NanoString Technologies, Inc.

Good evening and thank you for attending today's NanoString Q1 results conference call. My name is Selena and I will be your moderator. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Doug Farrell with NanoString. Please go ahead.

Thank you, Operator. Good afternoon. Thank you for joining us. During the call today, our CEO, Brad Gray, will review the preliminary financial results that were released at the close of the market today. After our prepared remarks, we'll take questions. We plan to report our full financial results for the first quarter on May the 10th. This call will be recorded, and the audio portion will be archived under the Investors section of our website. During this call, we may make statements that are forward-looking in nature, including statements about preliminary financial results for the first quarter, sales execution and sales funnel, the impact of the realignment of our sales force, expectations for demand for our products and growth in our business, including customer interest in spatial biology, the impact of new products and expansion into new markets, and the growth trajectory for our product lines. Forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. Our results may differ materially from those projected. All forward-looking statements are based upon current information, and management assumes no obligation to update these statements. To better understand the risks and uncertainties, we refer you to the documents that we filed with the SEC, including our most recent Form 10-K. With that, let me turn the call over to Brad.

Thank you, Doug. Good afternoon, and thank you for joining us. This afternoon, we announced preliminary first quarter revenue of approximately $31 million, below our guidance of $34 to $38 million for Q1 revenue. We have scheduled this call promptly to update you on the trends we're seeing and our early indications of their root cause. The primary driver of the Q1 shortfall was geomics instrument revenue, which was approximately $5 million. GEOMIC's consumable revenue came in at approximately $5 million, representing an increase of about 80% over the prior year. In-counter revenue of approximately $21 million included $4 million of instruments, $13 million of consumables, and $4 million in service. A highlight of the quarter was the strong demand for our new COSMIC spatial molecular imager, which generated more than 15 new orders during the quarter. After reviewing the preliminary results, And with the benefit of hindsight, we believe that we have identified two factors that impacted our Q1 results. First, we believe that our first quarter revenue shortfall was driven by an uneven sales execution, resulting in an imbalance between capturing fourth quarter revenue and developing our funnel of Q1 2022 opportunities. While this focus allowed us to capture more than 50 geomics instrument orders during Q4, it also cleared the most mature instrument sales opportunities out of our funnel. While numerous opportunities remained in our 2022 sales funnel, they were less mature, resulting in larger than typical drops in orders from Q4 to Q1. Second, we believe that this was compounded by the impact of changes we made to realign our expanded commercial team early in the year, which temporarily reduced the effectiveness of our sales efforts. During 2021, we made a strategic investment to expand our commercial team to capture the enormous market opportunity in spatial biology and to prepare for the launch of our Cosmix SMI. Since this time last year, we've added about 90 new positions to our commercial team, allowing us to increase the density of our sales coverage in major markets. At the beginning of January, we rebalanced the territories and roles to take full advantage of this larger sales team. We promoted some sales team members to new leadership roles, and in many cases, backfilled them with individuals who were newer to the company. It is taking time for members of our sales team to settle into these new roles and to become fully effective. In addition, the pace of sales transactions may have slowed as customers were transferred between sales territories. One data point that supports this is that there was a close rate for geomic systems in territories that were realigned that was substantially lower than the rate that we saw for territories that were not modified. We believe that the potential geomics purchases from these customers were delayed, not lost. We believe that both the less mature 2022 instrument funnel and the impact of the sales realignment are temporary. We expect our geomics instrument funnel to become more balanced over the course of the year as our sales team becomes more effective in their new roles. Importantly, there is no indication that our Q1 results were impacted by opportunities lost to competition or any slowdown of interest in spatial biology. While we're disappointed with the slower than expected start to the year, this does not diminish our enthusiasm about our future growth prospects or the overall opportunity for spatial biology. Our geomics funnel remains robust and our lead generation continues at a healthy pace. In addition, we're excited by the momentum of the COSMICS SMI. We're currently finalizing our forecast for the second quarter and look forward to providing more details on our upcoming earnings call on May 10th. We'll provide any updates on our 2022 outlook based on the trends that we see through early May. We're focused on capturing the growth opportunity in spatial biology and delivering the level of predictability that our shareholders have come to expect from us, including consistent sales execution, leveraging our larger and realigned commercial channel. Our top priority is continued leadership in spatial biology, and you can have confidence that the entire team is working diligently to achieve this goal. At this point, we'd like to open the call up for questions.