NanoString Technologies, Inc. (NASDAQ:NSTG) Q2 2023 Earnings Call Transcript

NanoString Technologies, Inc. (NASDAQ:NSTG) Q2 2023 Earnings Call Transcript August 3, 2023

NanoString Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.92 EPS, expectations were $0.7.

Operator: Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the NanoString Q2 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I will now hand the call over to Doug Farrell, Vice President of Investor Relations. Doug, you may begin your conference.

Doug Farrell: Thank you, operator. On the call with me today is Brad Gray, our President and CEO; as well as our CFO, Tom Bailey. Earlier today, we released our financial results for the second quarter ended June 30, 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, our manufacturing capacity, prospects for expanding and penetrating our addressable markets, our strategic focus and objectives, development status and anticipated success of recent product offerings. 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 update any forward-looking statements. Later in this call, Tom will be discussing our Q2 financial results and guidance for 2023. We have prepared as a supplement to GAAP financial measures to selected non-GAAP adjusted measures, the calculation of which are described in detail in our press release. Throughout the call today, all financial measures will be GAAP, amongst otherwise noted. You can find reconciliations of GAAP to non-GAAP measures as well as the description, limitation and rationale for using such measures due to this afternoon’s press release. Today, the analysts and investors are building their models. We’ve posted exhibits under the Financial Information tab of our Investor Relations home page and include a presentation of our non-GAAP or adjusted measures and other selected financial data.

I’d like to remind everyone that we’ll be participating in the Canaccord Growth Conference in Boston next week as well as the UBS Genomics Conference in California in the following week. We look forward to having the opportunity to speak with many of you then. Now, I’d like to turn the call over to Brad.

Brad Gray: Thank you, Doug. Good afternoon and thank you for joining us today. I’m happy to have this opportunity to expand on the strong operating results that we preannounced on July 10. Our Q2 revenue of more than $44 million was a record high and an increase of about 37% over the prior year with solid performance across both our spatial biology and nCounter franchises. We achieved an important milestone as our spatial biology revenue surpassed our nCounter revenue for the first time. Our financial outlook is intact, and our confidence in the trajectory of our business is high. I’d like to recognize our commercial team for staying focused on advancing science and supporting customers during a period of unusual competitive noise.

We believe that over the last several months, our competitors to next Genomics have been attempting to use the decision of a regional court in Germany to instill fear in our customers around the globe and attempting to shift the focus away from the lagging performance specs of their Zenium platform. Our commercial team members have carried themselves with professionalism and have held the high ground. We believe that our customers understand that the IP dispute promoted by 10x, services and distraction and our Q2 results are the best proof points that these distasteful tactics have not shaken the confidence of our customers. Now, I’d like to provide an update on our progress towards our strategic objectives for the year. Our first objective for 2023 is to increase our penetration of the spatial biology market.

During the second quarter, spatial biology demand was healthy across both instruments and consumables, including a sequential increase in orders for both CosMx and GeoMx. Our overall spatial biology revenue increased by more than 100% over last year. We ended the second quarter with an installed base of 445 spatial systems, an increase of about 40% over the prior year. Our caustic spatial molecular imager remains the primary growth driver of our business and as we further penetrate the rapidly growing market for single cell spatial biology. More than 80% of our CosMx instrument sales during the second quarter went to customers that were new to NanoString, underscoring the potential to significantly expand our customer base. Academic and government-funded researchers continue to account for about 75% of new CosMx orders and healthy NIH funding bodes well for our continued growth in this market.

Our rollout of the CosMx is scaling up swiftly, and we continue to ramp our manufacturing capacity and refine the processes that our field service engineers and application scientists used to install plasmic instruments and train users. We’re also streamlining access to our atomic spatial informatics platform, for instance, by simplifying the process for downloading data for local analysis. We believe the combination of these efforts will accelerate the uptake of Cofins consumables, which are an important growth driver over the long term. Customers are enthusiastic about our ability to expand the number of molecular targets that CosMx can simultaneously analyze, and we expect to begin offering access to our industry-leading 6,000 plex RNA assay through our technology access program service in the fall.

