NanoString Technologies, Inc.

Good day, and thank you for standing by. Welcome to the NanoString second quarter 2021 operating results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. And if you require any further assistance, you may press star zero. Without a further ado, I would like to welcome your first speaker for today, Mr. Doug Farrell, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, operator. Thank you, everyone, for joining us today. On the call with me today is Brad Gray, our President and CEO, as well as Tom Bailey, our CFO. Earlier today, we released our financial results for the second quarter of 2021. During this call, we may make statements that are forward-looking, including statements about financial projections, the impact of the COVID-19 pandemic, future business growth trends and related factors, prospects for expanding and penetrating our addressable markets, our strategic focus and objectives, and the development status and anticipated success of recent and planned product offerings. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to update this forward-looking statement. Later in the call, Tom will be discussing our financial results and 2021 guidance. We have 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 and less otherwise noted. You can find reconciliations of GAAP and non-GAAP, as well as the description, limitations, and rationale for using each such measure in this afternoon's press release. They're also available under the Investor Relations page on our website. I'd like to remind everyone we are participating in the UBS Genomics 2.0 conference next week, as well as the Baird and Morgan Stanley Health Care Conferences in September. We look forward to having the opportunity to speak with many of you there. Now I'd like to turn the call over to Brad. Thanks, Doug. Good afternoon, and thank you for joining us today. The momentum of our spatial biology franchise continues to increase each quarter. We continue to extend our lead in translational research, while the rapid adoption of NGS readout for geomics is opening up a vast new market in basic discovery research. Our spatial molecular imager is garnering interest from existing geomics customers as well as single-cell genomics researchers who are engaging with nanostrain for the first time. Meanwhile, our encounter franchise is humming along, continuing to generate strong instrument placements and great science more than a decade after its introduction. Our first strategic objective for 2021 is to extend our lead in spatial biology through the broad adoption of the GeoMix digital spatial profiler. In the second quarter, we generated a record number of orders for GeoMix DSP instruments and delivered sequential growth in GeoMix's consumable pull-through-per-system, of geomics instrument orders grew approximately 50% year-on-year at the top end of our guidance range of 40 to 50% growth. The recent launches of our human and mouse whole transcriptome atlases, or WTA, propelled annualized consumable pull-through to $94,000 per system during the second quarter near the top of our previously provided guidance range of $85,000 to $95,000. The impact of WTI on consumable poultry is pushing our geomics revenue expectations for 2021 towards the top half of our previously guided guidance range, and importantly, increases our estimates for the long-term value of our geomics franchise. Expanding the use of next-generation sequencing to read out geomics experiments is a key growth catalyst for our spatial business. The recent launches of our first whole transcriptome products are driving the momentum. These are the first system-wide products that we've offered, and they are appealing to researchers in both translational and discovery research. During the second quarter, approximately 60% of new geomics instruments were sold to researchers intending to use MGS as their primary readout. In addition, many researchers who initially used their geomic systems within counter-based readout have now begun to utilize assays with MGS readout as well. So far this year, approximately one-third of our geomic installed base has ordered either our whole transcriptome atlas or our cancer transcriptome atlas assays. Together, these MGS readout assays accounted for approximately two-thirds of total geomic's consumable revenue in the second quarter. we expected the expanded research applications of our MGS-enabled assays will drive broad adoption of geomics, while the higher revenue per sample of these assays will continue to increase consumable pull-through per system through the balance of the year. During the second quarter, we expanded our MGS-enabled geomics portfolio with the launch of the MOUSE pull transcriptome atlas. The MOUSE is the most important model system for basic discovery research. And our market research suggests it may represent up to 30% of the spatial biology TAM. In February, we began offering the mouse WTA through our Technology Access Program, or TAP. This new offering is generating strong interest from researchers with diverse areas of biology, including immunology, neuroscience, infectious disease, and developmental biology. Our technology access program enables researchers to test drive geomics while evaluating an instrument purchase and provides us with another strong indicator of customer enthusiasm for MGS readout. We generated more than 90 new tap orders in the second quarter, more than doubling the number of projects over the prior year, with MGS readout using about 90% of the new projects. While our whole transcript on ATLAS is driving us into basic discovery research, we continue to build on our track record of leadership among translational researchers focused on human disease. NanoString has been serving the translational