NanoString Technologies, Inc.

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

Thank you, operator. Welcome, everyone. Joining me on the call today is Brad Gray, our president and CEO. And Tom Bailey, our CFO, earlier today we released our financial results for the first quarter ended March 31st, 2023. 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, expectations regarding future operating results, cash flows, current and future instrument orders, and our manufacturing capacity, as well as 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 and the impact of macroeconomic factors. Forward-looking statements are subject to risks and uncertainties, including those described in our SEC filings. Our results may differ materially from those projected, and we undertake no obligation to uptake any forward-looking statements. Later in the call, Tom will be discussing our Q1 financial results and guidance for 2023. 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 the call, all financial measures will be GAAP unless otherwise noted. You can find the reconciliation of GAAP to non-GAAP measures as well as the description, limitations, and the rationale for using each measure in this afternoon's press release. To aid analysts and investors in building their models, we have posted exhibits under 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 everybody that we will be attending the Jefferies Conference in New York City next month. We look forward to having the opportunity to meet with many of you then. I'd now like to turn the call over to Brad.

Good afternoon, and thank you for joining us today. I am excited to report that 2023 is off to a strong start. We drove continued momentum in the business with revenue from both spatial biology and encounter exceeding the guidance we provided on our year-end call. With strong spatial biology demand and the successful scale-up of our COSMICS manufacturing and installation capacity, we are raising our revenue outlook for the year. Before Tom provides details on these financial results and improved outlook later in the call, provide updates on our progress to our strategic objectives for the year. Our first objective for 2023 is to increase our penetration of the spatial biology market. During the first quarter, the spatial biology demand was healthy across both instruments and consumables. Our overall spatial biology revenue increased by more than 75% over Q1 of last year. We ended the first quarter with an installed base of 385 spatial systems, an increase of about 31% over the prior year. Our COSMIC spatial molecular imager remains the primary growth driver of the business as we further penetrate the rapidly growing market for single-cell spatial biology. Our rollout of COSMIC is tracking ahead of plan. We are ramping our manufacturing capacity and refining the processes that our field service engineers, and application scientists used to install COSMIC systems and train users. We believe these efforts will accelerate uptake of COSMIC's consumables, which are the growth engine of the company over the long term. Even with our increased pace of COSMIC shipments, strong demand led COSMIC's instrument orders to exceed shipments in Q1, growing our backlog. About 75% of our COSMICS orders came from new customers, and biopharma customers increased to about 25% of system orders. Oncology applications drove about 70% of the orders, followed by immunology and neuroscience. In February, we unveiled our consumable roadmap for COSMICS. We've demonstrated our ability to scale the number of biological targets imaged by COSMICS, which is referred to as its PLEX, up to 6,000 RNAs and 120 proteins. More than 10 times the content that any competing platform currently offers. Our substantial advantage in Plex has resonated with our customers as an important factor in why we believe Cosmix will remain a market-leading spatial imager. In parallel to ramping up Cosmix shipments, we've been connecting customers to our Atomics spatial informatics platforms. Atomics provides seamless and highly scalable storage and compute power for a fraction of the upfront cost of on-site capabilities, making the decision to move data to the cloud an easy one. Customers value the investment we've made to ensure that informatics does not become a bottleneck in spatial biology research and are excited to leverage the cloud to collaboratively analyze the massive datasets that spatial biology experiments generate. While instrument demand remained COSMICS heavy in Q1, geomics placements continued, and our expanded geomics install base drove a meaningful