA assay, which provides 12 times the data per sample of that provided by competing platforms.
To be clear these data were not from some small scale proof of concept experiments. We have worked with multiple research customers, who use this assay to generate real insights and two of those customers one handed hebt presenting and discussing their 6000 flex data.
Our 6000, plus offering is already in full product development and we plan to make it available through our technology access program in the fourth quarter and to begin shipping it to customers early next year.
Finally, we used the <unk> to highlight an exciting new collaboration with Dr. Chris Mason and others that the Wild <unk> School.
School of Medicine.
Called the spatial Atlas of human anatomy, where soma.
The abstract described zaha.
<unk> was selected for a plenary talk during the opening night of HPT.
As Dr. <unk> described researchers at Cornell, we used the genomics whole transcriptome assay to analyze tissues from 30 different organs provided by a healthy and genetically diverse population of adults.
The researchers' plan to make the Atlas available to researchers around the world through periodic releases and we believe that <unk> will become an important reference database of normal tissue.
Which may be crucial for enabling precision medicine therapeutic approaches.
Coming out of eight GBT is clear to us that cosmic set the performance attributes to remain the platform of choice for single cell imaging.
Our confidence in our ability to rapidly penetrate the spatial biology market.
<unk> been higher.
Our second objective is to deliver more predictable revenue growth over the course of 2023.
In 2022, we struggled to predict the mix of spatial biology instrument demand between our cognex and genomics systems resulted in inconsistent revenue.
We believe that 2023 set up to be a very different year.
First we're shipping and recognizing revenue on both spatial biology instruments. So the overall revenue will be less sensitive to mix.
We expect our primary revenue growth driver to be cosmic <unk> instrument orders that we've already captured and which are currently in backlog.
We plan to execute a meter rollout of cognex instrument shipments designed to provide an excellent customer experience as we scale up manufacturing installs and training.
We will start with a manageable number of installations during Q1, increasing the pace in Q2, and then remaining in a relatively steady pace over the balance of the year.
This gives us a high degree of confidence in the predictability of our revenue growth in 2023.
Our third strategic objective is to demonstrate continued progress towards cash breakeven.
This is a prime directive for the company and everyone on our team knows it.
During Q4, we made hard choices to optimize our cost structure heading into 2023.
Reduced our head count from about 800 employees to about 700 employees.
For 2023, we're guiding revenue growth in the range of 34% to 41%.
Which we are expecting to deliver while modestly lowering our operating expenses driving a substantial improvement in our adjusted net loss for the year.
And an improving financial profile quarter by quarter throughout the year.
We exited 2022 with more than $195 million of cash and equivalents and believe that with these resources in hand, we are well positioned to sustain our operations to breakeven and profitable growth.
I'd now like to turn the call over to Tom to review the details of our financial results and to provide our financial outlook for the year.
Thanks, Brad and thanks, all for joining us today.
For the fourth quarter of 2022 revenue was $34 4 million in the middle of our guidance range Q4, spatial biology revenue was $14 8 million above the upper end of our spatial revenue guidance range for.
For cumulative cosmic semi order book as of December 31 was approximately 180 systems, including about 80, new orders received in Q4.
Shipped the first 13 cognex systems to customers in Q4 generating revenue of approximately $3 million, leaving us a backlog of over 165 systems. We expect to ship in 2023 with a revenue value of approximately $40 million.
Before genomics revenue was $11 4 billion, a 23% sequential improvement.
Instrument revenue was $5 $4 million, reflecting over 25, new system shifts.
<unk> revenue was 6 billion Q4 annualized genomics pull through was about $73000 per system at.
At the end of Q4, our genomics installed base was approximately 350 instruments with about 20 instruments installs during the quarter.
Before and counter revenue, which includes all service was $19 6 billion.
And kind of instrument revenue was $2 5 million consumables revenue was $12 1 million in Q4 annualized and kind of pull through was approximately $44000 per system.
At the end of Q4, our head count our installed base was approximately 1120 instruments with about 15 instruments installed during the quarter.
Turning to margins and expenses commentary reflects non-GAAP or adjusted results, which for Q4 exclude the impact of stock based compensation depreciation litigation and certain nonrecurring restructuring and severance expenses.
Please refer to our press release as well as the exhibits we have posted to our Investor relations webpage for detailed information on our non-GAAP or adjusted measures are prepared.
Q4, adjusted gross margin was 43%.
Our Q4 adjusted gross margin was impacted by manufacturing variances held on our balance sheet due mainly to under absorbed labor we expense to Q4 together with the reduction in our workforce inclusion of these additional charges in Q4 cost of goods sold impacted our Q4 adjusted gross margin by about eight percentage points.
