Rapid Micro Biosystems, Inc. Price & Performance (RPID)

Thank you for standing by. My name is Elisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Microbial Systems Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Mike Boller, Please go ahead. Good morning, and thank you for joining the Rapid Micro Biosystems fourth quarter and full year twenty twenty four earnings call.

Joining me on the call are Rob Spignesi, President and Chief Executive Officer and Shawn Wertjes, Chief Financial Officer. Earlier today, we issued a press release announcing our fourth quarter and full year 2024 financial results. Additionally, last night in a separate release, we announced a distribution and collaboration agreement with the life science business of Merck KGAA Darmstadt, Germany, which operates in The U. S. As Millipore Sigma, Copies of both releases are available on the under Investors the News and Events section, Before we begin, I'd like to remind you that many statements made during this call may be considered forward looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions, including but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, guidance for 2025 including revenue, expenses, gross margins, system placements and validation activities expectations for and planned activities related to Rapid Micro's business development and growth, including our recently announced distribution and collaboration agreement, customer interest and adoption of the GrowthRx system, and statements regarding Raffensterily.

Actual results may differ materially from those expressed or implied in forward looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the Risk Factors section of our most recent quarterly report on Form 10 Q filed with the Securities and Exchange Commission, as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. The conference call contains time sensitive information is accurately only as of the live broadcast today. February 28, 2025, Rapid Micro disclaims any intention or obligation except as required by law, to update or revise any financial projections, or forward looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Rob. Thank you, Mike. Morning, everyone, and thank you for joining us. I will begin my prepared remarks with a brief overview of our fourth quarter twenty twenty four performance and highlights as announced in our press release this morning.

I will then discuss the global distribution and collaboration agreement we announced last night before turning the call over to Sean, who will provide a more detailed review of our financial results and our 2025 outlook. Total revenue was $8,200,000 in the fourth quarter, representing 30% year over year growth and a quarterly record. Recurring revenue was $4,200,000 representing growth of 27% compared to the prior year quarter. We placed six GrowthRx systems in Q4 bringing our total 21 system placements for the full year. On a cumulative basis, the end of 2024, we have now placed 162 Growth Direct systems globally. Including 137 fully validated systems. Fourth quarter gross margins improved to 12% up sequentially from 8% in the third quarter and a 15 percentage point improvement compared to the prior year quarter. This reflects continued progress in improving our cost structure and enhanced operating leverage into the business. The strong fourth quarter performance marks our ninth consecutive quarter of meeting or exceeding our revenue guidance and positions us well for 2025. Now I'll turn to last night's press release announcing our global distribution and collaboration agreement with the life science business of Merck KGaA Darmstadt, Germany, which operates in The U. S. As Millipore Sigma.

To begin, I will provide some context around our decision to enter into this agreement and why we believe MilliCorp Sigma is an excellent strategic partner for Rapid Microbial Systems. As a long standing global leader in life sciences, Millipore Sigma shares a common customer base in the Pharmaceutical segment with rapid Microbiome. Offering a comprehensive and complementary product portfolio, supported by an extensive commercial organization, with deep relationships and experience selling into pharmaceutical quality control and manufacturing. Moreover, Millipore Sigma also serves adjacent segments such as personal care and medical devices. Among others. This aligns strongly with our top priority of accelerating growth through existing placement, [indiscernible] Additionally, as a global supplier to the life sciences industry, this partnership with Millicore Sigma presents opportunities to bring efficiencies to our supply chain to reduce product costs and accelerate our goal of improving gross margins. Finally, this partnership creates opportunities to drive innovation and develop new technologies, and products. So with that as context for this partnership, let me now provide more details of the agreement. Millipore Sigma has global co exclusive rice to sell the Growth Direct system and related consumables. Their extensive global commercial network which reaches beyond traditional pharma, and biologics manufacturing into key adjacent markets such as personal care, medical devices, cosmetics and food and beverage, aligns well with Rapid Micro's long term growth objectives.