increase in consumable revenue. The speed with which new geomic sites became active consumable customers improved from Q4, and we expect to see that trend continue over the balance of the year. In parallel, we're releasing software updates that improve the capabilities and workflow of geomics. including a recent update that enables customers to measure RNA and protein simultaneously on the same slide, an appealing capability that helps scientists increase the insights that they extract from each sample. Translational researchers remain the primary users of genomics, as illustrated by the latest paper to grace the cover of the journal Cancer Research. team of researchers at the University of Glasgow published a study that used geomics to evaluate and subgroup colorectal cancer patients whose cancer has metastasized to their liver. The study demonstrated the ability of geomics to characterize tumor heterogeneity and identify novel biomarkers associated with clinically relevant subtypes of colorectal cancer. We recently caught up with the authors of this paper at the American Association of Cancer Research, or AACR, annual meeting, where spatial biology featured prominently in the scientific agenda. Our customers had strong showings, with nearly 60 abstracts for geomics and cosmics, an increase of more than 40% over the prior year. Our booth was buzzing with activity and customer interest throughout the meeting, and lead generation at this year's AACR more than doubled over the prior year. Customer interactions like these are expanding our instrument funnel and providing visibility to our growth outlook and continued leadership in this dynamic field. Our second objective is to deliver predictable revenue growth. We clearly achieved this goal during Q1, as revenue for both spatial biology and encounter exceeded our guidance for the quarter. In addition, our revenue visibility is continuing to improve. which bodes well for our ability to deliver predictable revenue to the balance of 2023 and beyond. The recurring consumable revenue streams generated by our installed base of more than 1,500 instruments grew both sequentially and year on year, with consumable pull-through in line with expectations. This helped our encounter business, which has a revenue mix that is now more than 90% consumables, deliver results above the high end of our guidance even as instrument placement slowed. We also grew COSMIC's instrument order backlog while scaling up our manufacturing and install capacity. Since COSMIC's instrument revenue is the primary growth driver of 2023, these results drive incremental revenue visibility. With COSMIC's demand strong and scale up on track, we expect the quarterly cadence of shipments and installs to increase as the year progresses. and we are in a position to raise our guidance for the year. Given the strong demand, we expect many of the COSMICS instrument orders we receive in the coming quarters will remain in backlog as we exit the year, maintaining our high revenue visibility as we enter 2024. Our third strategic objective is to demonstrate progress towards cash flow breakeven. The team remains laser focused on accelerating our path to profitability. During Q1, our adjusted operating expenses were down $2 million year-on-year. This OPEX reduction offset lower gross margins and kept our EBITDA approximately flat year-on-year during the first quarter. We expect our bottom line to improve each quarter through the balance of the year, as our revenue growth accelerates with cosmic shipments. We exited Q1 with approximately $155 million in cash, cash equivalents, and short-term investments on hand, and believe that we are well-positioned to manage our business to profitable growth with our current resources. Now I'd like to turn the call over to Tom to review the details of our financial results and provide an update on our financial outlook for the year. Thanks, Brad, and thanks all for joining us today. For the first quarter of 2023, total revenue was $35.8 million, $1.8 million above the upper end of our Q1 guidance range and about $3 million above Q1 consensus estimates. For our spatial biology business, Q1 revenue was $17.1 million, approximately 77% year-over-year growth, $1.1 million above the upper end of our guidance range and about $2 million above consensus estimates. Spatial instrument revenue was $10.1 million, approximately 110% year-over-year growth, reflecting acceleration of cosmic shift Q1 ASP reflects a heavier mix of international geomic shipments and also the deferral of a portion of COSMICS revenue that will be recognized in future