Thank you for standing by. My name is Dee and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Micro Biosystems Second Quarter 2024 Earnings Conference Call. I would now like to turn the call over to Michael Beaulieu with Investor Relations. Please go ahead.

Good morning, and thank you for joining the Rapid Micro Biosystems Second Quarter 2024 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 second quarter 2024 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under Investors in the News & 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 of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage and cash runway, guidance for 2024, including revenue, expenses, gross margins, system placements and validation activities, the impact of our operational efficiency program, our efforts to reduce our use of cash for operating activities with the goal of enabling the company to achieve positive cash flow without additional financing, expectations for and planned activities related to the company's business development and growth, customer interest and adoption of the growth direct system, statements regarding rapid sterility and the potential impact of macroeconomic uncertainty on Rapid Micro's business. Actual results may differ materially from those expressed or implied in the 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. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 2, 2024. The 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. Good morning, everyone, and thank you for joining us. As Mike mentioned, we issued a press release announcing our second quarter financial results this morning. These results exceeded our guidance and included a statement that reaffirmed our full year 2024 revenue outlook. As part of today's earnings release, we also announced an operational efficiency program. I will begin my discussion this morning with a review of our second quarter performance and highlights, followed by an update on the progress we are making against our 2024 priorities. I will then discuss the operational efficiency program announced this morning and the key drivers we believe will meaningfully increase long-term shareholder value. I will then turn the call over to Sean who will provide a more detailed review of our Q2 financial results as well as our financial outlook. Starting with our second quarter performance. Total revenue increased to $6.6 million representing growth of 32% compared to the second quarter of 2023. Total revenue exceeded the guidance we provided in May and was a record quarter for the company. We placed 5 growth direct systems in the second quarter with placements in North America, Europe and Asia Pacific. In June, we held our first customer event, hosting potential customers at our Lexington Innovation Center and demonstration lab. Additionally, we are excited to announce that we placed our first growth direct Rapid Sterility system with one of our existing customers during the second quarter. With respect to gross margins, we continue to increase manufacturing efficiencies and reduce product costs. These initiatives resulted in near breakeven margins in the second quarter, which represented a significant sequential improvement from Q1. We remain on track for further margin improvement in Q3 and Q4. Now I would like to discuss the progress we have made against our 2024 chief priorities, starting with accelerating system placements. During the second quarter, our customer engagement efforts resulted in several significant advancements. We continue to move forward with multiple customers who are planning further deployment of the Growth Direct platform across our global manufacturing networks. These are existing customers who have already realized the value proposition of our technology at multiple sites and are now planning to further standardize their workflows and processes across our global organizations. Also, one of our largest customers who has deployed Growth Direct systems globally has selected our platform as a core technology for their lab of the future strategy and is planning significant further system deployments over future quarters. This customer strategy incorporates the most advanced technology and automation into state-of-the-art biomanufacturing facilities and better positions it for the increasing demands and complexity of drug development. These are exciting developments that are expected to drive system orders and continue to strengthen the Growth Direct position as the clear standard in pharmaceutical quality control globally. Also, I would like to recognize a notable milestone. In July, we placed our 150th Growth Direct system with one of our existing customers. This system also represented our ninth placement for the year, putting us in a strong position to achieve our full year guidance of at least 20 system placements. Looking forward to the balance of 2024, we once again had 2 of our largest and best attended customer events upcoming. In October, we will be exhibiting at the PDA Pharmaceutical Microbiology conference in Washington, D.C. And in November, we will be holding our Annual Growth Direct Day in partnership with one of our major customers. Similar to last year's Growth Direct Day, which was hosted by Johnson & Johnson, we are excited to announce that this year's 2-day event will be hosted by Lonza, one of the world's largest CDMOs near their Masri site in the Netherlands. Current and prospective customers will discuss the operating and data integrity benefits of the Growth Direct system as well as share best practices for global deployment. Participants will also hear a variety of customer success stories, including patient impact stories from their peer companies in attendance. Additionally, our new Rapid Sterility application will be a highlight of the event, and we expect strong customer interest. Participants will also tour the local facility that includes a fully validated Growth Direct system in a GMP environment. With approximately 100 attendees expected, we look forward to this exciting event. Turning to gross margins. We continue to make significant progress and delivered near breakeven gross margins in the second quarter. We continue to drive leverage in our business through a combination of high revenue growth and focused cost reduction. To highlight this dynamic, our second quarter cost of revenue decreased 1% while our revenue increased 32% as compared to the second quarter of 2023. We expect to sustain these trends and remain confident in our ability to achieve positive gross margins in the second half of 2024. Next, we are excited to announce the commercial availability of Growth Direct Rapid Sterility. In fact, during the second quarter, we placed our first Rapid Sterility system with one of our existing top 10 global pharma customers. During the quarter, we hosted 2 sterility-focused online webinars and an in-person Rapid Sterility Day. This event included a hands-on demonstration of the new application as well as expert-led discussions on topics that include Rapid product release and automating workflows in a regulatory environment. We continue to plan customer events and scale our manufacturing capability in the second half of 2024. So in summary, our performance for the first half of 2024 has been strong, and we are encouraged by our outlook. We are on track for a positive inflection in gross margins in the second half of 2024 and customer interest in Rapid Sterility is high. Building on our strong business momentum, we recently completed an enterprise-wide review of opportunities to realize operational efficiencies. Based on the results of this review, we are implementing actions that are expected to enable the company to achieve positive cash flow by the end of 2027 without additional financing. This operational efficiency program is consistent with our priority to prudently manage our cash and improve the company's financial strength. This program is in addition to our ongoing and focused efforts to reduce product costs, drive higher manufacturing efficiencies and increase service productivity. Sean will provide some additional details. But before turning over the call, I would like to highlight why we continue to believe Rapid Micro is well positioned to deliver significant shareholder value. These key drivers and catalysts include our leading, highly differentiated Growth Direct technology that is undergoing global adoption by the world's largest and most sophisticated biopharmaceutical companies, oftentimes implemented in mission-critical, high-value biologics and cell and gene therapy products. A clear value proposition that becomes embedded in workflows, enabling customers to operate more efficiently and securely and allows them to move their microbial quality control operations into the 21st century with a fully automated, data-secure platform. Broad commercial penetration, including a growing base of 150 systems across North America, Europe and Asia, representing clear progress against our goal of becoming the industry standard in pharmaceutical quality control. A powerful business model, which includes not only strong revenue growth but a significant and growing base of durable recurring revenue with rapidly improving gross margins. And finally, our operational efficiency program announced today further increases the company's financial strength by providing a clear path to achieving positive cash flow. Based on these drivers, our consistent performance over the last 2 years, and expected outlook, we strongly believe we are positioned to create substantial shareholder value. We will reinforce these messages about our business momentum, outlook, and customer value proposition through increased investor outreach, including upcoming meetings and conferences. And with that, I will now turn the call over to Sean to discuss our second quarter performance and outlook in more detail.