Q4, adjusted R&D expense was $15 million, a decrease of 4% year over year and adjusted SG&A expense was $27 5 million, an increase of 4% year over year.
Q4, adjusted operating expense trends reflect the initial impact of expense reductions we implemented in Q4 balanced by investments we continue to make in our spatial biology manufacturing capacity and efficiencies and in our spatial biology product development field support and commercial initiatives.
Our Q4, adjusted EBITDA loss was $27 $7 million, we exited the quarter with approximately $196 5 billion of cash cash equivalents and short term investments.
Transitioning to our 2023 outlook, we expect 2023 revenue of $170 million to $180 million, representing annual growth of 34% to 41%.
Our range includes spatial biology revenue of 95 to 100 million a more than doubling of our spatial revenue compared to 2022.
<unk> revenue, which includes all of service and other revenue is expected to be in the range of $75 million to $80 million, a 6% decline at the midpoint of the range because it's more mature part of our business groups the cash cow mode.
We expect about 40% of total revenue to be recorded in the first half of 2023 and about 60% in the second half.
Seasonality will be strongly influenced by the pace of cockpit shipments, which will steadily increase over the course of the year as we increase our capacity to manufacture and install cosmetics instruments we.
We expect to clear our current order backlog of over 165 units by the fourth quarter.
We expect 2023, adjusted EBITDA loss to range from $65 million to $75 million, a significant improvement compared to 2022 more substantively in the second half of the year as our spatial biology revenue grows on a reduced operating expense base.
We expect adjusted gross margins will be temporarily lower in 2023, as our revenue mix shifts towards cognex instruments before improving in 2024 beyond as these systems to get the pull through higher margin consumables.
For the first quarter of 2023, we expect revenue will be in the range of $32 million to $34 million, reflecting typical sequential seasonal padua patterns and our measured pacing of cosmic shipments.
Our Q1 range includes $15 million to $16 million of spatial biology revenue of $17 million to $18 million of encounter in service revenue.
I'll turn the call back over to Brad for our closing comments.
Thanks, Tom in closing, we feel great about our setup for 2023 momentum in our spatial business is building and we have established conflicts as a market leading spatial imager.
At year end, we had a backlog of confidence were valued at approximately $40 million, giving us excellent visibility to our revenue trajectory for the year for.
For 2023, we expect to generate healthy revenue growth, while reducing operating expenses, which will allow us to work in a disciplined fashion towards achieving cash flow breakeven.
With that I'd love to now open the line for your questions.
Certainly if you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to remove that question. Please press star followed by Kim again to ask a question press Star one.
A reminder, if you are using a speaker phone. Please remember to take up your handset before asking your question.
Our first question comes from the line of Dan Brennan with Cowen.
Your line is now open.
Hey, good afternoon. This is Kyle on for Dan. Thanks for taking the questions I just wanted to start with them kind of really quickly. So now.
Sort of baked into the guide here from a customer trends perspective, I know this isn't really a growth driver here, but what are the puts and takes we should sort of think about where this number could come in may be higher or lower this year.
Hey, this is Brad I'll start and I'll, let Tom build on my answer so as you know Kyle encounter as really a mature business thats moved into a cash cow mode of operations.
It's a business that is about 80% consumables and about 20% instrumentation. So our primary focus is on maintaining the high activity levels of our existing installed base in most of our sales effort focuses on the consumable portion of injector.
That being said, we have guided down encountered for the year. We've guided for total encountered revenue inclusive of service down being about down about 5%, which really includes instrument and consumables down an aggregate of 10% offset by some growth in service revenue.
So we are not looking for this business to be a growth driver in the future and I would say there is probably limited opportunity for encountered at this stage to surprise to the upside that being said, we think our guide is appropriately conservative given the stage of the business that we don't see.
Lot of downside risk either.
Got it and then moving on to cash burn maybe so you are targeting for adjusted EBITDA. This year, how should we think about the cash burn how is that trend throughout the year and given the burn and how do you plan to fund the business and do you anticipate needing to raise capital in the next few years here.
Yes, I would say on the on the cash burn.
It would be EBITDA, plus a few puts and takes on the cash flow statement, but I think using the EBITDA guide is a good proxy for it.
For the cash burn will be a great place to start that you would see improvement in that over the back half of the year particular cosmic shipments a ramp over a flat base of operating expenses and on the capital raise point no. We don't anticipate having being put into a position to have to do a capital raise so as you look out over.
Subsequent years the growth in our business over what is now an expense base that we feel has dialed in.