We remain on track to begin shipping the 6000 plex RNA assay to lab to have acquired CosMx systems beginning in the first quarter of next year, extending our lead in Flex to about 15x the RNA assays offered by our competition. Last week, we publicly released a new CosMx data set showcasing our commercially available mouse neuroscience RNA can and our best-in-class cell segmentation algorithms. These data highlight the unique ability of context to provide which data sets at high sensitivity, detecting an average over 1,500 transcripts per cell and over 800 unique genes. While CosMx remains a shiny new platform, garnering the majority of attention and demand, GeoMx remains a core and highly productive part of our spatial biology ecosystem. We continue to expand our GeoMx installed base, which resulted in a meaningful increase in consumable revenue.

Our installed base of GeoMx is generating a substantial body of spatial research with approximately 270 peer-reviewed publications to date. The body of research has nearly doubled over the last 12 months, showcasing many emerging applications for spatial biology. In the last month or so, there have been 3 GeoMx publications in the Journal nature, each making a contribution in a different field of biology. One publication created a spatial Atlas and time line of the maternal-fetal interface during pregnancy. A second paper examined cancer cells following drug treatment using the GeoMx Whole Transcriptome Atlas to identify cancer cells resistant to drug treatment. A third study is neuroscience and discovered that Alzheimer’s disease pathology can be alleviated with the nerve growth factor receptor.

Meanwhile, we continue to see examples of GeoMx and nCounter working synergistically and translational research applications outside our stronghold in immuno-oncology in areas such as solid organ transplant. Our second objective is to deliver predictable revenue growth. We exceeded the upper end of our Q2 guidance by over $2 million, and we have a nice setup for the balance of the year. As our Cognex scale continues, we expect the quarterly cadence of shipments and installs to increase as the year progresses. Our CosMx instrument backlog at the end of Q2 was over $35 million, about 20% higher than we estimated in our preannouncement, which bodes well for our ability to deliver predictable revenue growth through the balance of 2023 and beyond.

The Cognex backlog currently in hand is sufficient to meet our CosMx revenue expectations for the balance of 2023 and any incremental orders generated in the second half likely represent backlog carried into 2024, providing additional revenue visibility in the new year. Our third strategic objective is to demonstrate progress towards cash breakeven. The team remains laser-focused on accelerating our path to profitability. Our adjusted Q2 operating expenses were down by about $1 million over the prior year against the backdrop of strong top line growth. We expect our EBITDA to improve significantly in the second half of the year as we convert working capital back into cash in the third and fourth quarters, and we believe that we are well positioned to manage our business to profitable growth with our current resources.

As we wrap up our prepared comments, I’d like to provide a brief update on our ongoing litigation with Timex genomics, including an overview of some of the significant positive updates since our May 22 investor call. First, in July, the Delaware Court issued an important ruling that we believe substantially improves our position in our U.S. litigation. The Delaware court is allowing us to proceed with an unclean hand position and antitrust claims against both TMX and Harvard. That issue is the fact that we believe the NIH ramp, which funded the Harvard research and ultimately, the patents at issue and 10x’s infringement suit against us require Harbor to license those patents non-exclusively. We explained that to the port. Having secured the funding from NIH under this false prince of nonexclusive licensing, Harmonic are now attempting to weaponize the patents to achieve a monopoly.

The Delaware Court’s ruling effectively transforms the U.S. case to being equal parts IP lawsuit in and Datastream and antitrust lawsuit against 10x Genomics and Harbor. In addition to our existing defenses of noninfringement and invalidity of the patents themselves, the ruling created 2 additional paths for NanoString to prevail in U.S. coffee litigation. First, under our unclean hand position, we can put forth an affirmative defense, which simply says that TebexGenomics and Harbor cannot enforce exclusive patent rights if they have engaged in conduct involving the seats, unconscionability or bad faith related to the matters at issue in the case. Second, we can win on an antitrust basis, and 10x in Harbor cannot enforce these patents as that would represent and build out an attempt to monopolize that threatens competition.

I’d also like to update you on the status of our litigation in Europe. The next key events in the European litigation will be a September hearings in Europe’s Unified Patent port or UPC. The UPC was established on June 1 of this year as a form for EU-wide patent litigation and operates independently of specific countries patent port systems, including Germany. These hearings were focused on whether 10xgenomics should be awarded a preliminary injunction on the sale of CosMx for RNA detection within the European Union. The full UPC proceedings on the merits of 10x’s plans are expected to take place in 2024. Unlike the muni proceedings, we will be able to present evidence of the NIH contract and its requirement for nonexclusive patent licensing.