periods as service revenue as customers use initial amounts of ATOMIX compute and data storage included with each COSMICS sale. We installed about 35 spatial instruments during Q1, growing our spatial instrument installed base to approximately 385 instruments. Facial biology consumables revenue was $7 million, approximately 44% year-over-year growth, and reflecting in-line genomics consumable sales over our growing installed base and continued initial shipments of COSMICS consumables. Q1 encounter revenue, which includes all service, was $18.7 million, about $1 million above the upper end of our Q1 guidance range and consensus estimates. Encounter instrument revenue was $1.2 million, consumables revenue At the end of Q1, our end counter installed base was approximately 1,130 instruments with about 10 instruments installed during the quarter. 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, amortization, and certain one-time items. or adjusted measures are prepared q1 adjusted gross margin was 43 percent impacted by revenue mix more heavily weighted to cosmetics instruments which are currently selling at lower gross margins due to higher unit production costs that are expected to be incurred in future periods as we scale cosmetics production we also continued in q1 to make investments to expand our service and manufacturing capacity and we incurred increased cloud compute costs associated with our Atomics platform. Lastly, in accordance with internal policies, we recorded a larger than usual Q1 inventory reserve of just over one million that impacted Q1 gross margins by about three percentage points. This reserve is primarily related to our spatial biology consumable sales mix shifting away from our more targeted consumable panels and toward our geomics whole transcriptome assay and other newer spatial biology consumable products. year-over-year, and primarily driven by lower personnel and product development costs related to cosmetics and anatomics. Adjusted SG&A expense was $29.8 million, an increase of 1% year-over-year, reflecting lower personnel costs offset by Q1 trade show and other marketing-related expenses that are higher in the first quarter as compared to subsequent quarters throughout the year. Our adjusted EBITDA loss was $27.2 million, and our cash, cash of March 31st, 2023. As noted on our last call, we expect cash burn and EBITDA loss to be heaviest in the first half of the year as we make investments in working capital to support the significant ramp in cosmic shipments, and given other cash expenses such as audit fees, trade show expenses, and corporate bonuses that are incurred in the first quarter. Turning to guidance, for the second quarter, we expect revenue to be in the range of $40 to $42 million, This range includes $23 to $24 million of spatial biology revenue, representing a more than doubling of spatial revenue year over year, and $17 to $18 million of encounter and service revenue. For the full year, we are raising our revenue guidance range, reflecting our Q1 results and the expected ramp of cosmic shipments in Q2. We now expect our full year total revenue to be in the range of $175 to $185 million, compared to the previous range of 170 to 180 million our updated range includes spatial biology revenue of 100 to 105 million as compared to the previous range of 95 to 100 million and encounter revenues which includes all of service and other revenue of 75 to 80 million unchanged as compared to the previous range we continue to expect adjusted evit da loss to range from $65 to $75 million, unchanged from our previous guidance, with even DA loss and cash flow improvements still expected to be more substantive in the second half of the year as our spatial biology revenue grows on a reduced operating expense base. We also continue to expect adjusted gross margins will be temporarily lower in 2023 in the 45% to 50% range as our revenue mix shifts towards COSMICS instruments for improving in 2024 and beyond, as these systems begin to pull through higher margin consumables. Now I'll turn the call back over to Brad for our closing comments. Thanks, Tom. In closing, we feel great about our strong start to 2023. Momentum in our spatial business is building as demand for COSMICS is being driven by its market leading capabilities. Our revenue visibility is increasing on stable consumable pull through and increasing COSMICS backlog. We're well positioned to generate strong 2023 revenue growth while reducing operating expenses, allowing us to make continued progress towards profitability. With that, I'll open the line for your questions.