For the spatial biology business that we intend to support.
It should put us in good position to be able to get to cash flow breakeven at our existing bad.
Balance sheet resources, so that we don't anticipate needing to do another raise to fund the growth of the business.
Got it thank you.
Our next question comes from the line of Dan Arias with Stifel.
Dan Your line is now open.
Hey, guys. Thanks for the questions here, Brad or Tom on cosmetics can you as you go.
<unk> continue to work the order book higher year can you just talk a little bit about manufacturing capabilities and the levels at which you start to become constrained on production and then relatedly.
What do you think the placement and revenue recognition ceiling is for the year after which we should think about all incremental activity being a.
2024 event or an impact in 2024.
Yeah, Dan This is Brad I'll take a first stab and let Tom build on it if he wishes.
I'd say right now we're operating in.
A phase where we're scaling up both our ability to manufacture the confidence instrument.
And we're training.
Our field service engineers and field application scientists on how to install train and activate sites and we're doing that at a measured pace in the first quarter, that's consistent with Tom's guide as I said in my prepared remarks, we expect that pace to basically doubled from Q1 to Q2, and then remain at a reasonably steady pace.
Through the balance of the year.
Implicit.
You asked about the ceiling in our overall kind of spatial instrument.
Shipments for the year I think implicit in our guidance. It's about 280 to 300 total spatial instrument placements by which I mean cost mix plus Geo mix.
And I think we're in a position to handle that.
Wide range of different mixes.
I don't think were banking I want to be clear that we're not <unk> recovery.
Into our guide for the year.
But we can dial up cost mix shipments over the course of the year if needed if thats the way that.
The mix of demand continues to trend.
Okay, maybe if I could just follow up on that point on genomics. It looks like you shipped seven genomics instruments during the quarter. Obviously, the order number was higher than that so what's driving the spread between the two and then to your point on what you may or may not be assuming for recovery in genomics. What is the pull through assumption that we should work with I mean, I know you feel.
Good about the cosmic contributions so just trying to understand the consumables contribution that you kind of have baked in for for genomics. This year.
Yes, I think we're not currently guiding pull through for 2023, we're guiding total overall facial revenue.
So we won't be giving pull through commentary I think you can look at are not to be clear, we're not building in a recovery beyond the averages that we saw in 2022 on the question of the number of cars.
Genomics instruments that we shipped in Q4, I think you may have underestimated it Dan we actually.
I'll turn it over to Tom to speak to that question yes.
Would you look at the.
The parsing of the revenue that for Q4, we shipped about 25 genomics instruments installed about 20.
There's always a difference between what we ship in Rev Rec and what we installed during the quarter, but the number to think about in terms of shipments was about 25 units during the quarter for.
<unk> okay.
It was an improvement over kind of get worse sequentially by about 25%.
Do you think that that spread between installs and shipments stays the same over the course of the year.
It varies from quarter to quarter, Dan depending upon that.
How many we have what our backlog of installs is at the end of the quarter and when the orders tend to come in during the quarter. So if you have a more backend loaded quarter, sometimes we can have more orders that installs in a given quarter Thats. A Q4 phenomenon often is when that happens then we'd have a catch up in Q1. That's why we we typically talk about those numbers.
Separately, what we've shifted and Rev rec versus installed so keep an eye out for those in our script. So if you have questions on those as we go through the modeling we can address those.
No it won't always be alright ill hop out every quarter.
I appreciate it thank you.
Our next question comes from the line of Kyle <unk> with Canaccord.
Your line is now open.
Hey, guys. Thanks for the questions. Congrats on the end of the year and that continued a few weeks ago.
Maybe a multipart question on the kind of the financials here going forward.
Tom earlier in the questions you were talking about like the cadence I think cash burn EBITDA could you actually just walk through like what maybe first half second half could look like with EBITDA and with like 65 to 75 million loss for the year.
Secondly, with the <unk>.
You've got this $230 million convert coming up in 'twenty five.
That's above that's more than the current cash balance how are you thinking about that kind of mile spec that kind of like.
Timing for that.
Just overall and could you think.
Brad you mentioned, the counter being a cash cow and what about maybe monetizing that business to offset that.
I cannot over there thanks.
Yes, so I'll start with the pacing of EBIT of EBITDA from Kyle.
The simple way to think about that as we talked about 40%. The revenue in this first half and 60% in the second half.
If you think about that over kind of a 50 ish percent gross margin down operating expenses year over year that won't vary a lot from quarter to quarter that would get you.
Pretty good proxy of what the pattern for EBITDA improvement would look like over the course of the year puts so put simply expect to see most of the improvement in the second half as.