While we cannot speculate on how exactly this evidence will play, the fact that the UPC will consider the impact on public interest is a benefit to our legal arguments. The preliteraryan junction hearings are scheduled for September 5 and 19 with the results expected to be known by the end of September or early October. We believe that the facts and the law are on our side, but if the UPC rulings don’t go our way, we intend to appeal immediately. Before handing the call over to Tom, I’d like to provide an update on our leadership team. Our Chief Commercial Officer, John Geres, has made the decision to move on from NanoString effective at the end of August. John has led our commercial team through a critical period of the CosMx launch and now plan to invest his time and entrepreneurial activities and company formation.

We fed Jon for a service at NanoString, congratulate him on a strong final quarter of the company and wish him well in his future endeavors. We have already recruited an experienced Chief Commercial Officer, who we expect to begin filling John’s shoes at the end of August. Our new CCO is currently a corporate officer and another publicly traded life sciences company. So we’ll make the announcement as soon as he has fulfilled his disclosure obligations for his current employer. Tom, please take us through the details of our operating results.

Tom Bailey: Thanks, Brad, and thanks all for joining us today. For the second quarter of 2023, total revenue was $44.2 million, 37% year-over-year growth and over $2 million above the upper end of our guidance range. For our Spatial Biology business, Q2 revenue was $23.3 million, representing growth of more than 100% year-over-year. Spatial instrument revenue was $15.2 million, over 180% year-over-year growth and reflecting acceleration of CosMx shipments. We shipped about 70 total spatial instruments in Q2 with an average realized selling price of about $220,000. As noted in our Q1 call, spatial instrument ASP reflects the deferral of a portion of CosMx revenue that will be recognized in the future periods as service revenue as customers use initial amounts of atomics compute and data storage included with each CosMx sale.

We installed about 60 spatial instruments during Q2, growing our spatial instrument installed base to approximately 445 instruments. As a reminder, for those updating or assessing models, the number of instruments we install during a quarter can differ as compared to the number of instruments we ship. Revenue recognition and average selling prices are based on instruments we ship during the quarter as revenue is recognized upon shipment as opposed to installation. Spatial biology revenue and backlog calculated based on total revenue value of instrument orders at hand but yet to be shipped was over $35 million at June 30 as compared to over $40 million at the end of Q1 and reflects accelerating CosMx shipments to customers that have been waiting for their instruments and are eager to commence their science.

As CosMx’s manufacturing capacity continues to increase, we expect to continue to grow the number of instruments available to ship in coming quarters. Given the current pace of new orders, we do expect we will continue to carry substantial CosMx backlog into 2024. Q2 Spatial Biology consumables revenue was $8.2 million, over 40% year-over-year growth, reflecting consistent GOin consumable for over our growing installed base and stocking orders of CosMx consumables. Q2 nCounter revenue, which includes all service and other revenue was $20.9 million, substantially better than our guidance and reflecting the continued longevity and stability of the nCounter platform. ENCOR instrument revenue was $2.5 million, a step-up as compared to Q1. Consumables revenue was $13.1 million and service and other revenue was $5.3 million.

At the end of Q2, our nCounter installed base was approximately 1,135 instruments. Turning to margins and expenses; I’ll provide results on a non-GAAP or adjusted basis, which remove the impact of stock-based compensation, depreciation, amortization and certain other items with no correlation to continue operations. Please refer to our press release as well as the exhibits we have posted to our Investor Relations web page for detailed information on how our non-GAAP or adjusted measures are prepared. Q2 adjusted gross margin was 38% and included in accordance with internal policies and inventory reserve of approximately $2.8 million that impacted Q2 gross margins by about 6 percentage points. This reserve is primarily related to our GeoMx consumable sales mix continuing to shift from targeted panels to our whole transcriptome assay.

After removing the impact of this noncash reserve, gross margins were as expected and similar in Q1 and impacted by revenue mix more heavily weighted in CosMx instruments. Adjusted R&D expense was $14.4 million, approximately flat year-over-year with lower personnel and product development costs related to CosMx and Atomics, offset by temporary increases in consumables and software consulting costs. We expect R&D expense to be lower sequentially in the second half of the year as these expenses abate. Adjusted SG&A expense was $29.3 million, a decrease of 3% year-over-year and reflecting lower personnel costs, offset by trade show and other marketing-related expenses that are highest in the first half of the year. With major meeting and trade show activity behind us, we also expect SG&A expenses to be lower in coming quarters as compared to Q1 and Q2.

