Q2 2023 NanoString Technologies Inc Earnings Call
Okay.
Thank you for standing by my name is Ian and I will be your conference operator today.
At this time I would like to welcome everyone to the nano string QQ2023 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
We would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
I will now hand, the call over to Doug Farrell, Vice President of Investor Relations.
You may begin your conference.
Thank you operator on the call with me today is Brad Gray, our president and CEO as well as our CFO Tom Bailey earlier today, we released our financial results for the second quarter ended June 32023.
During this call we may make statements that are forward looking including statements about financial and operating projections future business growth trends and related factors expectation regarding future operating results cash flows and current and future instrument orders.
Are you factoring capacity prospects for expanding and penetrating our addressable markets, our strategic focus and objectives.
Element status and anticipated success of recent product offerings.
Forward looking statements are subject to risks and uncertainties, including those described in our SEC filings.
It's may differ materially from those projected we undertake no obligation to update any forward looking statements.
Later in this call Tom will be discussing our Q2 financial results and guidance for 2023, we have prepared as a supplement to GAAP financial measures selected non-GAAP adjusted measures calculation of which are described in detail in our press release.
Throughout the call today, all financial measures will be GAAP, unless otherwise noted.
You can find reconciliations of GAAP to non-GAAP measures as well as the description limitations and rationale for using such measures to this afternoon's press release.
Data analysts and investors in building their models hosted exhibits under the financial information tab of our Investor Relations homepage.
And include a presentation of our non-GAAP or adjusted measures and other selected financial data.
Okay.
I'd like to remind everyone that we will be participating in the Canaccord growth conference in Boston next week as well as UBS Genomics conference in California in the following week, we look forward to having the opportunity to speak with many of you that I would like to turn the call over to Brad.
Thank you Doug good afternoon, and thank you for joining us today I'm happy to have this opportunity to expand our strong operating results that we pre announced on July 10th.
Our Q2 revenue of more than $44 million was a record high and an increase of about 37% over the prior year with solid performance across both our spatial biology and encounter franchises.
We achieved an important milestone as our spatial biology revenue surpassed our encounter revenue for the first time.
Financial outlook is intact and our confidence in the trajectory of our business is high.
I'd like to recognize our commercial team for staying focused on advancing science and supporting customers during the period of unusual competitive noise.
We believe that over the last several months our competitor to an X genomics had been attempting to use the decision of a regional important Germany to instill fear and our customers around the globe and attempting to shift the focus away from the lagging performance specs, but theres NEM platform or.
Our commercial team members have carried themselves with professionalism and upheld the high ground.
We believe that our customers understand that the IP skewed promoted by its index services, a distraction and our Q2 results are the best proof points that these distasteful tactics have not shaken the confidence of our customers.
Now I'd like to provide an update on our progress towards our strategic objectives for the year.
Our first objective for 2023 is to increase our penetration of the spatial biology market.
During the second quarter spatial biology demand was healthy across both instruments and consumables, including a sequential increase in orders for both cosmetics NGL mix.
Our overall spatial biology revenue increased by more than 100% over last year.
We ended the second quarter with an installed base of 445 spatial systems, an increase of about 40% over the prior year.
Our cosmic spatial molecular imaging remains the primary growth driver of our business as.
As we further penetrate the rapidly growing market for single cell spatial biology.
More than 80% of our cosmic <unk> instrument sales during the second quarter with the customers that were new to demonstrate underscoring the potential to significantly expand our customer base.
Academic and government funded researchers continue to account for about 75% of new cosmic orders and healthy NIH funding bodes well for our continued growth in this market.
Our rollout of the cosmetics of scaling up swiftly.
And we continue to ramp our manufacturing capacity and refining the processes that our field service engineers and application scientists used to install cosmetics instruments and trained users.
We're also streamlining access to our comments spatial informatics platform for instance by simplifying the process for downloading data for local analysis.
We believe the combination of these efforts will accelerate the uptake of confidence consumables, which are important growth driver over the long term.
Customers are enthusiastic about our ability to expand the number of molecular targets that cognex can simultaneously analyze and we expect to begin offering access to our industry, leading 6000 Plex RNA assay through our technology access program service in the fall.
We remain on track to begin shipping the six plex RNA assays to labs, who have acquired cosmic systems beginning in the first quarter of next year.