research community for more than a decade, and we have a strong brand and deep understanding of their unique requirements. We understand that while robust and reliable results from formal and fixed pair of embedded or SFPE tissue is a table safe for any platform, Translational researchers demand much more. They want automated solutions that can drive high sample volumes and provide consistent site-to-site performance needed for collaborating across networks. They also want to analyze both RNA and protein on the same platform. GeoMix is the spatial biology platform that meets all of these requirements, helping establish its market-leading position in translational research. To be clear, while other companies are adapting their technology to be FFP-compatible, nanostrange platforms were developed using FFP from the outset. Recent product updates from other companies neither shifted the competitive landscape nor impacted our leadership in translational research. Among other requirements, translational researchers value that geomics provide protein assays enabled by a portfolio of several hundred validated antibodies, and that's in class plus. For the researchers focused on protein assays, encounter readout remains the preferred configuration and represents approximately 40% of geomic systems sold during Q2. Half of these systems, or about 20% of all geomic systems sold during the second quarter, were packaged as geomic plus encounter bundles. In most cases, these bundles are going to translational researchers who are new to administering customers, further expanding their lead in this important market. Overall, Geomix continues to provide a strong growth driver for 2021 and a setup for long-term success, transforming our company. Our second strategic objective for 2021 is to advance the development of our spatial molecular imager and to seed the market for the commercial launch that's planned for next year. Molecular imaging is shaping up to be an important new market that we expect will be highly complementary to spatial profiling. We're making great progress in developing our spatial molecular imager, or SMI, which remains on track to ship commercial instruments in the second half of 2022. Our SMI is expected to be the best in class and distinctive from other imagers in several important ways. First, we expect SMI to lead the class with both the highest class and the highest sensitivity. Second, we expect SMI to show superior performance than FFPE tissue samples. And third, unlike competing platforms, SMI will launch with both RNA and protein access. We've developed a technology access program for SMI, and we've been fielding interest from a diverse set of researchers. To date, about half of the SMI TAP projects have come from existing geomics customers, while the other half come from single-cell researchers just beginning to embrace spatial biology. The experiments we are running span many areas of biology, including oncology, immunology, and neurology. Some researchers are interested in using spatial molecular imaging to create an atlas of cells within a tissue, while others are looking to characterize interactions between individual cells. Our TAP service is already oversubscribed for the year, and we've been allocating our capacity to high-impact science with key opinion leaders. Researchers continue to reach out with interesting projects, creating a reservoir of demand that will keep us busy well into next year. Our third strategic objective is to return our encounter business to the growth dynamics seen prior to the COVID-19 pandemic. Our encounter franchise remains robust, with our install base increasing about 14% over the prior year and customers publishing another 300 peer-reviewed papers during the recent quarter. which is a major milestone in our encounter business in Q2, selling our 1,000th system. As of mid-year, our 2021 infinite revenue almost exactly matches what we generated during the same period in 2019. This signifies a full recovery of infinite placements to pre-pandemic levels, and we expect this trend to continue through the second half of the year. In Q2, we generated another sequential increase in consumable pull-through to about $57,000 per system annualized, with recovery most notable in North America. We expect consumable pull-through to continue recovering from pandemic lows during the second half. Oncology researchers continue to embrace encounter. We recently entered an exciting collaboration with the Parker Institute for Cancer Immunotherapy focused on the molecular characterization of cellular therapies. The objective of this collaboration is to define the characteristics that will make a cell therapy effective, providing a standardized approach to developing CAR-T regimens that may improve patient outcomes across all cancer types. The collaboration will leverage the cell therapy expertise of Parker's extensive network of world-class research centers, and Parker plans to make the findings publicly available to the scientific community. In another exciting development, we recently entered a long-term umbrella contract to supply the National Institutes of Health as part of its IMATCH program. The NIH and NCI sponsored thousands of clinical trials per year, and under this agreement, NIH researchers will now have expanded access to our encounter platform to assess the immune status of solid tumors from patients in clinical trials. We continue to push encounter into new areas beyond oncology. In the second quarter, about half of our encounter systems were sold for applications outside oncology, and consumable growth was especially strong in infectious disease and immunology. During Q2, we launched a new stem cell characterization panel for the analysis and optimization of cell lines used in the development