Thanks, Rob, and good morning, everyone. I'll start my comments today with a review of our second quarter results. I'll then review our third quarter and full year 2024 outlook, followed by additional color on the operational efficiency program we announced this morning. Q2 revenue increased 32% to $6.6 million compared to $5 million in Q2 2023. During the second quarter, we placed 5 Growth Direct systems, including our first Rapid Sterility System compared to two in the second quarter last year. We also completed five validations in the quarter compared to three in the second quarter last year. Product revenue, which is comprised of systems and consumables, increased 43% to $4.5 million in the quarter compared to $3.2 million in Q2 last year. The growth in product revenue was primarily driven by the higher number of Growth Direct systems placed in the quarter. The Q2 consumables revenue growth rate was in the single digits compared to what was at the time, record revenue in Q2 last year. Service revenue increased approximately 14% to $2.1 million in the second quarter compared to $1.8 million in Q2 last year. This growth was driven by higher validation and service contract revenue. Second quarter recurring revenue, which consists of consumables and service contracts, increased 7% to $3.8 million compared to $3.6 million in Q2 last year. Nonrecurring revenue, which is comprised mainly of systems and validation revenue, increased 97% to $2.8 million compared to $1.4 million in the prior year quarter. Turning to gross margins, product margins were negative $0.4 million or negative 8% in Q2 compared to negative $1.5 million or negative 48% in the second quarter last year. This 40 percentage point improvement demonstrates the meaningful progress we are making on our initiatives to reduce product costs and increase manufacturing efficiency. The higher volume of Growth Direct systems placed also positively impacted gross margins in the quarter. Service margins were positive $0.2 million or positive 9% in the second quarter compared to negative $0.4 million or negative 20% in the second quarter last year with a 29 percentage point increase driven by higher revenue and productivity. On a combined basis, our second quarter gross margin was negative $0.2 million or negative 3% compared to negative $1.9 million or negative 38% in Q2 last year. This represents a 35 percentage point improvement. Continuing down the P&L, total operating expenses were $13.2 million in Q2, which was flat compared to the prior year quarter. Within OpEx, R&D expenses and sales and marketing expenses were $3.7 million and $3.6 million, respectively, representing a combined increase of approximately 15%. This increase was mainly associated with the commercialization of our new Rapid Sterility application as well as other new product development activities in our new R&D innovation center and demo lab in Lexington, Massachusetts. At the same time, G&A expenses were down approximately 14% to $5.8 million in Q2 as a result of focused ongoing efforts to reduce spending in this area. These savings allowed us to hold total OpEx spending flat in the quarter. Net loss was $12.6 million in Q2. This compares to a net loss of $14 million in Q2 last year. Net loss per share was $0.29 in Q2 compared to net loss per share of $0.33 in the prior year quarter. With respect to noncash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million in the quarter. Stock compensation expense was $1.2 million in the quarter, and capital expenditures were $0.5 million in the second quarter. We ended the second quarter with approximately $70 million of cash and investments. Now I'll turn to our Q3 and full year 2024 outlook. We continue to expect total revenue of at least $27 million for the full year 2024, which assumes we will place at least 20 systems. This implies year-over-year revenue growth of at least 20%. This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions. For the third quarter, we expect total revenue of at least $6 million which assumes at least four system placements and reflects typical summer seasonality. We continue to expect revenue and placements to peak in Q4, consistent with our typical annual cadence and the guidance we originally provided in March. Looking at consumables, we expect Q3 revenue to be relatively consistent with Q2, subject to some normal variability from the timing of customer orders and shipments within the quarter. We then expect consumables revenue to increase sequentially in Q4. With respect to service, we continue to expect revenue to be between $2 million and $2.5 million in both Q3 and Q4 with variability primarily driven by the timing of validation activities. We are reaffirming our guidance of at least 16 validations in 2024, including at least three in the third quarter. Turning to gross margins, we continue to expect gross margins to be positive in both Q3 and Q4 as well as for the full year. We expect product margins to improve sequentially in Q3, driven by ongoing cost reduction and manufacturing efficiency initiatives as well as increasing volumes. We expect higher service margins in Q3 based on higher revenue and increased productivity compared to Q2. We continue to expect operating expenses to be in the range of $48 million to $52 million in 2024 with savings from the operational efficiency program largely offset by related severance and other one-time costs over the remainder of 2024. For the full year, we expect depreciation and amortization expense of approximately $3 million, stock compensation expense of approximately $5 million; CapEx of approximately $2 million and other income, which is comprised primarily of interest income of approximately $3 million. To wrap up, I'll review the operational efficiency program we announced today as well as our revised expectations relating to our longer-term outlook and cash runway. The program involves focused reductions in our current workforce and planned hiring as well as reductions in other non-headcount-related expenses across the business. We expect these actions to result in an approximate $7 million reduction in our annual expenses and cash burn. These savings are in addition to those being generated by our existing programs to reduce product costs, drive higher manufacturing efficiency, control manufacturing overhead costs, and increase service productivity. Through the combination of these actions, along with our assumptions for revenue growth, we expect to achieve positive cash flow by the end of 2027 without additional financing. A few assumptions regarding our financial performance over the next several years underpin this expectation. First, average annual revenue growth rates between the mid-20s and 30%; second, continued meaningful annual improvement in our gross margins, reaching mid-double digits by the end of 2027. Third, after a notable step down in 2025 as a result of our operational efficiency program, relatively flat operating expenses over the following few years; and fourth, maintenance levels of CapEx and relatively minor cash impacts from changes in working capital each year. All of the above assumptions are based on our current 2024 guidance as a starting point including our expectation that we will burn roughly $40 million in cash for the full year 2024. It's also important to point out that we expect our P&L to include approximately $8 million in noncash depreciation and amortization and stock compensation expense, which have no impact on cash as well as a positive contribution from cash interest income each year. We are planning to host an investor event in November, during which we intend to provide additional color supporting the assumptions I've just outlined. In summary, we believe the operational efficiency program we announced today is an important step in reducing cash burn meaningfully over each of the next several years. Together with our expectation of continued strong revenue growth and significant gross margin improvement as well as active management of OpEx, CapEx, and working capital, this gives us confidence in achieving our goal of positive cash flow by the end of 2027 without additional financing. That concludes my comments.