Extending our lead in flex so about 15 tons the RNA assays offered by our competition.
Last week, we publicly released a new positive dataset showcasing our commercially available mouse neuroscience RNA panel.
And our best in class cell segmentation algorithms.
These data highlight the unique ability of cognex to provide rich data sets at high sensitivity detecting an average over over 1500 transcripts Purcell and over 800 unique genes.
While cost mix remains the shiny new platform, garnering the majority of attention of demand genomics remains.
Core and highly productive part of our spatial biology ecosystem.
We continue to expand our genomics installed base, which resulted in a meaningful increase in consumable revenue.
Our installed base of genomics is generating a substantial body of spatial research with approximately 270 peer reviewed publications to date.
Body of research has nearly doubled over the last 12 months showcasing many emerging applications for spatial biology.
In the last month or so there have been three genomics publications in the journal nature.
Each making a contribution in a different field of biology.
One publication created a spatial Atlas and timeline of the maternal fetal interface during pregnancy.
A second paper examine cancer cells following drug treatment using the genomics whole transcriptome Atlas to identify cancer cells resistant to drug treatment.
A third studied neuroscience and discovered that all simers disease pathology can be alleviated with the nerve growth factor receptor.
Meanwhile, we continue to see examples of genomics and encounter working Synergistically and translational research applications outside our stronghold in the immuno oncology in areas such a solid organ transplant.
Our second objective that they'll deliver predictable revenue growth.
We exceeded the upper end of our Q2 guidance by over $2 million and we have a nice setup for the balance of the year.
As our cosmic scale up continues we expect the quarterly cadence of shipments and installs to increase as the year progresses.
Our cosmic <unk> instrument backlog at the end of Q2 was over $35 million about 20% higher than we estimated in our pre announcement, which bodes well for our ability to deliver predictable revenue growth through the balance of 2023 and beyond.
The cosmic backlog currently in hand.
To meet our cosmetics revenue expectations for the balance of 2023 and any incremental orders generated in the second half likely represent backlog carried into 2020 for providing additional revenue visibility in the new year.
Our third strategic objective is to demonstrate progress towards cash breakeven.
<unk> remains laser focused on accelerating our path to profitability.
Our adjusted Q2 operating expenses were down by about $1 billion over the prior year against the backdrop of strong topline growth.
We expect our EBITDA to improve significantly in the second half of the year as we convert working capital back into cash in the third and fourth quarters, and we believe that we are well positioned to manage our business for profitable growth with our current resources.
As we wrap up our prepared comments I'd like to provide a brief update on our ongoing litigation with Tim next genomics, including an overview of some of the significant positive updates since our May 22 investor call.
First in July the Delaware Court issued an important ruling that we believe substantially improves our position in our U S litigation.
The Delaware Court is allowing us to proceed with an unclean enhanced position and antitrust claims against both <unk> and harbor.
At issue is the fact that we believe the NIH grant, which funded the Harvard research and ultimately the patents at issue in <unk> is an infringement suit against us require Harvard to license those patents not exclusively.
We explain that to the board having secured the funding for the NIH under this false premise of nonexclusive licensing harboring <unk> are now attempting to weaponize the patents to achieve a monopoly.
The Delaware courts ruling effectively transforms the use case to being equal parts IP lawsuit against <unk> and antitrust lawsuit against <unk> genomics and harbor.
In addition to our existing defenses of non infringement and validity of the patents themselves. The ruling created two additional paths Fernando strength to prevail in the U S cost ex litigation.
First under our unclear enhanced physician.
We can put forth, an affirmative defense, which simply says that <unk> genomics and Harvard cannot enforce exclusive patent rights. If they are engaged in conduct involving the seats on constant ability or bad phase related to the matters at issue in the case.
Second we can win on an antitrust basis at <unk> harbour cannot enforce these patents.
Woodruff that would represent and bill gotten attempts to monopolize that threatens competition.
I'd also like to update you on the status of our litigation in Europe .
The next key events in the European litigation will be a September hearings and Europe's unified patent court were to UPC.
The UPC was established on June <unk> of this year as a forum for EU wide patent litigation and operates independently of specific countries patent court systems, including Germany.
These hearings were focus on whether connects genomics should be award.
Preliminary injunction.
Sale of cosmetics for RNA detection within the European Union.