By leveraging Millipore Sigma's scale and expertise, we expect they will significantly expand Growth Direct's reach, enhance accessibility with existing customers and attract new customers. Additionally, access to these adjacent markets will substantially increase GrowthRx total addressable market. For the first two years of this five year agreement, Millipore Sigma has committed to purchase a minimum [indiscernible] This commitment is heavily weighted towards the second year and we expect it to have a meaningful impact in 2026.

At the same time, as throughout the full term of the agreement, Rapid Micro continue to utilize its existing global direct sales team and distribution channels to sell in place growth direct systems. Importantly, we will also continue to validate and service all GrowthRx systems, to include the systems Millipore Sigma cells. A key component of this agreement is a joint commitment between Rapid Micro and Millipore Sigma to identify opportunities to bring efficiencies to our supply chain to accelerate our goal of gross margin improvement. Initial focus areas for this collaboration may include culture media, plastic consumables, sterilization, logistics and warehousing as well as packaging.

We are confident that this collaborative approach will build upon our recent progress and deliver incremental and sustainable improvements in gross margin. And lastly, the agreement enables opportunities collaboration on joint development of new products, enhancement of existing products, and expansion of service offerings to benefit customer workflows and create additional revenue and margin opportunities. We held a multi day planning and kickoff meeting with our Millipore Sigma colleagues this week and we could not be more excited to partner to put a recognized and highly respected leader in the life sciences industry. This agreement combines RapidMyco's Rapid leading growth direct technology platform with Millipore Sigma's global scale, brand strength and industry leadership. We are confident this collaboration will enhance value to customers worldwide while meaningfully advancing our priorities accelerating growth direct system placements, improving gross margins and driving innovation.

Before turning the call over to Sean, I'd like to share my perspective on our outlook for 2025. Our priorities this year remain consistent with 2024. Our top priority remains accelerating growth direct system placements. Second, remain focused on improving gross margins. Third, we are committed to developing and commercializing innovative new products. Lastly, we will continue to prudently manage our cash and maintain a strong balance sheet. Our successful collaboration with Lonza which resulted in end to end automation of their environmental monitoring QC process using the GrowthDirect platform across our global cell and g manufacturing network reinforces our confidence that we are the industry standard and provides a clear blueprint the industry to emulate. We have multiple customers in our sales funnel with plans for similar global multi system rollouts. This also includes a growing sales funnel for Rapid Surility which is being driven by its value proposition for full automation and faster time to results for this critical end of line test. In 2025, we expect to improve gross margins by building upon our second half twenty twenty four inflection and continuing our programs to reduce product costs, enhance manufacturing efficiencies and improved service productivity. We expect further gains in operating leverage as we move forward and remain disciplined with cash management.

While we believe there is potential for Millipore Cigna to we are not assuming any contribution in our outlook. However, we expect this partnership to have a transformative impact on the business. To include our system placement and margin improvement priorities. Crowding meaningful benefits in 2026, and beyond. With this in mind, we believe our outlook is both prudent and achievable and look forward to updating you as the year progresses. In closing, we believe the strength of our underlying business the significant advantages of our partnership with Millipore Sigma, and our continued focus on delivering value to customers position us to drive sustained shareholder value creation in 2025 and beyond.

And with that, I will now turn the call over to Sean to discuss our fourth quarter performance and outlook in more detail. John? Thanks, Rob, and good morning, everyone.

I'll begin my comments this morning with a review of our fourth quarter twenty twenty four results and then discuss our first quarter and full year outlook for 2025.

We will then open the call up for questions. Fourth quarter revenue increased 30% to a record $8,200,000 compared to $6,300,000 in Q4 twenty twenty three, during the fourth quarter, we placed six growth threat systems, which was consistent with the fourth quarter last year. We also completed four validations in the quarter compared to nine in Q4 last year. Product revenue is comprised of systems and consumables, increased 27% to $5,200,000 in the fourth quarter compared to $4,100,000 in Q4 twenty twenty three.

Consumable revenue grew by over 30% in the fourth quarter compared to Q4 last year.