As compared to the to the first half.
And then on the converge.
I would say with respect to our convertible debt, our 2023 business trajectory here with the growth that we're seeing sets us up really nicely with respect to addressing the convert in particular with the doubling of our spatial business draws driving really strong revenue growth over a lower opex in 2022. So as a result of that set up we've got a really broad menu.
Our potential options available for addressing the convert and for financing our business in general and we hope. We are also still got two years to go before maturity. So we'll have a thoughtful urgency will have the opportunity for our business to ensure deliver great results heading into and you need to address the convert and ill let Brad.
Yes.
Hi, Kyle I'll take the question about kind of encounters place within answering strategy.
You're right.
Counter is.
Cash cow business, that's no longer the growth driver that it used to be.
But it still does have tremendous strategic value to the company.
It's an amazing brand.
Yes.
Is it.
Platform that has been historically synonymous with nano strength and.
It has a huge installed base and a set of customer relationships that go with that installed base.
It also provides while it doesn't provide growth that provides tremendous cash flow.
With revenue on a relatively low amount of sales effort that allows us to reinvest in our rapidly growing spatial business and that would be loath to give that up yes that being said if the right kind of structure came along that.
Someone was willing to pay real strategic value of that portion of the business. We of course would entertain it as we always would.
Any kind of opportunity that was favorable to our shareholders.
Okay that was great guys. Thanks, so much and then just sticking with space all many of the Geo.
Do you how much customers I guess, there was like 350 units out there I don't know how many customers how does but most of those guys are probably thinking about purchasing one of these singles confidential and the jurors a lot of those customers are going to cosmetics, obviously buying those and there's a lot of bundling as you said in the past how was that trending lately.
Are there more genomic customer skipping, causing some of the other kind of transitioning to competing in the areas like how do you like what are you doing to incentivize those customers entity is to kind of stick with <unk>, rather than just getting away for instruments or other promotions.
Yeah, It's a great question Kyle.
<unk> between our two systems is incredibly strong and we think that we've created a product portfolio that is designed to really deliver that synergy to our customers and really think about three platforms right. We have <unk>, which is our.
Whole transcriptome high throughput system that really allows researchers to ask questions about how samples compared to each other.
Across multi cellular regions, we have our cost mix, which is lower throughput, but sort of a deeper study of a small set of samples the highest flex single cell imager, and then to tie all of those together, we have our atomics spatial informatics platform, which allows people to put their data and studies in the Sandra pause.
<unk> had used a familiar set of interfaces to query and get the most out of those datasets.
So we really do encourage people to sort of purchase whichever of the two instruments is most.
Fitting with there.
Our most urgent science.
And then we believe that to the extent that they grow their capabilities there'll be inclined to purchase another nanosphere platform in the future.
And I think our early experience with cosmic suggest that's working in a 45% of all of our cosmetics orders have gone to laboratories that also had geo mix, probably 30% of that 45 is the previous genomics owners at 15% the other 15% of the <unk> 45.
Our new to demonstrate customers, who bought a bundle of both systems at the same time.
To incentivize those bundles, we absolutely give price breaks that we would be in a large meaningful customer they are modest and don't impact our revenue.
Treat them as really positive things.
In terms of how it's been trending though.
Over the course of 2022 cosmetics went from being an imager that we were selling predominantly to researchers who already knew demonstrate through the ownership with the genomics to a system that was predominantly reaching new to the industry customers, who were coming from single cell biology or other types of science that we have not.
<unk> participated yet so I would expect the fraction of cosmetics going into genomics labs to continue to go down.
As it becomes the first spatial system that many customers choose to adopt and that's okay that doesn't undermine in any way.
The synergy between our system and we will open to force them to come back and sell the genomics systems to those first Bath cosmetics and then later one whole transcriptome profile.
Okay makes sense, let me just ask one quick one.
So there has been over 100 customer projects delivered using Cosmos I think a lot of those were the tap program.
Any takeaways.
With respect to those sort of projects like the reproducibility of the platform.
Currently you have these 13 units out there or anything kind of tangible so far.
Yes, I think we've had great learnings from both the path and the first 13 systems based feed update for the <unk>.
One of the learnings of tap is.
The huge preference for high Plex that I mentioned in my prepared remarks, we had initially launched app with two offerings.
Plex, offering and 100 plex offering.
Not a single researcher has opted for the 100 Plex RNA offering it's strongly validates that our strategy of making <unk>. The most important spec that we continue to be market theaters that I'd say, the other really big learning.
Tap program has been.