The full EPC proceedings on the merits of <unk> plans are expected to take place in 2024.
Unlike the Munich proceedings, we will be able to present evidence of the NIH contracts and its requirement for non exclusive patent licensing.
While we cannot speculate on how exactly this evidence will be weighed the fact that the UPC will consider the impact on public interest.
Benefits were legal arguments.
The preliminary injunction hearings are scheduled for September 5th and 19 with the results expected to be known by the end of September or early October .
We believe that the facts and the wall or on our side, but if the UPC rulings don't go our way we intend to appeal immediately.
Before handing the call over to Tom I'd like to provide an update on our leadership team.
Our Chief commercial Officer, John Deere Reis has made the decision to move on from <unk> effective at the end of August .
John has led our commercial team through a critical period of the cosmetics launch and now plans to invest this time, an entrepreneurial activities and company formation.
We thank John for his service to name a stirring congratulate him on a strong final quarter of the company and wish him well in his future endeavors.
We have already recruited an experienced chief commercial officer, who we expect to begin filling John shoes at the end of August .
Our new CTO is currently a corporate officer at another publicly traded life Sciences company. So we'll make the announcement as soon as he has fulfilled his disclosure obligations for his current employer.
Tom Please take us through the details of our operating results. Thanks, Brad and thanks, all for joining us today for the <unk>.
Second quarter of 2023 total revenue was $44 2 million, 37% year over year growth in over $2 million above the upper end of our guidance range.
Our spatial biology business Q2 revenue was $23 3 million representing growth of more than 100% year over year space.
Special instrument revenue was $15 $2 million over 180% year over year growth and reflecting acceleration of cosmic shipments. We shipped about 70 total special instruments in Q2, with an average realized selling price of about $220000.
As noted in our Q1 call spatial instrument Asps reflects the deferral of a portion of the <unk> revenue that will be recognized in future periods as service revenue as customers use initial amounts with telmex compute and data storage included with each cosmic sale.
We installed about 60 spatial instruments during Q2 growing our spatial instrument installed base to approximately 445 instruments as a reminder, for those updating a recessive models. The number of instruments, we install during a quarter can differ as compared to the number of instruments we ship.
Revenue recognition and average selling prices are based on instruments, we shipped during the quarter as revenue is recognized upon shipment as opposed to installation.
Spatial biology revenue and backlog calculated based on total revenue value of instrument orders in hand, but yet to be shipped was over $35 million at June 30, as compared to over $40 million at the end of Q1 and reflects accelerating cosmic shipments to customers that have been waiting for their instruments and are eager to commence their science as cost.
It's manufacturing capacity continues to increase we expect to continue to grow the number of instruments available to ship in coming quarters.
Given the current pace of new orders, we do expect we will continue to carry substantial kosmos backlog into 2024.
Q2, spatial biology consumables revenue was $8 2 million over 40% year over year growth, reflecting consistent <unk> consumables pull group over our growing install base and stocking orders of Cognex consumables.
Q2, and counter revenue, which includes all service and other revenue was $20 9 million substantially better than our guidance and reflecting the continued longevity and stability of the encounter platform.
And kind of instrument revenue was $2 5 million step up as compared to Q1 consumables revenue was $13 1 million and service and other revenue was $5 3 million at the end of Q2, our encounter installed base was approximately 1135 instruments.
Turning to margins and expenses I will provide results on a non-GAAP or adjusted basis, which removes the impact of stock based compensation depreciation amortization and certain other items with no correlation to continuing operations. 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.
<unk> measures are prepared.
Q2, adjusted gross margin was 38% and including in included in court in accordance with internal policies of inventory reserve of approximately $2 $8 billion that impacted Q2 gross margins by about six percentage points. This reserve is primarily related to our genomics consumable sales mix continuing to shift from targeted panels to.
Our whole transcriptome assay.
After removing the impact of this noncash reserves gross margins were as expected and similar to Q1 and impacted by revenue mix more heavily weighted to cosmic <unk> instruments.
Adjusted R&D expense was $14 4 million approximately flat year over year with lower personnel and product development costs related to cognex at atomics offset by temporary increases in consumables and software consulting costs, we expect R&D expense to be lower sequentially in the second half of the year as these expenses.
Yes.