of novel therapeutics. Our new panel measures eight essential components of stem cell biology and provides a standardized assay for evaluating factors that impact the viability in the development and manufacturing process. We hope it will help researchers scale up the stem cell therapy workflow, advancing this promising field. To summarize, we're making great progress on our strategic objectives, with NCOW returning to grow, Geomix reaching new customers through its MGS readout, and SMI generating excitement ahead of its 2022 launch. And now I'd like to turn the call over to Tom to review the details of our operating results. Thanks, Brad, and thanks all for joining us today. For the second quarter of 2021, product and service revenue was $33.6 million, representing year-over-year growth of 59%. Q2 geomics revenue was $11.2 million, up 66% as compared to Q2 of 2020, and above the high end of guidance we provided in May. $7.4 million was from approximately 30 instruments shipped, and $3.8 million was from consumable sales. Any light geomics consumables pull-through was about $94,000 per installed system in Q2, For NCounter, total revenue for Q2 was also above the high end of our May guidance. Q2 instrument revenue was $4.4 million, representing year-over-year growth of 25%. NCounter consumable revenue was $14.2 million, representing year-over-year growth of 80%. Annualized consumables pull-through was about $57,000 in Q2. Service revenue was about $3.8 million for the quarter, representing 29% year-over-year growth, and driven by new GeoMix DLP task projects and increased service contract revenue from our growing instrument installed base. Turning to margins and expenses, I'll provide results on a non-GAAP or adjusted basis, which removes the impact of stock-based compensation, depreciation, and certain one-time items. Please refer to our press release as well as the exhibits we have posted to our investor relations webpage for detailed information on how our non-GAAP or adjusted measures are prepared. Q2 adjusted gross margin was 56%, consistent with our annual guidance range at about a 400 basis point improvement compared to Q2 of last year, driven by both the growth in geomics DSP revenue and the recovery in counter-consumable sales compared to the prior year period. Adjusted R&D expense was $14.5 million, an increase of 6% year over year. R&D was higher compared to the prior year period due primarily to increased personnel and product development costs related to our SMI program. We expect R&D expense will increase through the balance of the year as SMI development continues. Adjusted SG&A expense was $21.7 million, an increase of 27% year over year. The Q2 SG&A expense increase was due primarily to investments made in our spatial biology-related commercial initiatives, including investments to expand our sales force and our service and customer support groups. Adjusted EBITDA loss was $17.3 million, an improvement of 12% as compared to the prior year. We exited the quarter with approximately $398 million of cash, cash rewards, and short-term investments. Turning to guidance for Q3, we expect product and service revenue to be in the range of $36 to $38 million, representing year-over-year growth of 20% to 26%. This range assumes a $24 to $25 million of encounter revenue and $12 to $13 million of geomics revenue. Regarding our full-year guidance, we are raising our full-year guidance range for geomics consumables pull-through to $95,000 to $100,000 per system per year, implying annualized pull-through of approximately $100,000 to $105,000 for the second half of 2021 based on strong early consumable utilization at NGS-enabled sites. We are also affirming our previous guidance of 40% to 50% growth in instrument orders as compared to the prior year. As a result, we are updating our full-year geomix revenue guidance range to $48 million to $50 million, representing annual growth of 38% to 43%. Our encounter instrument demand has rebounded to pre-pandemic levels globally, and our expectations for encounter instrument revenue remain unchanged. We are narrowing our full-year guidance for consumables pull group by a modestly slower pace to pandemic recovery in Europe and Asia. As a result of these updates, we are narrowing our full-year end-counter revenue expectation to 95 to 97 million, representing annual growth of 24 to 27%. The combined impact of these updates is an updated full-year product and service revenue guidance range of 143 to 147 million, representing annual growth of 28 to 32%, total revenue guidance remaining unchanged. We are also affirming our prior full-year gross margin operating expense and adjusted EBITDA loss outlook amounts as provided on our March 1st call. Additionally, as a reminder, we do not expect any material collaboration revenue to be recorded in future periods. Now I'll turn the call back over to Brad for closing comments. Thanks, Tom. As we enter the second half, we are shaping up just as we had envisioned. Our new whole transcriptome assays are driving geomics adoption and increasing consumable whole fruit, enhancing the long-term value of our spatial business. Our deep understanding of customer needs, combined with the unique throughput and multi-omic capabilities of geomics, are extending our leadership in translational research. Scientists across many fields of research are intrigued by our spatial molecular imager and are lining up to perform their first experiments. Meanwhile, our encounter franchise is still achieving important milestones more than a decade after its introduction. Our momentum is strong, and we are confident in both our near-term growth prospects as well as the long-term value of our spatial biology franchise. With that, we now like to open the line for your questions.