Service revenue increased 35% to $3,000,000 in the fourth quarter compared to $2,200,000 in Q4 twenty twenty three. This was driven by double digit revenue growth across validation services, field service, Fourth quarter recurring revenue which consists of consumables and service contracts, increased 27% to $4,200,000 Non recurring revenue, which is comprised mainly of systems, validation revenue, increased 32% to $4,000,000 Turning to gross margins, Product margins were negative 8% in the fourth quarter compared to negative 14% in Q4 twenty twenty three. The improvement was largely due to continued progress on product cost reduction initiatives and increased manufacturing efficiencies in our consumables business. Service margins were a record $1,400,000 or 47% in the fourth quarter, compared to $400,000 or 19% in Q4 last year. The 28 percentage point improvement was driven by higher revenue and productivity, as well as lower headcount and other service related costs. On a combined basis, fourth quarter gross margins were a record $1,000,000 or 12%, compared to negative $200,000 or negative 3% in Q4 last year. Of note, full year 2024 gross margins were effectively breakeven compared to negative 24% for the full year 2023. We are pleased with the significant progress we've made on margins over the course of the past two years and remain laser focused on driving substantial incremental improvement Moving down the P and L, representing a decrease of 7% from $12,000,000 in Q3 twenty twenty three.

Largely due to benefits from the operational efficiency program we announced in August 2020 within OpEx, R and D expenses were $3,400,000 representing an increase of 3% which was mainly associated with new product development activities Sales and marketing expenses were $3,000,000 representing a decrease of 6% and G and A expenses were $4,800,000 representing a decrease of Net loss was $9,700,000 in Q4, This compares to a net loss of $11,200,000 in Q4 last year.

Net loss per share was $0.22 in Q4, compared to net loss per share of $0.26 in the prior year quarter. With respect to non cash expenses and capital expenditures, depreciation and amortization expenses were $900,000 stock compensation expense was $700,000 and capital expenditures were $100,000 in the fourth quarter. We ended the year with approximately $51,000,000 in cash and investment. Now I'll turn to our 2025 outlook. While we believe there is potential for Millipore segment to contribute system placements and revenue in 2025, our initial guidance does not assume any such contribution. We believe this is prudent given our typical sales cycle. Conversely, our guidance does account for some ongoing uncertainty around the timing and scale of customer purchase decisions particularly with respect to larger multi system opportunities, which often involve more complex purchasing considerations and processes. With that as context, we expect full year 2025 total revenue of at least $32,000,000 with between '21 and twenty five system placements. We expect Q1 revenue of at least $6,500,000 including at least three system placements. With the sequential decline from Q4 consistent with typical seasonality. We then expect revenue and placements in Q2 and Q3 to be higher than Q1 and then peak in Q4.

Looking at consumables, expect Q1 revenue to step down slightly from Q4 We then expect consumables revenue to be higher than Q1 in the remaining quarters with variability driven by the timing of customer orders and shipments. With respect to service, we expect revenue to be between $2,600,000 and $3,000,000 in Q1, which is likely to be our highest service revenue quarter in the year, primarily due to the timing of validation activities. We expect to complete at least 18 validations in 2025, with at least five in the first quarter. Turning to margins, we expect Q1 gross margins to be slightly positive positive, but lower than Q4 due to the revenue seasonality impact I mentioned earlier. Thereafter, based on our revenue outlook, we expect to maintain positive gross margin in each succeeding quarter of twenty twenty five with variability driven by progress on our product cost reduction and service productivity initiatives, overall revenue volumes, and the revenue mix between systems, consumables and service each period. For the full year 2025, expect gross margin as a percentage of revenue to be in the range of high single digits to low teens. We expect operating expenses to be between $44,000,000 and $48,000,000 the full year, which reflects the full effective savings from the operational efficiencies We expect depreciation and amortization expense of $3,000,000 stock compensation expense of $4,000,000 CapEx of $2,000,000 and other income which is comprised primarily of interest income of $2,000,000 Finally, we expect to burn roughly $30,000,000 in cash for the full year 2025, which would be a roughly $14,000,000 reduction compared to our cash burn in 2024.