If you would like to ask a question, it is star 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by 2. Once again, to ask a question, it is star 1. Our first question is from John Sauerbier with UBS. Your line is now open.

All right. Thanks for taking the question, and congrats on the quarter. You know, just maybe starting off on COSMICS, you know, it sounds like that the backlog there is still above that $40 million on a net basis. Just any color on, you know, the trajectory of shipments there and how you see that through the year and when you think you're going to burn through that backlog?

Sure. Thanks for joining the call, John. Cosmic's scale-up of manufacturing and our installation and training capacity is going just ahead of our plan. As implicit in Tom's guidance for Q2, we do expect a major step up in the number of instruments shipped in the second quarter, and then we would expect to remain at about that same pace of shipments to the balance of the year. If you look at our increase in our guidance range for the year, we're really you know, increasing the range of spatial instruments that we plan to ship from the previous guidance of 280 to 300 systems to be about at the top end, or about 300 systems by the end of the year. And that, you know, that means that we already have two-thirds of the remaining systems that we expect to ship in 2023 in our backlog. So we have really great revenue visibility at this point in time. For new customers who are coming to us today and putting in COSMICS orders, I think there's some chance that they would get their instrument by the end of the year. But more likely than not, we're going to begin pushing new orders into the first quarter of 2024.

Appreciate that. And then you've raised the revenue guidance that maintained the EBITDA loss for the year. Just any additional color you can provide on the cadence of that OPEX burn maybe into the second quarter and remainder of the year?

Sure, John. I think that the reason we maintained our EBITDA guidance was because gross margin was a little bit lower in the first quarter than we expected due to some of the costs that were incurring to ramp cosmetics manufacturing. So we decided to take a conservative approach and raise the revenue guidance while leaving the EBITDA guidance the same. Underpinning that is our OpEx guidance is really unchanged. We still expect OpEx to be down year over year. And so what that trend DA and in cash burn as we ramp our cosmic shipments or that reduced operating expense base and as our manufacturing gets more efficient as we make more instruments throughout the year.

Thanks, Tom. And then, you know, last one on my end, just any color on just cash burn, you know, any change in your outlook there, do you still plan to get to break even on the existing cash, you know, through 2024 or do you think you need to raise potentially next year with that convert coming due in 2025?

Our plans are still to get to cash flow break even our existing resources, and we think that our internal plans indicate that we can get there. And as we've mentioned before on the on the convert, you know, we're aware of the maturity coming in 2025. But given the trajectory of our business, we feel like we'll have a menu of options to consider and we'll do those prudently in a time frame that would be usual and typical. for managing those types of liabilities on the balance sheets. We still feel really good about where the balance sheet is, given the trajectory of the business.

Got it. Thanks for taking the questions.

Our next question is from Kyle Mixon with Canaccord Genuity. Your line is now open.

Hi, this is Alex . I'm with Kyle Mixon. So congratulations to the quarter guys. Quick question about COSMICS consumables. What should we be expecting over the course of the year in terms of cadence of pull through for COSMICS? Could it be lumpy in the first few quarters, or do you kind of expect things to grow at a relatively linearish rate in the beginning? Thanks.

Thanks, Alex. You know, COSMICS consumables will be a relatively small contributor to our growth in 2023. You know, as we place the new systems, we do expect people to take some time before they ramp up to full utilization. So every quarter, I would expect to see some sequential growth in COSMICS consumables, but as a fraction of our overall spatial consumables, it's a relatively small piece. I do not expect you know, lumpiness in terms of unpredictability. But I do expect it to be, you know, small and growing sequentially throughout the year.

Got it. Thank you.

And you also said that roughly 25% of new orders came from biopharma. So we have been seeing that some other companies have seen that biopharma spending could have been possibly constrained in recent months. I was just curious if you had any comments on this. Thanks.

Well, we really defined biopharma into two separate sub-segments. You have the large pharma companies who still remain relatively well financed and whose R&D operations are continuing at full pace. And I would say that most of the incremental demand we see for spatial biology is from those larger companies. In contrast, small biotechs who maybe had enjoyed very inexpensive capital in the last several years are now operating at a much higher cost of capital and are being much more careful with deployment of that capital into new instruments or even the pace of experimentation that's not on the critical path to clinical trial results. So that portion of the biopharma market has clearly slowed down and has remained slow through the first quarter. You know, fortunately for us, the large biopharma is large enough to continue to drive incremental interest. And, you know, on the spatial biology side, where COSMICS initially appealed primarily to academic researchers who were focused on discovery research and were probably following up on single-cell experiments they'd done on a non-spatial manner, we're starting to see biopharma interest in that technology.

Great, thank you.

Our next question is from Dan Arias with Stifel. Your line is now open.