Thank you, sir. As a reminder, to ask a question, you will need to press star 1. Again, that is star 1 to ask a question. Our first question comes from the line of Tycho Peterson from J.P. Morgan. You may ask your question.

Hi, good afternoon. This is Julia on for Tycho today. Thanks for taking the question. So I guess in terms of the current mix, I understand you have, you know, two-thirds academic and one-third biopharma for geomics. How... Do you see the mix kind of, you know, changing going forward with the whole transcriptome launch? And how should we think about the relative runways between academic versus biopharma? I guess the former is a much more fragmented market, but for the latter, it's maybe, you know, more ready to kind of, you know, infect up into translational studies. So just help us think through the relative runways there. Thanks.

And for the question, Julia, you're right. Our installed base for geomics is about two-thirds academic and one-third biopharma. Initially, when we launched our whole transcriptome assay, we imagined it would appeal more to the basic discovery researchers, who you'd find predominantly in academic research settings. And so we had projected that over time, the fraction of geomixes going to academic research would actually increase. As I mentioned in my prepared remarks, we're seeing that the MGS readout capabilities of geomics, including the whole transcriptome assay, are appealing both to basic discovery researchers and translational researchers. So, at this stage, I think we should expect to continue to see an approximately two-thirds, one-third split for new geomic instrument placements between academics and biopharma customers.

Yeah, that's helpful. And then, you know, on kind of, you know, the biopharma and translational research side, is there any plan or room to kind of increase the geomix throughput so you can actually use it in clinical trials?

You know, the geomix throughput is already extremely high relative to all of their spatial biology platforms and is probably sufficient. The geomic system is about 10 samples per day, and there's really very few clinical trials that would ever be enrolling patients at a faster pace than that, or needing to screen patients for inclusion at any faster pace than that. So we feel really good about the capability of the geomic system to serve the translational research market, including clinical trials. So, of course, most of our use of geomics and translational research today is the retrospective analysis of FFPE samples that were collected in clinical trials. But we think that the throughput could hypothetically allow the prospective analysis at the enrollment of a clinical trial as well without any material changes to what our geomics system is.

Got it. Very helpful. And then lastly, I know you gave color on the tab kind of, you know, order for GeoMix. Could you share the same for SMI? You know, how many early customers you're working with and any upcoming publications we should be paying attention to?

Yeah, so in the past we've said that our plan for the SMI path for 2021 was to enroll 15 to 20 projects worth. And we are fully subscribed at that level now. We continue to collect excess demand, as I mentioned in my prepared remarks. Those interesting projects are sort of on standby until we are able to expand our tap capacity in 2022. You know, we aren't previewing any particular forthcoming publications at this point in time, but look for incremental news flow on SMI in the fall and in the fourth quarter as some of these TAP projects begin to make their way through completion and into appropriate public presentations.

Great. Thanks so much, Matt.

Thank you, Julian.

Our next question comes from the line of Daniel Arias from Stifel. You may ask your question.