Adjusted SG&A expense was $29 3 million, a decrease of 3% year over year and reflected lower personnel costs offset by trade show and other marketing related expenses that are highest in the first half of the year with major meeting and trade show activity behind US. We also expect SG&A expenses to be lower in coming quarters as compared to.
Q1 and Q2.
Q2, adjusted EBITDA loss was $26 7 million inclusive of the impact of the $2 8 million inventory reserve.
EBITDA loss is expected to decrease by over 50% in the second half of the year as compared to the first half the.
Second half improvement is expected to be driven by continued revenue acceleration in gross margin improvement derived from our scale up of cosmic <unk> instrument manufacturing and the operating expense trends just noted.
Our cash cash equivalents and short term investments were approximately $118 million as of June 32023.
We continue to expect year end cash to be around $100 million. During the first half of 2023, we invested heavily in working capital, including cosmic <unk> instruments and consumables inventory at other areas to support our spatial biology products and the cosmetics launch cash.
Cash flow is expected to improve in the second half of the year driven by EBITDA improvement the shipment of inventory to customers and increased collections and lower capital expenses. Following the Q2 completion of a new manufacturing facility build out.
Turning to guidance for the third quarter, we expect revenue to be in the range of $45 million to $47 million, representing about 55% year over year growth. This range includes $27 million to $28 million of spatial biology revenue, representing about 200% year over year growth and 18% to $19 million of encountering in service revenue.
For the full year, we are reiterating our total revenue guidance range of $175 million to $185 million. We also continue to expect adjusted gross margins will be temporarily lower in 2023, and a 45% to 50% range as our revenue mix shifts towards cosmic <unk> instruments or improving in 2024 and beyond as we.
These systems begin to pull through higher margin consumables.
Finally, I would like to comment on our balance sheet as we continue to get questions about our cash resources and convertible notes. We are taking a two pronged approach to strengthening our balance sheet first we are engaged in a constructive dialog with the holders of our convertible notes regarding the positive trajectory of our business in advance of the 2025 maturities.
In parallel we are exploring alternatives with potential financial financing partners that have expressed a strong interest in funding and supporting our business many potential investors that recognize the value in our encounter in genomics product lines, which combined to provide positive EBITDA contribution are not materially touched by litigation.
These investors also understand the opportunity for Cognex is not binary in that in most territories throughout the world our market share will be determined by product capabilities and not by litigation we.
We are confident that between our current note holders and these potential investors, we will have the access to capital necessary to address the company's convertible notes now I will turn the call back over to Brad for closing comments. Thanks.
Thanks, Tom.
Facial biology platform and team are world class and are maintaining momentum despite intense competition with more than $35 million in cosmic.
Cosmic <unk> instrument backlog, we are in an excellent position to deliver predictable revenue growth through 2023, and then into 2024.
Encounter franchise has staying power and an underappreciated cash generator.
These attributes provide multiple options for strengthening our balance sheet and for continuing our march towards profitability.
With that we'll open the line for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad once.
Once again that is star.
By the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of John at UBS. Please go ahead.
Hi, good afternoon, and thanks for taking the questions.
Just starting off your high level when you look at the competitive bids you've had out there.
Tenex litigation will begin.
Any just color on how those are going where do you think you're winning how does it come up maybe with some of the customers there, but with the litigation.
Yes. Thank you for the question John we feel very good about our win rates.
Spatial immature competition abbs.
Absolutely most.
Customers, who are buying a spatial imaging now look at two or maybe even three competing platforms.
<unk> continues to differentiate cost mix based on the most important specification there is which is plex.
Any spatial imaging system has zero sensitivity for any gene that is not included in its panels and by including today two five times the number of genes that we have in our panels 1000 versus competitors 400.
And in the future 15 times as many genes 6000 compared to 400, we provide scientists the opportunity to see much more information and the same tissue sample.
In terms of how we our sales reps are dealt with.
Questions about litigation.
As I said in my prepared remarks, they've done an admirable job.
Most researchers understand that litigation is common in the field of life Science research and that injunctions that disrupt people science or People's access to products are relatively rare.
We've been able to arm, our sales reps with simple talking points and in most cases that is sufficed to help customers get comfortable to get their purchase decision back to whichever platform is right for their science, rather than whichever platform is viewed as somehow advantaged.
As advantage from an intellectual property standpoint.
Thanks, I appreciate the color there and then on the cancellations you had called out the 3%.