Q2 adjusted EBITDA loss was $26.7 million, inclusive of the impact of the $2.8 million inventory reserve. EBIT loss is expected to decrease by over 50% in the second half of the year as compared to the first half. The second half improvement is expected to be driven by continued revenue acceleration and gross margin improvement derived from the scale-up of CosMx instrument manufacturing and the operating expense trends just noted. Our cash, cash equivalents and short-term investments were approximately $118 million as of June 30, 2023. We continue to expect year-end cash to be around $100 million. During the first half of 2023, we invested heavily in working capital, including CosMx instruments and consumables inventory and other areas to support our spatial biology products and the CosMx launch.

Cash flow is expected to improve in the second half of the year, driven by EBITDA improvement, the shipment of inventory to customers and increased collections and lower capital expenses following the Q2 completion of a new manufacturing facility build-out. Turning to guidance. For the third quarter, we expect revenue to be in the range of $45 million to $47 million, representing about 55% year-over-year growth. This range includes $27 million to $28 million of spatial biology revenue, representing about 200% year-over-year growth and $18 million to $19 million of nCounter and service revenue. For the full year, we are reiterating our total revenue guidance range of $175 million to $185 million. We also continue to expect adjusted gross margins will be temporarily lower in 2023 in the 45% to 50% range as our revenue mix shifts towards CosMx instruments before improving in 2024 and beyond as these systems begin to pull through higher-margin consumables.

Finally, I’d like to comment on our balance sheet as we continue to get questions about our cash resources and convertible notes. We are taking a two-pronged approach to strengthening our balance sheet. First, we are engaged in a constructive dialogue with the holders of our convertible notes regarding the positive trajectory of our business in advance of the 2025 maturity. In parallel, we are exploring alternatives with potential financial financing partners that have expressed a strong interest in funding and supporting our business. Many potential investors have recognized the value in our nCounter and GeoMx product lines, which combined to provide positive EBITDA contribution and are not materially touched by litigation. These investors also understand the opportunity for CosMx is not binary in that in most territories throughout the world, our market share will be determined by product capabilities and not by litigation.

We are confident that between our current noteholders and these potential investors, we will have the access to capital necessary to address the company’s convertible notes. Now, I’ll turn the call back over to Brad for closing comments.

Brad Gray: Thanks, Tom. Our spatial biology platforms and team are world class and are maintaining momentum despite intense competition with more than $35 million in CosMx instrument backlog, we are in an excellent position to deliver predictable revenue growth through 2023 and into 2024. The nCounter franchise has staying power and an underappreciated cash generator. These attributes provide multiple options for strengthening our balance sheet and for continuing our march towards profitability. With that, we’ll open the line for questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of John at UBS.

John Sourbeer: Maybe just starting off your high level. When you look at the competitive bids you’ve had out there with 10x the litigation began, — any just color on how those are going? Where do you think you’re winning? How does it come up maybe with some of the customers there with the litigation?

Brad Gray: Yes. Thank you for the question, John. We feel very good about our win rate of spatial imager competition. Absolutely, most customers who are buying the spatial imager are now look at 2 or maybe even 3 competing platforms. But NanoFrine continues to differentiate CosMx based on the most important specification there is, which is plex. Any spatial imager system has zero sensitivity for any gene that is not included in its panels. And by including today, 2.5x the number of genes that we have in our panels, 1,000 versus competitors 400. And in the future, 15x as many genes, 6,000 compared to 400, we provide scientists the opportunity to see much more information in the same tissue sample. In terms of how we’ve — our sales reps have dealt with the questions about litigation, as I said in my prepared remarks, they’ve done an admirable job.

Most researchers understand that litigation is common in the field of life science research and that injunctions that disrupts people’s science or people’s access to products are relatively rare. We’ve been able to arm our sales reps with talking points. And in most cases, that has sufficed to help customers get comfortable to get their purchase decision back to whichever platform is right for their science rather than whichever platform is viewed as somehow advantaged or disadvantaged from intellectual property standpoint.

John Sourbeer: I appreciate the color there. And then on the cancellations, you’ve called out the cancellation rate. Can you remind us what has been your normal historical cancellation rate? And then out of those 3%, have any of those cancellations been more macro related or turnover-related customers versus due to the TXG injunction?