Daniel Arias Good afternoon, guys. Thanks for the questions. Brad, on the consumable side and the raise on the genomics pull-through average, can you maybe just add some color to the elements in play there? I mean, it sounds like next-gen usage is up nicely. So what are you seeing just in terms of assay mix to your point before? and the impact that that's having, maybe sample numbers relative to your initial expectations, and then any other sort of residual comments that you might have on utilization trends that are sort of driving that rate forward. Yeah, thanks for the question, Dan. I think it's been incredibly exciting and even surprising to us the broad interest in the whole transcriptome atlas assay. In the past, you've heard us talk about the whole transcriptome atlas as our gateway assay into just the discovery market. But what you've heard in our prepared remarks is that the entirety of our installed base is intrigued by this assay and is beginning to adopt it. That drives the overall dollar per sample up. for our entire install base and is translating into the second raise in our consumable pull-through guidance that you heard today. I think because most customers are still in their, call it trial usage phase of the whole transcriptome atlas assay, I think it's too early to characterize exactly what their steady state run rate of assays per system per year would be. But clearly, the overall dollar per assay average for our install base is going up. And that's, of course, a key driver of the long term value of our spatial biology franchise, which was what makes it so exciting. Yeah, okay. A couple of quarters, you had said that you thought that, you know, if you fast forwarded to the end of this year, whole transcriptome could come to make up more than like half of what's done versus cancer transcriptome. Do you still think that makes sense as an assumption? Yes, I do. I mean, I think the MGS readout assays of cancer transcriptome atlas and whole transcriptome atlas together accounted for two-thirds of our consumable revenue on geomics in the second quarter. So, the whole transcriptome assay is probably already very close to half of the utilization of our total installed base. And I think that will just grow over the, you know, I think that'll strengthen over the balance of the year. Okay. Okay. And then just maybe on the instrument side, I mean, you guys have done a really nice job just sort of keeping the geomic business steady throughout the pandemic. So certainly kudos there for sure. I'm wondering when you think we start to sort of see a step up on orders and installs, you know, just in the coming quarters, obviously the pull through is a telling sign on usage or one of them anyway, and that's going up, but it does feel like the enthusiasm around the spatial market, just sort of being on the cusp of an inflection is, can start to show up in the adoption rate, especially since it feels like the constraints on just getting into the lab are not as high. So, you know, totally appreciative of the fact that things are not 100% out there. I do get that. But is it fair for us to model acceleration in the placement rate going forward from the 30 or so that you've been on for a while? Yes. So first, let's separate orders and revenue recognition, because those are really important different dynamics. So as you know, through the first half of this year, in both Q1 and Q2, our order rate has gone up approximately 50% year on year. So that is – and that's the best indication of actual sort of real-time demand from the market for geomics. So that's growing at a very strong rate, you know, at the top end of our guidance rate for the year. You know, and I think we're maintaining our 40% to 50% growth guidance for the whole year on orders. And of course, that will, because when you look at the comparators for the back half of last year, that will increase orders beyond the 30 or so placements that you've seen from us the past couple of orders. And given that we're in a one-to-one kind of book-to-bill scenario now, where each order is more or less fulfilled with an instrument shipment, you will begin to see instruments growing beyond 30 in the second half. That being said, part of your question seemed to imply, Dan, that you were wondering if there was going to be an enormous step change or inflection with respect to instrument revenue. I don't think that's the natural dynamic of this market. We are marching orders. up at 50% a year, that's a great clip. I don't expect that suddenly to spike to a higher rate. If we can sustain that pace of instrument order growth through the balance of the year and sustain that type of growth in the 40 to 50 range even in the next year, we're going to build a tremendously valuable spatial franchise without the need for anything that I would characterize as a particular inflection. yeah no no i certainly wasn't thinking um big step up i was just i'm going back and i'm looking at the installs per quarter and i'm saying okay you guys actually placed 35 systems in q3 of last year which again is a huge accomplishment given how difficult the operating environment was then so you know for those of us that are just trying to understand the um you know, the velocity or the trajectory of the spatial market, is it fair to assume that if we push into the end of this year or the beginning of next year, you'll start to see that number creep up that just says, hey, there are more people out there that are looking to do spatial experiments. They're ordering boxes, and you guys are putting more of them in labs than you did, say, a year ago. Yes, certainly that growth is expected in the second half. Just to work the math for you, we're maintaining our 40% to 50% guidance range for orders given where we are in the year. That would imply a range of sort of 30 to 35 orders in the third quarter and 35 to 40 orders in the fourth quarter. That's just work math on growth on the 90 that we did full year 2020 and 2020. than here today. So that gives you a sense of what's implicit in our guidance, Dan. And, you know, if we can keep growing into replacements, you know, in that kind of range, you know, I think we're going to be in a good place. Yeah, absolutely. Okay. Thanks, Brad.