Cancellation rate can you remind us what has been your normal historical cancellation rates and then out of those 3% youll have any of those cancellations been more macro related or turnover related.
Customers versus due to the <unk> injunction.
Yeah first I should say when we announced of course in our pre announcement in early July that we had retained 97% of our backlog.
That we could either fulfilled a retained that number is intact. We have not had a single backlog order cancellation. Since early July so I wanted to say that first.
Second I will say, 3% cancellation rate is higher than our historical average, which in the past was basically zero.
And.
I think the orders cancellations that we've had a handful that come for a variety of reasons. A few have been related to litigation as you might expect but just as many had been related to very customer specific issues. For instance, in one example, a customer's colleague who sits right down the hallway.
But also acquired of Cognex and they determined that they could share that one instrument rather than having to on site.
In other instances.
Customers.
Grew frustrated with the wait period that they had for their cost mix and decided to go in another direction, but in total. These are all rare occurrences, 3% cancellation rate cumulatively spill is incredibly low.
We are not worried about this as a drag on our business going forward.
And then last question here on the manufacturing capacity, just any update there and how that's building up I guess.
Any color on when you see burning through the backlog and then has the litigation at all influenced your manufacturing plans there and the buildup.
Yes, I'd say the litigation has not in any way influenced our manufacturing scale up plans.
The scale up is going well.
You can see in.
Spatial biology revenue growth.
Listed that we shipped a much larger number of constant systems in the second quarter than the first and we would expect again to increase instrument orders in the third quarter.
And yes, I think we're right on track with where we expect it to be.
Okay. Thank you for taking the questions.
Thank you.
Your next question comes from the line of Baird. Please go ahead.
Yeah, Hey, guys. This is Tom on for Catherine I appreciate the time and congrats on a strong quarter.
Maybe first I just wanted to touch on your comment on cosmic quarter, good to see the acceleration in <unk> sorry in <unk>. It sounds like youre going to see or expect to see an acceleration here in the third quarter.
From that broader peer set that perhaps is a little bit more caution around capital equipment spending and especially from pharma. Just curious are you seeing that dynamic at all or is there any extension in sales cycles.
And just broader thoughts on order velocity in the back half.
Yes. Thank you for the question.
Spatial biology is a special product category, it's a brand new capability with breakthrough discovery potential.
We believe that capital expenditures on spatial biology may very well be prioritized over other capital expenditures within reach.
Research institutions, who have to prioritize.
We continue to see very strong capital expenditure demand, we saw no slowdown in spatial imager.
Velocity in the second quarter and our outlook for the second half is intact.
Ill remind you though that.
We have a business mix that may differ from our peers in some ways our spatial biology.
<unk> base is 75% academic or government funded and so they benefit from NIH dollars, rather than traditional capital budgets that you'd had in small biotech or large biopharma company and so I think we may be somewhat insulated from.
Any reductions in capital expenditures amongst kind of corporate customers relative to some of our peers have for instance, bioprocess.
Got it that's super helpful and then.
Nice to see an uptick on batesville consumables in the quarter no curious with another quarter of observing cosmetics consumables utilization, yes, any thoughts about what run rate all through it looks like here and just thoughts on how that trends in the back half.
Obviously, it's too early for us to have observed enough in the way of cosmetics customer behavior to be able to call any change in our pull through expectations as youll remember heading into the launch we guided people to.
Model their long term pull throughs for cosmetics add similar to what they've model their genomics pull throughs at about $75000 per system per year, I would say, we're seeing stocking orders that are.
Is that are encouraging in size for our cosmos shooters users, which is a good sign but we haven't seen the rate at which they burn down that inventory that they deal with that first order. So we're going to wait to provide any updates on what our long term expectations are for caustic grip.
Got it thanks, and maybe if I could just sneak one more in just quickly on the commercial officer.
Page.
Any material changes you'd expect to the commercial strategy in the near term and just thoughts on that outlook in general.
Yes. Thank you for the question no. We expect no changes to our commercial strategy one of the great things that John did while he was here was he built a very strong team of executives underneath the chief commercial officer, bringing in a new VP of marketing and a new VP of sales and continuing to strengthen that team.
At other levels I am very pleased with the group we have and are very pleased with the strategy and transformation that are already underway I expect our new chief commercial officer will bring.