Hey guys, thanks. This is actually Evan Stampler on for Dan. I guess circling back to COSMICS, obviously the instrument's been in the hands of your customers now for a little bit. you know, good to hear, like, you know, what kind of feedback you're hearing from them. And then maybe just start some, if you have an idea of maybe a timeline for first publications getting out there. Because, you know, when we talk to people, it does seem like some people are just kind of waiting to see data. And I know you have, you know, you obviously have some stuff with the TAP program. But if you have any sense of when publications might come out that we should be on the lookout for, that would be helpful. And then in your prepared remarks, you did talk about ASPs being at 215. And I kind of missed your other portion of that as to why. Because I'm getting, if I just do the rough math in terms of instrument revenue for spatial divided by the instruments, I'm getting a much higher number. And I think you tried to explain that. And so if you could just repeat that, that would be helpful.

I'll cover the first two portions, then I'll let Tom cover the piece on the ASP. So feedback on COSMICS has been extremely positive. Many of the initial COSMICS shipments went to customers who already had GEOMICS. And so they were able to very directly contrast their experience and having their COSMICS installed and their training to what they experienced with GEOMICS. And I think that the sense is that it's gone much more smoothly. and that COSMICS is actually an easier-to-use and easier-to-learn system than GEOMIX was. And that's largely because, you know, COSMICS does not need a region of interest selection, but rather can typically scan the whole slide. So feedback's been very positive so far. It's early days for those customers. That being said, our technology access program and our data sets that we put out in the public domain are already beginning to yield peer-reviewed papers. So there are nine peer-reviewed papers that have been published so far, most of them published on data that we posted, you know, for free of charge for researchers to play with and to get to understand COSMIC's data sets. We have at least 18 peer-reviewed papers that have been submitted for publication, and most of those coming out of our Technology Access Program. And our technology access program has now completed 140 COSMICS projects. So we think there'll be a really nice stream of peer-reviewed papers coming out of our technology access program, and that'll help the community really see more of what COSMICS is capable of and gain the confidence to adopt. Tom, do you want to take the question on ASPs? Yes, yes. So Evan, just as a reminder, we recognize revenue on instruments when we ship instruments to customers. So sometimes there's some confusion that folks have when they look at the increase in our installed base compared to the instruments we ship, because those two numbers tend to be different because we're installing on a lag. So in my prepared remarks, I mentioned we shipped 47 spatial instruments during the quarter. we got from spatial instruments during the quarter and divide that by those 47 ship units. That gets you to your ASP for the first quarter of 2015 that I mentioned in the prepared remarks.

Gotcha. Super helpful. And then a follow-up. You know, you did talk about a lot of the initial placements for COSMICS being with geomics, you know, existing geomics customers. And in the past, you have talked about bundling and the opportunity set there. I'm just kind of curious, like when you go to a customer and you present like a new customer that hasn't used Geomix and you say, all right, well, if you, you know, you present them with the bundle opportunity and the customers actually say, no, I'm good. I just want a Cosmix. Like what are the kind of biggest things that they're telling you that as to why they're choosing the individual instrument versus getting the two together?

Thanks for the question. Cosmics and geomics are both geared towards different types of experiments. Cosmics is an ideal system for following up traditional non-spatial single-cell experiments that may have taken place in the past based on droplet-based approaches. So many customers have been doing that type of science and have identified different cell types that are within the tissue, but they don't know where those cell types are. So COSMICS is an ideal system for following up on single cell and determining the location of the rare cell types and how they're interacting with other cells. So that is a very easy type of experiment for many discovery researchers to imagine, and that's part of what's driven our mix shift from geomics towards cosmics over the last 12 months. Geomics, in contrast, is a high-throughput system that has the advantage of being able to look at the whole transcriptome across multicellular regions of interest. And it's best employed in biomarker research that compares gene expression over a large number of samples. And that is appealing towards translational researchers who are really hunting for predictive biomarkers. so when we when our sales reps walk into an account they try to understand the science that that scientist is or that lab is doing and match them to one system or the other some labs have we think in the long term most labs will have utility for both types of systems but very few have the capital available to purchase both at the same time so those situations where a lab is well-funded and they have tremendous demand and are scaling up their spatial capabilities very quickly, those are the situations where we can successfully sell bundles. The other situations would be, you know, we would sell a COSMICS first and hope to come back and sell a GEOMICS later in a future funding period or vice versa.