Looking further ahead, our strategic priorities of accelerating system placements, improving gross margins, innovating new products and prudently managing our cash remain unchanged. Building on our momentum, we believe that our distribution collaboration agreement with Millipore Sigma has the potential to further accelerate progress on these strategic priorities over the coming years including a meaningful contribution to system placements beginning in 2026. That concludes my comments. So at this point, we'll open the call up for questions. Operator?

At this time, I would like to remind Your first question comes from the line of Dan Arias of Stifel. Please go ahead.

Good morning guys. Thanks for the questions. Rob, do you think that the Millipore relationship accelerates your entry into new areas that maybe you're not focused on now? I mean, it seems like some of these nontraditional corners of the opportunity set could be open to you sooner if you have those guys helping you out. But I'm not sure whether you see that as the right move strategically when you just think about resources and focus and hitting the ground running on some of the things that you're currently doing?

Hey Dan, appreciate the question. And the quick answer is yes, I do. So as we've discussed in previous calls, there's adjacent markets such as personal care and cosmetics and med device that are meaningful in size. But given our focus in pharmaceutical manufacturing, we've been focused on in pharma and biologics and cell and gene, etcetera. So the Millipore segment team is well positioned in those adjacent markets and that is a, I'd say, a fundamental plank in the strategy behind the relationship. Okay.

Okay. And then Sean on the instrument placement outlook for the year, the low end of the guide is actually no better than what you did in 2024 and even the midpoint is only two systems higher. Most people think the spending situation in pharma is better than it was last year.

It looks like you have a nice win here with Lonza. You've got Millipore in the picture, at least in the picture if they're not helping in '25, they're at least there. So help me with the the 2021 to 2025 I mean, obviously, prudence is a good idea here, but it seems like they certainly got the components of of something for something more. I just want to make sure I'm not missing an element here that would be material to the outlook. [indiscernible] one of the key words here, I think prudent and achievable, that's our goal, our philosophy as we kind of come into the new year. And set our guidance. I think in the broader environment, I don't think we are seeing meaningful changes from what we've seen in 2024 in terms of how customers are operating around the purchasing process. The bar still tends to be a little higher than it was at certain times in the past. So we're continuing to monitor that, but I don't think we've seen any meaningful improvement in that at this point. And that's that assumption is baked into this guidance. I think we touched on in the script, I think very importantly, we are not including anything for Millipore Sigma.

We do think there's an opportunity there. But it's going to take some time to get them up to speed. Obviously, our sales cycle can be twelve months plus. So to factoring that in, that would kind of the rash [indiscernible] given the environment and what we're seeing and not seeing there, I think we have a number of large multi system orders in the funnel And we're not baking those into the guide right now, just given the environment and the time that we expect it take to bring those resolutions. So to the extent we're able to convert those during the year, that will be upside as well.

So That's kind of how we approached it. Coming into the new year in 2025.

And then maybe I can just add on [indiscernible] No, go ahead, Dan. [indiscernible] You go in, I'll go second. How does that sound? Are you sure? Okay. Here I go. Are there some number of systems that you expect to go to Lonza through this collaboration?

This year. So I'll speak more broadly. This is the point I was going to make, Dan. So it's an important note or feature that it bears repeating. So Our guide for $25,000,000 as Sean mentioned does not include contribution from our our new collaboration with Millipore Sigma nor does it include the more meaningful multi system orders that we have in our funnel that we are quite excited about. And there are multiple. And the reason why we have not included those, again, consistent with our prudent approaches, while exciting and they're moving, they can also be tough to put a pin in with regard to timing. These are typically global in nature, multisite, multiregion, multistakeholder And as you may imagine, they can be a little more complex and a bit more time consuming to close and ship. That's why we haven't included included those. That all being Rapid, we reserve the right for upside here on both the Millipore Sigma relationship in '25 as well as our direct selling against some of these large multi system orders. And as I mentioned in the remarks, we'll keep everyone updated as the year unfolds.

Okay. Appreciate it. Thank you. Sure.