Our next question comes from the line of Katherine Schulte from Baird. Your line is now open.

Hey guys, thanks for the questions. I guess first, can you just walk through what you're seeing on the reopening side? You know, where are different regions in terms of activity levels versus pre COVID levels? And then what are you guys seeing when it comes to access to customer sites?

Yeah, great, great question, Catherine. So, um, as, as we alluded to in our prepared remarks, you know, our best indicator for customer activities and the place where the COVID-19 pandemic impacted us the most is on encounter consumable pull-through. And we've seen, I'd say, an uneven pandemic recovers geographically. In North America, our business is almost back to the pre-pandemic utilization rate and encounters that we experienced in 2019. That being said, in EMEA and APAC, we remain substantially below what our 2019 utilization rates were. And we attribute that to slower recoveries from the pandemics in those regions. That may or may not be the same as what other companies are seeing, but at least within our installed base, which is focused primarily on cancer research and to a lesser degree on immunology and neurology research, that's what we're seeing. Importantly, maybe I'll just add, none of that pandemic recovery seems to be impacting the placements of encounter instruments, which are back on the 2019 pace, or the pace of geomics instrument orders, which are in line, that have been at least at the top end of our guidance range so far this year.

Yep, got it. And I know you guys have talked about hiring about 100 new reps. How is that hiring process going? Where are you in terms of those hires? And how should we think about a potential back half impact?

Yeah, we're about three-quarters of the way through hiring those 100 reps. We've made good, strong progress, especially in North America. We're a hiring is fast and simple. The places we still have hiring underway is more in Europe and Asia, where it just takes longer to hire people. But we're pleased with the progress. I think we'll begin to start to see the impact of those reps later this year. It usually takes six months for a rep to become effective once they've joined and been trained. So people were hired in the second quarter would be beginning to be effective in the fourth. And then of course, we'll have a full year of their impact in 2022.

If I could sneak one more in, I'm just curious if we could talk on the innovation roadmap for Geomix from here. You guys have three different encounter platforms. Are there different iterations of Geomix that you envision coming out over the next several years?

Yeah. For now, we're focusing all of our Geomix innovation on the assay front and the software front. We believe that the combination of price point, footprint, and throughput that our current geomic system has is appealing to really core labs across both the discovery and the translational market segments. And what we want to do is continue to innovate on the consumables that will appeal to a larger number of customers. So obviously the whole transcriptome assays were the single most important. consumable that we've introduced. But we're also continuing to expand our protein library and fields beyond cancer. We're continuing to look at custom assay options for genomics that would allow us to address biology that takes place outside of a human or a mouse model. Those are some of the consumable innovations. And then separately, we're learning a lot from our customers on how they want to store, to process, and to manipulate the data that's generated in spatial biology. And we're moving towards more sophisticated software tools that will improve the customer experience and hopefully drive even higher utilization systems that are out there. So today we don't have, you know, a specific plan with respect to instrumented innovation, but, you know, certainly we will update you over time as that roadmap develops.

All right, great. Thank you.

Our next question comes from the line of Tejas Savant of Morgan Stanley. You may ask your question now.

Hey, guys. Good evening. Thank you for the time. This is Edmond. Just wanted to circle back on the recovery trends and your encounter consumables. I know last quarter you guys had called out EU as a pocket weakness. I was wondering if you could provide some additional color on the recovery pace specifically for the EU region. And in terms of your guidance, what's baked into it for, I guess, Delta variants and worsening COVID impacts?

