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NanoString Technologies Blames Q1 Underperformance on Sales Force Realignment, Uneven Execution

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BALTIMORE – After announcing disappointing Q1 2022 preliminary results on Tuesday, NanoString Technologies named sales force realignment issues and an imbalanced sales execution as the main culprits for the quarter’s revenue shortfall.

Preliminary revenues for the first quarter were approximately $31 million, trailing behind the Seattle-based company's previous guidance of revenues between $34 million and $38 million.

“After reviewing the preliminary results and with the benefit of hindsight, we believe that we have identified two factors that impacted our Q1 results,” NanoString CEO Brad Gray told investors in a conference call following the release of the results.

One major pitfall was a bumpy sales force reorganization that “temporarily reduced the effectiveness” of sales efforts, Gray said, citing the evidence that the company had observed a “substantially lower” close rate for accounts that experienced a sales force transition versus those that did not.

According to Gray, over the past nine months, NanoString has made a strategic investment to expand its commercial team to capture the market opportunity in spatial biology and to prepare for the launch of CosMx Spatial Molecular Imager.

As a result, the firm added about 90 new positions to the commercial team while promoting many senior sales staff members into account management, which functions as a quarterback role in each geographic territory to help oversee the company’s entire instrument and consumables portfolio across all responsible accounts, Gray said.

“It is taking time for members of our sales team to settle into these new roles and to become fully effective,” he said.

In addition to personnel changes, Gray said virtually 100 percent of the company’s direct territories were impacted to some degree by territory realignment to rebalance their sizes. This realignment also disrupted the equilibrium of the sales efforts, he pointed out.

For instance, Gray said the company observed that in a new territory, supervised by a new account manager promoted from a previous instrument sales position, instrument sales tended to be stronger. Likewise, in a territory where a former consumable sales representative is now the account manager, consumables sales were often stronger.

That said, not only did NanoString’s instrument revenue experience a downfall this quarter, the company’s consumables business was also impacted by the workforce reorganization, Gray said.

Because GeoMx is a new technology, he said, the company found that during the first few quarters of an instrument’s utilization, customers normally “need a tremendous amount of hand-holding” from the company’s support teams to learn how to design and execute spatial biology experiments.

Besides sales force realignment, Gray also attributed the dismal Q1 results to the “uneven sales execution” between Q4 2021 and Q1 2022.

During Q4 2021, the company booked more than 50 GeoMx instruments orders, which “cleared the most mature instrument sales opportunities out of our funnel,” Gray explained. As a result, the company’s instrument revenues for the GeoMx Digital Spatial Profiler (DSP) and nCounter plunged 31 percent and 11 percent, respectively, in Q1 compared to the same quarter a year ago.

However, Gray said the “less mature” 2022 funnel was only temporary, and he believes the company’s overall instrument funnel “remains robust,” with the prospect of rebounding over the course of the year.

Moving forward, Gray said the company has “taken a series of specific actions” to help its performance get back on track. To help the sales staff settle into their new roles, he said the company is offering “very specific training” tailored to their new roles as well as one-on-one mentoring for the new district sales managers and account managers.

In addition, Gray said the company has also “learned some hard lessons about funnel management.” He said NanoString is taking advantage of its customer relationship management system, which was upgraded to Salesforce last year, in order to harness business intelligence on a weekly basis.

While Gray said he anticipates these remedies to take a quarter or two to reach their full effectiveness, he assured investors that there was no indication the company’s inferior Q1 results were impacted by opportunities lost to the competition or any slowdown of interest in spatial biology.

He offered two pieces of evidence in that regard. For one, he said a win-loss analysis showed “there's really been no change in our ability to win competitive processes from the third and fourth quarters last year when we had tremendous momentum.” Second, Gray said for those instrument sales that the company did close during the first quarter, there was no indication that people are taking longer to make purchase decisions.

​​Finally, Gray emphasized that the numerous analyses that the company has conducted all correlated geographic performance with places that had undergone specific organizational realignment.

“While we're disappointed with a 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,” Gray said. NanoString is currently reassessing its full-year outlook and plans to provide an update during its earnings call next month, he added.

As a response to the preliminary results, investment bank Canaccord Genuity decreased its price target for NanoString to $37 from $50 while maintaining its Buy rating. The bank initiated coverage of NanoString Technologies in March.

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