Very broad tissue compatibility of prospects at last count 68 different types of tissue and tumors had been studied using cognex Ed.
It's shown to be a tremendously generalizable instrument.
Switching gears towards that first 13 instruments that we shipped in Q4, we are getting great feedback and success with those first customers just in terms of the mix of those customers. Most of them were oncology oriented researchers there are geographic spread with similar to our overall business day.
Spans.
North America, Europe , as well as Asia.
About 50% new systems, 50%, sorry 50.
<unk>, 50% newly management customers, 50% incumbent customers.
And a good mix of academic and pharma. So they are nicely representative.
And I think the feedback has been on the conflicts instrument people love the ease of use and ease.
Relative to those people, who own genomics baseline cosmetics easier to use and easier to get trained on.
There's been great feedback on the quality of the data and the consistency of the results crossed ones and samples.
<unk> also started to get really positive feedback from them on the comex. They love that it's comprehensive and flexible theyre enjoying initially using the data analysis module that we have built into the atomic system, but they are also beginning to load their own data analysis modules through the open source.
The functionality that we've built there.
These groups have experiments lined up they are sort of moving beyond the training phase and into.
Their own science and experimentation.
Im optimistic that utilization on cosmetics will ramp even faster than we saw NGL mix, because it's an easier system to use and some of the experimental designs are more obvious.
Okay.
Good I'd takeaways thats, great. Thanks, Brad and thanks, guys.
Thank you.
Our next question comes from the line of Martha NASA revert from Jpmorgan.
Your line is now open.
Oh, Thanks for taking my question.
So I just wanted to dig into first quarter.
As discussed above your expectations could you, perhaps provide a little bit more color on that.
Thank you Mike Kaufmann.
Cash.
Awesome.
For the quarter, we all know that historically when we've just guided for revenue in that.
Guide that we gave was consistent with that.
On the revenue details we've elected to simplify our approach this year and just guide for spatial revenue.
And all the rest of the components of the guidance are consistent with the commentary that we've made around and counter being manage more on a cash cow basis coming out of the fourth quarter.
Measured pacing of conflicts instruments really being the most material impactful thing to the spatial guide in the first quarter relative to the total overall for the year.
One more thing to add on that is from an EBITDA based in perspective, I think in Tom's earlier remarks. He made it clear EBITDA will improve sequentially as the year goes on yes, Q1 will be our lowest EBITDA quarter, meaning the largest loss.
And as our business grows with more and more cosmic shipments over the course of the year, we'll see that sequentially improving financial profile.
Thank you.
Our next question comes from the line of Jon <unk> with UBS.
John Your line is now.
Hi, Thanks for taking the questions maybe just start off any update on China on how that performed in the quarter and just how do you expect that to recover throughout the year.
Yes, China, obviously had a lackluster year overall during the lockdown last year, we saw.
Starting to see some recovery in the fourth quarter and we are optimistic that we will see continued recovery throughout 2023, <unk> built a really fabulous direct sales team in China, just as the Lockdowns were about to happen.
We actually net that team in person for the first time in our global commercial meeting earlier this month.
I can say very impressive and very energized to get out but.
All that being said China remains a relatively small part of <unk> overall revenue profile, maybe between five and 10% historically and I hope it will grow over time, but.
We're not counting on a recovery in China as a major growth driver for the company.
Got it and I know youre, not providing pull through guidance, but any color. Just now that you have the instruments out there on the cosmetics just how do we think from a from a high level, how you see that pull through ramping there to get towards that targeted 70 to 75 K annualized range.
Yes, I think.
It's early days I don't think we've learned enough to know.
Our previous estimate of 75, K annualized footprint cosmetics or are the right ones or not.
No update there, but I guess, what I will say is we've talked publicly about.
The long learning cycles that we experienced in <unk>, which requires customers to define regions of interest.
And learn certain amount of morphology to be able to process their samples of quickly and efficiently. It's clear from the early trading of cognex that by skipping that staff at allowing researchers to scan the entirety of the slide the learning learning curve.
Lot faster and my hope is that we will not have a multi year cycle that genomics is required in some cases.
Yet in <unk>.
It's to full utilization, but we will be looking at a few quarters. It staff. So stay tuned we'll be able to say more about that as the year goes on.
And then last one here on my end.
I appreciate the guidance around encounter in that 6% revenue decline.
Any way to think about the long term prospects of this business do you expect similar declines year over year, the long term or how should we think about this over the longer than a couple of years.
Yes, John I do think we probably seen the peak in counter revenue.
As the installed base.
Includes instruments that are now.
Some of them 15 years old they are not being as actively used.