Brad Gray: Yes. First, I should say, when we announced, of course, in our pre-announcement in early July that we have retained 97% of our backlog that we had either fulfilled or retained. That number is intact. We have not had a single backlog order cancellation since early July. So I want to say that first. Second, I will say 3% cancellation rate is higher than our historical average, which in the past was basically 0. And I think the orders cancellations that we’ve had, the handful have come for a variety of reasons. A few have been related to litigation, as you might expect, but just as many have been related to very customer-specific issues. For instance, in one example, a customer’s colleague who sits right down the hallway, also acquired a CosMx and they determined that they could share that one instrument rather than having Q1 site.

In other instances, customers grew frustrated with the weight periods that they had for their context and decided to go in another direction. But in total, these are all rare occurrences. 3% cancellation rate cumulatively still is incredibly low, and we are not worried about this as a drag on our business going forward.

John Sourbeer: And then last question here. On the manufacturing test, just any updates there on how that’s building up. I guess any color on when you see burning through the backlog? And then has the litigation at all influenced your manufacturing plans there in the buildup?

Brad Gray: Yes, I’d say the litigation has not in any way influence our manufacturing scale of plans. The scale-up is going well. You can see in the space biology revenue growth then licithat we shipped a much larger number of CosMx systems in the second quarter than the first, and we would expect again to increase instrument orders in the third quarter. And yes, I think we’re right on track with where we expected to be.

Operator: Your next question comes from the line of Baird.

Tom Peterson: This is Tom on for Catherine. Appreciate the time. Congrats on a strong quarter. Maybe first, I just wanted to touch on your comments on CosMx orders. Good to see the acceleration in 3Q — sorry, in 2Q, it sounds like you’re going to see or expect to see an acceleration here in the third quarter. And we’ve heard from the broader peer set that perhaps is a little bit more caution around capital equipment spending, especially from pharma. So just curious, are you seeing this dynamic at all? Is there any extension of sales cycles and just broader thoughts on order velocity in the back half?

Brad Gray: Yes. Thank you for the question. I think spatial biology is a special product category. It’s a brand-new capability with breakthrough discovery potential. We believe that capital expenditures on spatial biology may very well be prioritized over other capital expenditures within research institutions we have to prioritize. We continue to see very strong capital expenditure demand. We saw no slowdown in spatial imager velocity in the second quarter and our outlook for the second half is intact. I’ll remind you, though, that I think we have a business mix that may differ from our peers in some ways. Our spatial biology customer base is 75% academic or government funded. And so they benefit from NIH dollars rather than traditional capital budgets that you would have in a small biotech or a large biopharma company.

And so I think we may be somewhat insulated from any reductions in capital expenditures amongst kind of corporate customers relative to some of our peers and for instance, bioprocess.

Tom Peterson: Got it. That’s super helpful. And then nice to see an uptick on base oil consumables in the quarter. Curious with another quarter of observing CosMx consumables utilization. Any thoughts about what run rate pull-through looks like here? And just thoughts on how that trends in the back half.

Brad Gray: Obviously, it’s too early for us to have observed enough in the way of CosMx customer behavior to be able to call any change in our pull-through expectations. As you’ll remember, heading into the launch, we guided people to model their long-term pull-throughs for CosMx as similar to what they’ve modeled their Geome pull-throughs at about $75,000 per system per year. I’d say we’re seeing stocking orders that are encouraging and size for our comixusers, which is a good sign, but we haven’t seen the rate at which they burn down that inventory that they built with that first order. So we’re going to wait to provide any updates on what our long-term expectations are for caustic pull-through.

Tom Peterson: Got it. And maybe if I could just sneak one more in. Just quickly on the commercial officer change. Any material changes you would expect to the commercial strategy in the near term? And just thoughts on that outlook in general?

Brad Gray: Yes. Thank you for the question. No, we expect no changes to our commercial strategy. One of the great things that John did while he was here was he built a very strong team of executives underneath the Chief Commercial Officer, bringing in a new VP of Marketing and a new VP of sales and continuing to strengthen that team at other levels. I’m very pleased with the group we have and are very pleased with the strategy and transformation that are already underway. I expect our new Chief Commercial Officer, will bring great energy and incremental ideas, but I’m not looking at this time for any fundamental changes.

