Rapid Micro Biosystems Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 28, 2025

There are 6 speakers on the call.

Operator

Thank you for standing by. My name is Deloisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Microbiome 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 Thank you.

Operator

I would now like to turn the call over to Mike Bowler. Please go ahead.

Speaker 1

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 Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our fourth quarter and full year twenty twenty four 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.

Speaker 1

As Milapore Sigma. Copies of both releases are available on the company's website at rapidmicrobio.com under Investors in 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 GrowthReq system and statements regarding rapid sterility. Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors.

Speaker 1

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 and is accurate only as of the live broadcast today, 02/28/2025. 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 other ones. And with that, I'll turn the call over to Rob.

Speaker 2

Thank you, Mike. Good 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 I turn 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.

Speaker 2

Recurring revenue was $4,200,000 representing growth of 27% compared to the prior year quarter. We placed six Growth Direct systems in Q4, bringing our total of 21 system placements for the full year. On a cumulative basis, through the end of twenty twenty four, we have now placed 162 Growth RX 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 in the business.

Speaker 2

This 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 Milapore Sigma. To begin, I will provide some context around our decision to enter into this agreement and why we believe Milapore Sigma is an excellent chief partner for Rapid Microbiosystems.

Speaker 2

As a long standing global leader in life sciences, Milapore Sigma shares a common customer base in the pharmaceutical segment with Rapid MicroBio, 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, MilaCore Sigma also serves adjacent segments, such as personal care and medical devices, among others. This aligns strongly with our top priority of accelerating growth rate system placements. Additionally, as a global supplier to the life sciences industry, this partnership with MillerforSigma 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.

Speaker 2

So, with that as context of this partnership, let me now provide more details of the agreement. MillerCore Sigma has global co exclusive rights to sell the GrowthDirect 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 Growth Direct's total addressable market.

Speaker 2

For the first two years of this five year agreement, MilliporeSigma has committed to purchase a minimum number of growth Rx business. This commitment is heavily weighted towards the second year and we expect it to have a meaningful impact in 2026. At the same time and throughout the full term of the agreement, Rapid Micro will continue to utilize its existing global direct sales team and distribution channels to sell and place growth direct systems. Importantly, we will also continue to validate and service all growth direct systems to include the systems MillicoreSigma sells. A key component of this agreement is a joint commitment between Rapid Micro and MillicoreSigma to identify opportunities to bring efficiencies to our supply chain to accelerate our goal of gross margin improvement.

Speaker 2

Initial focus areas for this collaboration may include culture media, classic 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 for 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 Miller four Sigma colleagues this week and we could not be more excited to partner with a recognized and highly respected leader in the life sciences industry. This agreement combines RapidMikro's market leading Growth Direct technology platform with MilliporeSigma's global scale, brand strength and industry leadership.

Speaker 2

We are confident this collaboration will enhance value to customers worldwide, while meaningfully advancing our priorities of 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 both direct system placements. Second, we remain focused on improving gross margins.

Speaker 2

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 gene manufacturing network reinforces our confidence that we are the industry standard and provides a clear blueprint for 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 sterility, which is being driven by its value proposition for full automation and faster time to results for this critical end of line test.

Speaker 2

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 improve service productivity. We expect further gains in operating leverage as we move forward and remain disciplined with task management. While we believe there is potential for MillerCoord segment to contribute to revenue in 2025, 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, providing 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.

Speaker 2

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. Sean?

Speaker 3

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 Direct Systems, which was consistent with the fourth quarter last year.

Speaker 3

We also completed four validations in the quarter compared to nine in Q4 last year. Product revenue, which 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 and service contracts.

Speaker 3

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 and 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.

Speaker 3

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 forward. Moving down the P and L, total operating expenses were $11,200,000 in the fourth quarter, representing a decrease of 7% from 12,000,000 in Q4 twenty twenty three, largely due to benefits from the operational efficiency program we announced in August 2024. 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 13% due mainly to lower headcount related costs. Net loss was $9,700,000 in Q4.

Speaker 3

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 investments. Now, I'll turn to our 2025 outlook.

Speaker 3

While we believe there is potential for Millipore's Sigma to contribute to system placements in 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 purchase considerations and processes. With that as context, we expect full year 2025 total revenue of at least $32,000,000 with between twenty one 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.

Speaker 3

We then expect revenue emplacements in Q2 and Q3 to be higher than Q1 and then peak in Q4. Looking at consumables, we 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.

Speaker 3

Turning to margins, we expect Q1 gross margins to be slightly 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 2025 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 in each period. For the full year 2025, we 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 for the full year, which reflects the full effective savings from the operational efficiency program we announced in August 2024. 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 twenty twenty five, which would be a roughly $14,000,000 reduction compared to our cash burn in 2024.