Gotcha. That makes sense. If I can just follow it up with just one kind of modeling question, and I know you've Now you're talking about a segment, you know, just spatial combining geomics and cosmics. Is there anything you guys can just give us on the breakdown between those two, whether it's placements, ASP, pull-through, or whatever? And that's my last question. Thanks.

Yeah, thanks for the question. You know, the good news for the simplification of modeling is that the ASPs and the pull-through are expected to be very similar for geomics and cosmics. and so you know to simplify matters both in terms of our reporting and in terms of your modeling we've chosen to simply report spatial instruments and spatial consumables um but as you know as tom indicated the average asp across the uh but the mix is 215 000 in q1 which is not that far off from where it has been when we were only recognizing geomics And if you do the calculations on the pull-through, it was right around the same consumable pull-through on an annualized basis as geomics has been over the past year. I think it was about 80,000 consumable pull-through for spatial instruments in Q1, which is similar to the 75,000 or so that we were doing last year. So just to keep things simple, we're reporting spatial instruments and overall spatial consumables, and I don't think you should need to model those separately at this time.

so i'm sorry i'm just uh just as one quick pop i'm looking at the um at the presentation uh spatial pull through is 66 000 not 80 which was i guess down i'm not sure what section of the presentation you're looking at but if you do just to do the math or consumable revenues well we can that is probably something we could hit in the after call yeah detail but if you just

Yeah, if you do the $7 million of revenue divided by the installed base at the end of 2022, which would be $350, that gets you to about the $80,000 number that Brad had mentioned.

Okay. Cool. Thanks. Our next question comes from Dan Brennan with TD Cohen.

Your line is now open.

Hey, good afternoon. This is Kyle on for Dan. Thanks for taking the questions. I just wanted to ask a question about shipments versus installs. So you said you shipped 47 spatial instruments, installed 35. I think there were some leftover uninstalled spatial instruments exiting Q4, and please correct me if I'm wrong. Pretty wide difference there. Is there any

there any capacity constraint within each quarter for you know the maximum number of these boxes that you can install um maybe just start there thank you sure yeah so um there is a capacity constraint on how many instruments we can install it's a manpower based capacity constraint we have been hiring additional field service engineers and field application scientists And we don't believe that constraint is a major challenge at this point in time. But just to remind you, installation requires more than our own capacity. It requires, you know, the cooperation of the customer. And many of them, you know, look to schedule their installations and trainings around their own schedules. And, you know, that is another determinant for how many instruments are installed in any given quarter. In addition, in situations where the pace of instrument shipment increases throughout the quarter, as was the case in Q1 as we scaled up our COSMICS manufacturing, you can often have more instruments that were shipped in the latter weeks of a quarter that naturally remain uninstalled at the end of the quarter. And given our scale-up of manufacturing capacity for COSMICS, I would expect that to be the case in Q1 and probably again in Q2.

Awesome. So at what point, is that something that catches up this year, or do you think much of that will spill over into 2023? I mean, excuse me, 2024. Thank you.

I think probably by the end of this year, we'll be installing and shipping systems at the same pace.

um as our manufacturing capacity levels off and our installations become more continuous throughout the quarter rather than back and loaded within the quarter got it and then just one more for me uh you maintained the the encounter guide what's the visibility on the pull through for encounter for the remainder of the year how far out is the visibility there i think you know relative to what we were expecting pull through was a little bit better um You know, is that business sort of stabilizing here?