Yeah, so maybe I'll take the second part of that question first. I think our guidance today on encounter consumables does bake in the current uncertainty with respect to the Delta variant. And we're watching that in real time as everyone else is. That's part of the reason that we're no longer projecting that we'd be at the top end of our encounter previously provided guidance range. Because with this uncertainty, I think we can only expect that the recovery will be on pace or a little bit slower than we might have originally imagined. But I do not see it getting any worse than it's embodied in our updated guidance range today. With respect to Europe, I'm not really in a position to provide too much in the way of additional color. I will say it's worth remembering that the areas that are relatively weak in terms of demand, which for us are Europe and Asia, are the same regions where we work through distributors in many cases. Some of what we're likely to be seeing in terms of a slower recovery of our business in those regions is confounded by the fact that distributors may be more negatively impacted in their own business operations than Danistring would be in a direct market. So I'll just add that. I think that's probably the only color I can really add that would be eliminated.

No, that's super helpful. And then just turning quickly to the SMI TAP program. I know you guys have said previously that it was meant to inform the development of the content on the SMI and to refine the visual and analytics tools as well. Can you provide a brief update on how that development has progressed on these two fronts in the TAP program?

Yes, I'd be happy to. Yeah, so one of the things that the TAP allows us to do is see where the demand is from customers in terms of key parameters, like the amount of area of a tissue that they want to analyze, the number of targets that they want to analyze, and whether the question they're asking is really more about building an atlas of cells, just a map, or whether it's something that is actually trying to probe how any two individual cells are interacting. And so those are all very different use cases. each of which would inform a different part of the design choice of the instrument, the tool, and the software. We have prototype software for presenting and visualizing spatial molecular image or data that we've been able to present some of the early tap customers with and, you know, get their real-time feedback on how they would explore their data. And, you know, while I don't want to characterize any particular insights, I can say it's incredibly valuable and it's just the right time in our product development effort to, you know, continue to evolve the requirements. So we'll look forward to being in a position at a time in the future to, you know, demonstrate those tools more broadly.

Got it. Thank you for that. And then one final one for me. Stepping back, looking at a higher level, and given the recent emergence of participants in the spatial biology field, what are some of the key competitive advantages you guys are seeing at nanostring? I know you've previously highlighted the thousand-flex capability on SBI, and you earlier alluded to a higher throughput on the geomex. Any other key factors that have been jumping out? And separately, is there anything to note in terms of traction for some of these platforms that launched earlier this year from your side?

Yeah, you know, spatial biology is truly the next revolution in the field of biological research, and it's understandably attracting a lot of innovators. You know, there's innovators from larger companies like us and then many startups along the way. I think across both the molecular imaging and the profiling categories, Nanostring really leverages many of the same competitive advantages. One is, we've been in business you know, surveying researchers for over a decade, and I think we have a deep and intimate understanding of what's required by the market, particularly amongst translational researchers. Two is, you know, we have for years built big, robust, highly automated instrument systems that you can place in a lab and they just work over and over again, day in and day out. That's a new skill that many smaller companies are building for the first time. Three is, unlike some of the new entrants, we're actually participating in the market and engaging with hundreds of customers every day, every week. And so I think that makes us smarter about what the customer base needs. Then, of course, on top of those, there's a series of technical advantages we have. At NanoString, we've always built every platform to be compatible with formalin-fixed paraffin-embedded tissue first, and then later come back to adapt it to more, call it esoteric sample types like fresh frozen. So I think we're always going to have an advantage in that sample type over our competitors. We've also embraced the idea of multiomics. So we build all our spatial platforms to be capable of both RNA and protein at the same time. which is going to be another sustainable advantage. And then finally, because we're pretty tuned in, I believe, to the translational market needs, we tend to build platforms that are high throughput and high PLEX. And those tend to also, by the way, be those with the strongest recurring consumable revenue strengths because PLEX and throughput correlate with how much people spend on consumables. So we feel really great about our competitive advantages and our positioning in the marketplace, both on a technical and maybe on a more corporate capability level.

Great. Brad, thank you for recalling the insight. That was very informative.

Our last question comes from the line of Douglas Shankle. Your line is now open.