Speaker 3

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 and collaboration agreement with MilliporeSigma 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?

Operator

Your first question comes from the line of Dan Arias of Stifel. Please go ahead.

Speaker 4

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 opportunities that 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 ground running on some of the things that you're currently doing?

Speaker 2

Yes, Dan. I 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, cosmetics and med device that are meaningful in size. But given our focus in pharmaceutical manufacturing, we've been focused in pharma and biologics and cell and gene, etcetera.

Speaker 2

So, the Millipore segment team is well positioned in those adjacent markets. And that is a fundamental plank in the strategy behind the relationship.

Speaker 4

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 Lonzy.

Speaker 4

You've got Milapore in the picture, at least in the picture if they're not helping in 2025, they're at least there. So help me with the '21 to '25. Mean, obviously, it's a good idea here, but it seems like they certainly got the components 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.

Speaker 3

Yes, sure, Dan. Yes, so I think you said 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 'twenty four in terms of kind 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.

Speaker 3

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 assumption is baked into this guidance. We touched on it in the script. I think very importantly, we are not including anything for MilaporeSigma. We do think there is an opportunity there, but it's going to take some time to get them up to speed.

Speaker 3

Obviously, our sales cycle can be twelve months plus. So, it's factoring that in, that was kind of the rationale for the approach that we took there. And then, I think with 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 will 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.

Speaker 4

Is there

Speaker 2

some And David, I can just add on.

Speaker 5

Sorry.

Speaker 2

Go ahead, Dan. Yes, you just want to add on.

Speaker 3

You go ahead, I'll go second. How does that

Speaker 2

sound? Are you sure? Okay. Here I go.

Speaker 4

Are there some number of systems that you expect to go to Lonza through this collaboration

Speaker 2

this year? So, I'll speak more broadly. This is the point I was going to make, Dan. So, it's important note or feature that it bears repeating. So, our guide for '25, as Sean mentioned, does not include any contribution from 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.

Speaker 2

And there are multiple. And the reason why we have not included those, again, consistent with our prudent approaches, while exciting, they can and they're moving, they can also be tough to put a pin in with regard to timing. These are typically global in nature, multi site, multi region, multi stakeholder. 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 concluded those.

Speaker 2

That all being said, we reserve the right for upside here on both the MilliporeSigma relationship in 2025 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.

Operator

Your next question comes from the line of Paul Knight with KeyBanc. Please go ahead.

Speaker 5

Hey, Rob. On the Merc and 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 a margin pickup goal maybe in even 2026 from them getting involved maybe in supply?

Speaker 2

Paul, thanks for the question. So, the first one, it basically goes to channel conflict effectively. Yes, they will be selling into not only pharmaceutical and biologics, but more broadly on segments, personal care, cosmetics, etcetera, which we consider a growth adjacency that we're not currently in. With respect to our core market of pharmaceutical manufacturing, we have been diligently working with the team and are comfortable with our go to market approach and how we're going to manage our respective sales models. With regard to margin, yes, the goal here, again, the strategy that I touched on behind the Millipore Sigmund relationship is to catalyze and accelerate our core priorities of accelerating system sales, which we touched on.

Speaker 2

Gross margin improvement, which will come through not only volume, we anticipate, but also as I mentioned, a lot of the 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 and 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.

Speaker 3

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 matchup in terms of what we use and what they can provide. Right.

Speaker 3

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? And B, it seems like you're essential at Lonza.

Speaker 3

Is that fair to say?

Speaker 2

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 pharmaceutical manufacturing globally. And the Lonza example is a very, very, very good example of it.

Speaker 2

But frankly, it's how a lot of our customers 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 these global deployments, this is how 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 and future sites through the coming quarters and years.

Speaker 5

Okay. Thanks. Sure.

Operator

Your final question comes from the line of Brandon Smith with TD Cowen. Please go ahead.

Speaker 5

Congrats on the quarter and ending on a 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 with Lonza, I'm just wondering if you have any updated thoughts on potential AI integration or any evolving strategy on that front?

Speaker 5

Again, just kind of given all the possibilities with the automation QC work.

Speaker 2

Brandon, it's Rob. So we can't comment on the actual commitment per the commercial agreement. We can't quantify it. But as I mentioned

Speaker 1

in

Speaker 2

the remarks, and I think Sean followed it up as well, it will be significant beginning in 2026. With regard to Lonza and more broadly, our approach to data, yes, for WeView, at least with regard to where we operate inside of these large companies, we're creating 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 Miller Poor 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.

Speaker 2

Let's just say it's something on our radar and will be very exciting for not only us but for industry more broadly.

Speaker 5

Okay, great. Thanks, guys. Thank you.

Speaker 2

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.

Operator

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

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