I think that business is stabilizing. We've made some organizational changes within our consumable sales team, a new leader who's doing quite a good job, and more involvement from our field application specialists and overall consumables, both on the encounter and on the spatial side. So I feel increasingly confident that we'll be able to sustain pull through, you know, or stabilize pull through at a decent rate on encounter. You know, but that being said, as you can tell from Tom's guidance for the second quarter where we guided encounter consumable or encounter revenue overall to be sequentially flat from Q1, you know, we think of that as a very stable, predictable business at this time. not one we're looking to drive you know clearly growth out of at this stage awesome thank you our next question is from catherine schulte with baird your line is now open hey everyone thanks for the question this is tom peterson on for catherine

I was just curious, obviously, the demand and backlog on Cosmix has been impressive, but I'm curious if any updates on what you're seeing within the broader imager category from a competitive standpoint and, you know, to the extent that you can quantify this, you know, the current backlog, how many instruments would you categorize as, you know, competitive wins or competitive bids?

Yeah, the spatial imager category is a dynamic one. And I think we are dealing with sophisticated customers who in most cases are going to look at multiple offerings before they choose to purchase a single system. So I feel it's quite likely that most of the COSMIC systems that we're now taking orders for today are being evaluated alongside spatial imagers from other vendors. I think we feel really great about our competitive positioning of Cosmex. The primary dimension where we distinguish ourselves is on Plex. And we think, and many customers agree, that Plex is the most important specification because it directly correlates to the amount of information a researcher can get from their precious sample. So we can look at 6,000 RNAs in a sample compared to the 400 or 500 that our competitors can offer. We're providing 10 times as much potential data as they are getting out of that same sample. So that is really the reason that we've had such a successful track record of winning business on COSMICS.

Got it. That's helpful. And then, you know, good to hear that the funnel, you know, looks good. The commentary from ACR seems positive. But I'm just kind of curious, given some of the comments around cash management, you know, are you seeing any broader lengthening of instrument sales cycles or changes in customer purchasing behavior that's associated with some of this kind of more constrained capital environment?

I don't think we're seeing changes in customer behavior outside of that small biotech segment that I've mentioned earlier was the most cash constrained. So by and large, I think the sales cycles have been similar, and we think it'll be a good year for spatial biology.

Got it. Very helpful. Thanks.

Our next question is from Julia Chin with JP Morgan. Your line is now open.

Hello. Thank you for taking the question. This is Marta on for you, Julia. I just wanted to ask, you know, now that you began shipping Cosmex and have early customers scale up their experiments, could you maybe discuss the similarities and differences in the Cosmex versus GLMX product cycle and ramp? Thank you.

Well, it's still pretty early days in terms of seeing what Cosmic's customer behavior is like. But the easiest thing to contrast is the ramp of orders. Throughout 2022, we saw a tremendous flow of new orders for Cosmic that outpaced the geomics instrument launch by a factor of, I think, two plus. Of course, we're in a different state of the market today, where spatial biology is much more well-known and well-appreciated than it was at the time of our geomics launch. And the market is being conditioned for excitement about spatial imagers, not just by NanoString, but by several other vendors who are out there aggressively commercializing products. So we're really seeing a very much steeper ramp in terms of instrument orders and instrument placement than we did in the geomics launch. It's a little early for me to talk about whether the site activation and the pace of actual consumable pull-through utilization is happening faster for COSMICS than it did with geomics, but we believe it will because The system is actually easier and more intuitive to use than geomics. And I think, honestly, NanoString has learned a lot about how to support customers and experimental design and ramp up through our experience commercializing geomics. So I have a sense of optimism that Cosmix will become productive faster than geomics has.

That's helpful. And then on encounter, real quick, could you provide more color on the instrument placements? I believe you mentioned 10 during the quarter. What kind of customers are purchasing those? And then what was the number of systems inactivated? I believe previous comments last quarter you mentioned that it's roughly the same number of new placements and inactivations. So are there any updates to those numbers?