Hey, guys. Thanks for fitting me in at the end here. Just, I guess, two or three cleanups. First, I think I remember you guys talking about an expectation heading into Q2 that there wasn't going to be any improvement in lab access. I think the hope was it would be better than that, but I think that's what was factored into guidance. I just want to confirm, based on what you talked about in your prepared remarks, that it was probably a little bit better than you expected and kind of how you're treating that as we think ahead to the back half of the year. Yeah, thanks for the question, Doug. I believe that our access to labs, meaning how our sales reps got into labs in the second quarter, was about in line with our expectations. Most of our sales activity is actually still taking place over the phone and over Zoom. Many of these research institutions, although they're up and running and doing research, really aren't eager to have outside vendors walk in their hallways. I know where sales reps meet their customers in coffee shops off campus or do work over the phone. So in that regard, I think we're right in line with what we expected. you really meant more kind of the activity levels that are happening inside of the lab using our technology. You know, I'd say that was also more or less in line during the second quarter. You know, I think our encounter consumable pull through was about where we expected it to be So I'd say that, you know, that sense of lab access, lab activity levels was in line or maybe slightly better than we'd expected in Q2, with all of the caveats about the sort of geographically uneven improvements that I mentioned earlier. Thank you for that, Brad. And I apologize if I miss this in your prepared remarks, but the 20 net placements or so for encounter, was that sort of just one of those kind of timing dynamics in terms of why that number wasn't a little bit higher and not necessarily a reflection of something like there's a big drop-off in attachment rates with Geomix or something like that? Is that just kind of one of those normal quarterly fluctuations we see from time to time? Yes, it absolutely is, Doug. This is Tom. If you look back at the first quarter compared to the second quarter, we had a big install-based leap in the first quarter. So you can see some anomalies in some of that install pace that happens seasonally relative to the revenue, which tends to be a bit more smooth for end counters. So another way of answering that question is we did sell more units than we installed this quarter as compared to the first quarter. So the revenue has been very, very strong, and we feel really good about it. I headed into the second half of the year, as we mentioned, and I'm prepared. Okay. Thank you. Good feelings I encounter. Okay. Sorry to interrupt, and thanks for that. My last one is really on – it's sort of a 2022 question, so I'll totally understand if you don't want to go there. But based on what you're seeing, I guess I'm just wondering how you're feeling about, it's kind of related to what I just asked about, like how you're feeling about the ability to keep placing encounters, you know, not just over the next two quarters, but over the next several quarters that are really influenced by, you know, the continued interest in Geomex. In my model, you know, I actually have the pace of encounter placements moderating next year in part because, My assumption is that there's going to be more and more of these geomics instruments going in front of sequencers. Those things don't have to be mutually exclusive. You could place a lot of geomics instruments in front of sequencers, and you could keep influencing and creating demands on the core encounter side. Is it too early to say, you know, look, your model's way too conservative based on what we're seeing? Or, you know, for now, do you think that this is a fair way of thinking about it, meaning geomics demand is going to continue to be robust, but the mix of placement is going to increasingly skew to, you know, basically be in front of sequencers? Yeah, great question, Doug. And I guess I'll start on geomics. I think you're correct that geomics placements will continue to skew toward NGS readouts. Um, that being said, I do not believe that negatively impacts the encounter trajectory because encounter, um, has a lot of uses well beyond geomix readout. So, you know, year to date, uh, and actually if you look back even to last year, about 20% of our geomix systems have been sold with encounter as bundles. And that, that percentage has been quite stable. So as Geomix grows, so too does, if we remain at 20%, so too does the encounter pull through onto Geomix. So that continues to be good. On top of that, we've worked hard to diversify encounter into areas like immunology and neurology, and I talked on the phone about stem cells. That has sustained. you know, encounter instrument placements at 2019 rates, really through the first half of this year. So truly, if you look pre-pandemic, you know, kind of right off 2020, and then look at 2021 post-pandemic, we're placing instruments at almost exactly the same pace. And so I don't see a reason that that would moderate materially in 2022. I think it's conservative to model a little moderation, but really there's not a trend I could point to that would make me expect it or worried about it. Okay. Fantastic. Thanks, guys. Thank you.

And that concludes the Q&A session. I will now turn the call over back to Mr. Doug Farrell. Vice President of Investor Relations. Please go ahead with your closing remarks.

Thanks very much.

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It is 341-4117. So with that, we will say goodbye and thank you for your time.

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