Your next question comes from the line of [indiscernible] [indiscernible] Please go ahead.

Hey, Ram. On the Mirka Millipore collaboration, are they going to sell into biopharma Or is it biopharma in a particular region? How do you prevent same people in the same building And then the other is, what do you think this does for gross margin with Merck KGa involved? Do you have any margin pick up goal maybe in even 2026 from them getting involved maybe in supply. [indiscernible] the question. So, the first one, it basically goes to channel comp effectively. Yes, they will be selling into not only pharmaceutical and biologics, but more broadly on segments, so personal care, cosmetics, etcetera, which we consider a growth adjacency that we're not currently in. With respect to with respect to our core market of pharmaceutical manufacturing, we have been diligently working with the team and our are comfortable with our go to market approach and how we're going to manage our respective sales With regard to margin, yes, the goal here again, the strategy, as I touched on behind the Millipore Sigma relationship is to catalyze and accelerate our core priorities of accelerating system sales, which we touched on. Gross margin improvement, which will come through not only volume, we anticipate, but also as I mentioned, a lot of components especially our consumables notably from a cost of material standpoint, millipore Sigma has in their portfolios.

There's definitely opportunities there. To improve supply chain efficiencies with regard to our factors of input and then of course downstream through logistics shipping also, there's meaningful opportunities. So we would anticipate and it is part of the core strategy here that margin improvement would feature prominently in our relationship.

Yes. And Paul, we actually don't procure anything of substance from them today. So we have a relatively clean slate to go after And as Rob mentioned, particularly with our consumables, you kind of look at the major materials that go into those, it's a pretty good match up in terms of what we use and what they can provide. Right.

Okay. And then regarding the Lonza relationship, obviously, they've been pretty vocal recently on your system.

Are you seeing a pickup from Lonza kind of encouraging the industry to adopt [indiscernible] It seems like you're essential at Lonza. Is that fair to say?

Yes. So in reverse order, I'll let Lonza to opine on how essential we are. Our opinion is we are. Clearly, as we as our goal, as you know, is to build a new quality control infrastructure for pharma manufacturing globally and the Lonza example is a very, very, very good example of it. But frankly, it's how a lot of our customers are are seeking to deploy. Not every customer does a great job like Lonza in a white paper like this. But this is really the it's playing to our forehand if you will, as far as how customers when you hear us these global deployments, this is how it it looks to include the data benefits and interconnectivity with the fundamental technology systems. And we do anticipate that we will continue to grow with Lonza in future deployments in future sites through the coming quarters and years.

Okay, thanks.

Sure.

Your final question comes from the line of Brandon Smith with Didi Cohen. Please go ahead.

Hey, guys. Congrats on the quarter and on the great deal Good to see. Thanks for taking the questions. I wanted to actually first ask if you're able to tell us how many systems Millipore actually committed to purchase over these first two years? And then actually just kind of given all the automation work Lonza, just wondering if you have any updated thoughts on potential AI integration or any of strategy on that front, again, just kind of given all the possibilities with the automation QC work? Thanks, Brad. It's Rob. So we can't comment on the actual commitment the commercial agreement, we can't quantify it. But as I mentioned in the remarks, and I think Sean followed it up as well, it it will be significant beginning in 2026. With regard to Alarms more broadly, our approach to data, yes, for the for the for we view at least with regard to where we operate inside these large companies, we're creating a a large amount of digital data that didn't exist before. So the opportunity is part of our innovation strategy and this could intersect now in a collaborative way with Millipore Sigma, how we manage that data, how we can potentially pull it into an AI or cloud environment to provide enhanced insights and services for our global customers Let's just say it's a something on our radar and would be very exciting.

Not only us, but for industry More broadly, Okay, great. Thanks guys.

Thank you.

Well, thanks, Brandon. Okay, all, we're going to wrap up our call this morning.

Thank you for joining us today and we look forward to speaking with many of you soon. Have a great weekend.

Ladies and gentlemen, concludes today's call. Thank you for joining. You may now disconnect.

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