Energy and incremental ideas, but I'm not looking at this time for any fundamental changes.
Got it thanks, so much appreciate it.
Thank you.
Your next question comes from the line of Stifel. Please go ahead.
Hey, guys. Thanks, Hi, this is evan on for Dan.
I guess I mean, we touched a little bit on pharma I know you guys mentioned.
75% I guess.
<unk>.
Not another hot.
Hot topic is China I noticed.
A portion of your business right now, but just wondering if you're hearing anything.
For your people that might be operating in that region and kind of what the feedback you're hearing from EMS.
Yes, So China as a reminder, is a very small fraction of <unk> revenue.
We have.
Historically worked through distributors in China, and then over the last couple of years, we had begun hiring more staff in China.
That group had not really had an opportunity to show what they were capable of driving because of the pandemic came along just as we were building that team I am pleased to say they actually had a really good second quarter in China for us.
Area, that's probably growing as fast or maybe even a little bit faster than the rest of our business right now.
But I think that may very well be very specific to both our company.
Commercial channel and the very exciting field of spatial biology that we find ourselves.
Got you.
And then I guess the other question I have is I know you talked about.
Cash burn.
Just dramatically lower in the second half I mean, your burn Steve earned $40 million in the first quarter and then another 37 here.
And a lot of that is working capital and some of the investments you're making.
So whats your comp like how much of that is.
The getting to a $100 million by the end of the year and kind of keeping it there.
Within your control and then also.
<unk>.
In terms of the capital or the converts that are coming due in 2025.
I know you mentioned that you are in conversations with people outside of the holders of the converts.
I mean as an equity raise has been brought up at all or what are kind of some of the things that you can.
Considering thanks.
Yeah, I'll take both of those seven banks with respect to the cash situation I would say that it is very much in our control and Thats why we feel confident making that statement I think we're at a point in the year, we feel very confident that we just reiterated our revenue guidance and that's where it starts.
From there we have that ramping.
Half revenue combined with gross margin improvement with the declining expenses sequentially that we talked about in the prepared remarks, as well as together with that lower inventory purchases higher AR collections and much lower capital expenditure. So these are all things that are either in our controller knowable at this point I think we feel very confident in our cash.
Cash forecast and are confident in our ability to get there with respect to the convertible financing we wouldn't comment explicitly on the exact nature of what our talks through the form of.
Our financing that we might do with other investors would be.
Just state that this.
We talked about is a two pronged approach with these different groups of investors has been a very robust set of discussions we've got a number of different folks interested in looking at the intrinsic value of the company and looking through the noise of thinking through different solutions for us and I think we're confident that we'll have a solution that will be a good balance of cost of capital as.
As well as confidence expressed in the business.
In the reasonably near future to be able to talk to you all about and we will get more explicit obviously about what form that might take.
Is it.
As we get to the end zone on this.
Alright, I appreciate the time thanks, guys.
Your next question comes from the line of Canaccord Genuity. Please go ahead.
Hi, This is often the case the online for Carmax.
Present on the quarter guys as well as the great guidance.
One question on <unk>.
So you laid out a few plans for atomic agency. This year and I was just curious to get a few settlements I thought that was typically the plan to provide off pilot atomic data analysis by the end of this year as well as integrating whole genome Germany.
DSP data analysis capabilities on the Thomas as well thanks.
Yes, thanks for the question.
Our focus right now with Atomics is getting it up and running for the first wave of <unk> customers and making sure that we fully enable.
Those users with the basic functionality they need.
That's well underway at this stage the next priority for us will be to continue to add features.
Two the topics that support cost mix users cosmic data is much larger than genomics data at about up to one terabyte per slide of data produced and the computational needs are far more reliant on the cloud compute capabilities of atomic So we remain focused on.
Elaborating atomics for Cognex users now I'd say, our long term aspiration is to add genomics capabilities into <unk>, but that is a lower priority and a slower timeline.
Got it. Thank you very much and shifting gears event. So you noted that the backlog was actually about 25% higher.
For contracts.
<unk>.
The origin of our pre announcement I'm curious what cut.
Customer basis that.
Extra 25% kind of component stock. Thanks.
Yes, I can comment about that showed the difference between the 30% 35% stake is what youre getting at.
So the figure in our pre release that we put out at $30 million was what we would characterize as a very early estimate.
We applied a conservative asps.