Operator: Your next question comes from the line of Stifel.

Unidentified Analyst: This is David on for Dan [ph]. I guess — I mean, we touched a little bit on pharma. I know you guys mentioned 75%, I guess, academic. But another hot topic is China. I know it’s not a big portion of your business right now, but just wondering if you’re hearing anything from your people that might be operating in that region and kind of what the feedback you’re hearing from them is?

Brad Gray: Yes. So China, as a reminder, is a very small fraction of NanoString’s revenue. We have historically worked through distributors in China. And then over the last couple of years, we had begun hiring more staff in China — but that group had not really had an opportunity to show what they were capable of driving because the pandemic came along just as we were building that team. I’m pleased to say they actually had a really good second quarter. And China, for us, is an area that’s probably growing as fast or maybe even a little bit faster than the rest of our business right now. But I think that may very well be very specific to both our company commercial channel and the very exciting field of spatial biology that we find ourselves.

Unidentified Analyst: Got you. And then I guess the other question I have is, I know you talked about cash burn going dramatically lower in the second half. I mean you burned $40 million in the first quarter and then another $37 million here. I understand a lot of that is working capital and some of the investments you’re making. So kind of what’s your — like how much of that is the getting to $100 million by the end of the year and kind of keeping it there within your control? And then also in terms of the capital or the converts that are coming due in 2025. I know you mentioned that you’re in conversations with people outside of the holders of the converts. I mean, as an equity raise has been brought up at all? Or what are kind of some of the things that you can — that you’ve been considering?

Brad Gray: Yes, I’ll take both of those banks. With respect to the cash situation, I would say that it is very much in our control. And that’s why we feel confident in making that statement. I think we’re at a point in the year where we feel very confident that we just reiterated our revenue guidance, and that’s where it starts. From there, we have that ramping second half revenue combined with gross margin improvement with the declining expenses sequentially that we talked about in the prepared remarks as well as together with that, lower inventory purchases, higher AR collections and much lower capital expenditures. So these are all things that are either in our control or knowable at this point. So I think we feel very confident in our cash forecast and our ability to get there.

With respect to the convertible financing, we wouldn’t comment explicitly on the exact nature of what our talks or the form of our financing that we might do with other investors would be. But it’s just state that this — when we talk about it as a two-pronged approach with these different groups of investors has been a very robust set of discussions. We’ve got a number of different folks interested in looking at the intrinsic value of the company and looking through the noise and thinking through different solutions for us. And I think we’re confident that we’ll have a solution that will be a good balance of cost of capital as well as confidence expressed in the business in the reasonably near future to be able to talk to you all about. And we’ll get more explicit, obviously, about what form that might take as we get to the end zone on this.

Operator: Your next question comes from the line of Canaccord Genuity.

Unidentified Analyst: It’s Axes on line for Kyle Nexen [ph]. Congrats on the quarter as well as the great guidance. Just start with one question on Atomics. So you laid out a few plans for Atomic at AGBT this year. I was just curious to get a few satiates on that. What specifically, the plan to provide office data analysis by the end of this year as well as integrating whole genome, GeoMx DSP data analysis capabilities on the Thomas as well.

Brad Gray: Yes, thanks for the question. Our focus right now with Atomics is getting it up and running for the first wave of CosMx customers and making sure that we fully enable those users with the basic functionality they need. That’s well underway at this stage. The next priority for us will be to continue to add features to atomics that support CosMx users. CosMx data is much larger than GeoMx data at about up to 1 terabyte per slide of data produced and the computational needs are far more reliant on the cloud compute capabilities of Atomics. So we remain focused on elaborating atomics for CosMx users now. I’d say our long-term aspiration is to add GeoMx capabilities into Atomics, but that is a lower priority and a slower time line.

Unidentified Analyst: Got it. And shifting gears a bit. So you noted that the backlog was actually about 25% higher for CosMx than the original preannouncement. I’m curious what customer base is that actually 25% is kind of composed of?

Brad Gray: Yes, I can comment about the difference between the $30 million and the 35, which I think is what you’re getting at. So the figure in our prerelease that we put out at $30 million was what we would characterize as a very early estimate. We applied a conservative ASP to the order numbers that we had or the units we had in backlog at that time we completed our analysis of data for the quarter. ASPs on CosMx have been trending up. So the value of our backlog actually was higher than our original kind of very early estimate that we put out in that prerelease. So that’s where you see where the majority of the difference between the $30 million we reported in the previous lease is in the $35 million actual number that we’re at now. So that is — the essence of that. It’s not about additional orders that we’re putting into the backlog versus the prerelease.