Yeah. let me start with the types of customers who continue to acquire encounter your encounter is a workhorse instrument for researchers who are focused on translational biology primarily in the fields of oncology and immunology and the instrument that we sold in the quarter went into those types of laboratories We don't have tremendous real-time visibility into instrument and activation. It's something we infer from customer behavior over time, but I would expect that the pace of new instrument placement and the pace of instrument and activation are about the same at this stage, which is why our consumable revenue would be expected to be similar throughout the amount of active installed base is relatively flat, as new instrument placements more or less offset those that are inactivated.

Thank you.

Our next question is from Tejas Savant with Morgan Stanley. Your line is now open.

Hey, guys. This is Edmund. Thank you for taking my questions. um brad you previously mentioned about 7 000 labs in the world that could have both a profiler and an imager i was just wondering um what percent of these labs would you consider early adopters are there about 500 of them or more like 1500 alone i was just hoping to get a better sense of the composition here as it could potentially impact decision making timelines uh multi-unit purchases and even consumable filters yeah it's a it's a good question um you know i think

And it's a hard one to answer. You know, I'd say the easiest way to think about it perhaps is what fraction of any market would you consider likely to be early adopters? You know, if it were the first 15% or so, that'd be the first 1,000 out of that 7,000 labs, right? So perhaps that's as large as the early adopter segment might be expected to be. And if you look at the total installed base, you know, across all the imagers and all the profilers at this point in time. That's probably the group that we have primarily focused on as an industry, you know, so far through the launches of all these systems. You know, nanostrings, installed bases, you know, 385 spatial instruments, you know, slightly fewer than 385 total laboratories. But, you know, that's largely within that early adopter sector. These revolutions in life, single-cell biology and spatial biology, they play out over the course of a decade. And so even just a few years into it, I think we're still primarily selling our technologies into early adopters, and we still have a long time to go and a lot of growth to still enjoy as we cross the chasm into the early majority and kind of mass market segments.

Got it. That's helpful. And Brad, you previously mentioned that when you guys first started offering Cosmix through your TAP program with the 1,000 flex offering and 100 flex offering, most of your customers, actually all of them chose the 1,000 flex option. And I was just wondering with your Cosmix currently offering five panel options today with two of them being about 1,000 flex and another 100 flex IO panel and a protein panel and a custom panel, What is the composition of the mix looking like today for the initial consumable stocking orders at these new COSMIC sites?

Yeah, I'd say that the vast majority of our COSMIC consumable demand remains at the highest plex that we can offer. So today, we're shipping up to 1,000 plex, and that accounts for the vast majority of both our technology access program demand and our consumables that we're shipping into those early sites. Based on my customer field visits over the past weeks, I expect that that demand is very likely to shift upward towards our 6,000 flex RNA panels once those become available in the first quarter of next year. There's tremendous excitement about the broad coverage that we can offer in 6,000 flex panels.

Got it. Thank you. And then one more from me. In terms of your geomix demand trends, have you seen any changes in the pattern of your spatial demands between your profiler and imager recently? And if there's any way to provide more color on the unit shifts for COSMICS and geomix for the quarter, that'd be much appreciated.

So I think the only color we can provide is that demand has continued to shift from profilers to imagers. And it's for the reason I described in one of my earlier answers, that the spatial imagers, which have single-cell resolution, are so easy to use for researchers who've been doing single-cell biology in a non-spatial manner that it becomes a very natural first instrument to acquire in spatial biology. And Q1 was no exception. We had a very COSMICS heavy order book, and we would expect that to continue throughout 2023. And we're just fine with that. We're excited about what COSMICS will continue to do. We're excited about its price point, its consumable pull-through dynamics, et cetera. And we expect that It's going to be, you know, the most important product in nanostring history.

Great. Thank you very much.

There are no more questions, so I'll pass the call back over to the management team for closing remarks.

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