The order numbers that we had or the units we have in backlog at that times when completed our analysis of the data for the quarter Asps on cosmetics have been trending up so the value of our backlog actually was higher than our original kind of very early estimates that we put out in that pre release, So thats, where you see where the majority of the difference between the $30 million, we reported in the pre release.
And the $35 million actual number that we're at.
Now so that is.
Essence of that is not about additional orders that were putting into the backlog versus the pre release.
Got it that's very helpful. Thank you.
Then one last one.
Just back to the litigation in terms of just kind of level setting here.
Bob.
So.
The important data we're looking at the near term, although UTC here in September .
Also.
Some <unk> as well.
In Delaware in November and so on.
Markman hearing for cosmetics in December .
I guess can you just confirm that those are yes.
I guess the key dates that we should be we should have on our radar in the near term. Thanks.
Yes, I think you did a good job of characterizing the key dates between now and the end of the year.
Yes.
Got it thank you very much.
Thank you.
Our next question comes from the line of Morgan Stanley . Your line is opened.
Hi, This is Madison on thank you Jeff.
Now from a quota.
I know you guys before.
About most of your customers coming from the academic.
And I was wondering if you could just provide maybe your views on academic budgets for 2020 for what Youre expecting there.
Yes, I think.
Our.
Visibility into academic budgets for 2024 is of course modest at this stage, but we don't see anything that would reduce the meaningfully relative to those budgets for 2023.
I think it is unlikely that there is a drastic change in either direction and NIH or other government grant funding between now and next year.
Gotcha.
Paul.
And then just one more on <unk>.
Cosmic pricing are you guys seeing any changes in the contact contract structure or with Tony framework in response to like not just the ongoing litigation, but just the broader macro sense with liberty.
And then kind of related to that.
How do you see pricing holding up at your competitors.
I think our pricing is stable.
Across the board.
Mike.
Many companies with our business model are willing to discount instrument price in order to gain the very valuable and profitable.
Consumable pull through that can come from the instrument.
So our asps are below our list prices by.
Our typical amount, but we don't see that moving to increase.
We don't see discounting increasing ore prices eroding at any kind of meaningful way at this stage.
Okay. Thank you.
Your next question comes from the line of TD Cowen. Please go ahead.
Yes.
Hey, guys. Thanks for taking my questions squeezing me in here.
So just one question on on.
On the call the mixed capacity going forward have you guys put out any numbers on how many patients you could see to be placed in 'twenty for seeing the pipelines that.
And then the second one on on cash flow so.
Well I can help somebody a big help in the second half of this year.
How much of that that Dominion north slope on PC kind.
Consisting of the trend and connected to give some more color on that that would be helpful. Thanks.
Well I'll take the question about manufacturing capacity.
<unk> handle the one about cash flow.
We have not issued long term capacity targets I'll say.
We intend to scale up our capacity.
Really.
Over the balance of this year or two.
To allow us to burn slowly burned down the backlog, we have we really don't want customers to have to wait six months for a new system.
And I think by the time, we're at the end of this year I would expect to be in a position to have.
The manufacturing yields in the manufacturing techniques in such a place that we could scale up or scale down manufacturing as needed.
That will be.
Relatively unconstrained by manufacturing the long term.
And as noted with respect to cash burn and working capital headed into next year I'll give you. The standard that we haven't guided 2040, yet and when we will be more explicit with that said I think that the situation with working capital during the initial phases of the cosmetics launch is unique relative to what we'll see in future periods, where we had this large order backlog.
Log that we were fulfilling.
Rapid fire all once once we started shipping.
So in some respects what the working capital burn will be will depend upon what the slope of our order curve looks into the neck heading into next year and other things.
That can be variable from quarter to quarter, but I would not expect cash burn next year to be anywhere near what it is this year and there won't be this working capital barbell effect that we've had in the first half of this year repeating itself heading into next year. It will smooth itself out to be much more manageable, we'll get more explicit on next years.
Thoughts on cash burn and Ebitdas, we guide, but our comments on our path to profitability or breakeven on our existing resources stand as we've said before we still believe firmly we can get there on the balance sheet resources, we have with plans in place to get there and do that.
Great. Thanks, very much thanks, Mike.
Yes.
There are no further questions at this time I'd like to hand, the call over to Doug Farrell for closing remarks.
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