Unidentified Analyst: Got it. That’s very helpful. And then one last one, just back to the litigation in terms of just kind of level setting here. So the important dates that we’re looking at in the near term, the UPC here in September, there’s also some GeoMx catering as well in Delaware in November as well as the market hearing for CosMx in December. I guess could you just confirm that those are, I guess, the key dates that we should be — we should have on our radar in the near term?

Brad Gray: Yes. Those — I think you did a good job of characterizing the key dates between now and the end of the year.

Unidentified Analyst: Thank you.

Operator: Our next question comes from the line of Morgan Stanley.

Unidentified Analyst: This is Madison on for Kisan [ph]. This quarter, I know you guys hit on before about most of your customers coming from the academic section. I was wondering if you could just provide maybe your views on academic budgets for 2024, what you’re expecting there?

Brad Gray: Yes. I think our visibility in the academic budgets for 2024 is, of course, modest at this stage. But we don’t see anything that would reduce them meaningfully relative to those budgets for 2023. I think it’s unlikely that there’s a drastic change in either direction in NIH or other government grant funding between now and next year.

Unidentified Analyst: Got you. That’s helpful. And then, just one more on CosMx pricing. Are you guys seeing any changes in the contract structure or discounting framework in response to like not just the ongoing litigation, but just the broader macro sensitivity? And kind of related to that, how do you see pricing holding up at your competitors?

Brad Gray: I think our pricing is stable across the board. We — like many companies with our business model are willing to discount instrument price in order to gain the very valuable and profitable consumable pull-through that can come from the instrument. So our ASPs are below our list prices by a typical amount. But we don’t see that moving to increase — we don’t see discounting increasing or price eroding in any kind of meaningful way at this stage.

Operator: Your next question comes from the line of TD Cowen.

Unidentified Analyst: So, just one question on CosMx capacity going forward. Have you guys set out any numbers on how many placements you could feed to be place in ’24 assuming the pipeline is there? And then just the second one on cash flow. So the wares obviously a big help in the second half of this year. How much of that $30 million or so burn do you see kind of persisting as a trend into next year? If you could give some more color on that, that would be helpful.

Brad Gray: Well, I’ll take the question about manufacturing capacity and let Tom handle the one about cash flow. We have not issued long-term capacity targets. I’ll say, we intend to scale up our capacity really to over the balance of this year to allow us to burn — slowly burn down the backlog we have. We really don’t want customers to have to wait 6 months for a new system. And I think by the time we’re at the end of this year, I would expect to be in a position to have the manufacturing yields and the manufacturing techniques in such a place that we could scale up or scale down manufacturing as needed and that will be relatively unconstrained by manufacturing in the long term.

Tom Bailey: Alan [ph], with respect to cash burn and working capital heading into next year, I’ll give the standard that we haven’t guided 24 yet and when we will be more explicit. With that said, I think that the situation with working capital during the initial phases of the CosMx launch is unique relative to what we’ll see in future periods where we had this large order backlog that we are fulfilling and kind of rapid fire all once we started shipping. So in some respects, what the working capital burn will be will depend upon what the slope of our order curve looks in the — heading into next year and other things that can be variable from quarter-to-quarter, but I would not expect cash burn next year to be anywhere near what it is this year, and there won’t be this working capital barbell effect that we’ve had in the first half of this year, repeating itself heading into next year, it will smooth itself out to be much more manageable.

But we’ll get more explicit on next year’s thoughts on cash burn and EBITDA as we guide but our comments on our path to profitability and breakeven on our existing resources stand as we’ve said them before. We still believe firmly we can get there on the balance sheet resources we have, and we have plans in place to get there and do that.

Operator: There are no further questions at this time. I’d like to hand the call over to Doug Farrell for closing remarks.

Doug Farrell: Thanks, everybody, for joining us today. I did miss any portion of the call, there will be a replay available for the next 2 weeks to access that replay, U.S. collars pleased by 800 770 2030, international caller’s plea647362-9199. The conference ID is same for both at the 72369. Thank you again for your time. This concludes our call.

Operator: Thank you. You may now disconnect.