Our first question comes from the line of Tejas Savant from Morgan Stanley.

This is Yuko on the call for Tejas. With the announcement of new targets along with the operational efficiency program, could you comment on working capital initiatives to improve cash usage? You previously called out inventory as one of the key levers, so you touched on this quarter? And how are you balancing inventory reduction and stocking to get customers comfortable that there will be consumables readily available?

It's Sean. So I think we are very focused on inventory as we look forward in terms of managing working capital. For the first half of the year, we're actually up a little bit. It involves a couple of different things that are, I'd say, are kind of rebalancing, which will set us up well, we believe, for the second half of the year to be a period where we see meaningful reduction in inventory. We have always maintained safety stock levels to make sure that we have inventory across the product offerings to ensure that we have no disruptions. I think if you look back to the COVID period, many faced supply chain and inventory management issues; we did not, and we attribute that to maintaining those safety stock levels and expect to continue to do that going forward.

Yuko, it's Rob. We also have what we call customer business reviews with customers. And part of that review is our inventory performance, and we continually receive extremely strong feedback about the quality and timeliness of our supply chain globally from our customers.

Great. And then also, could you elaborate more on the customer who placed the sterility system and underlying factors that drove them to place that system, given sterility is a low-volume application, although it comes with higher pricing? Is the benefit of the automated system potentially less attractive in that scenario versus environmental monitoring? Could you elaborate on any key differences in the workflow that may make the incentive to adopt Growth Direct a slightly different value proposition in those scenarios versus other applications?

That's a great question, Yuko. Environmental monitoring involves a higher volume of tests, and automation helps in managing those repetitive tasks. The main advantage of Growth Direct is complete automation coupled with robust data integrity, management, and security. Even in lower volume settings, automation significantly reduces errors. While automation's role differs between high and low volume scenarios, the importance of data integrity, reduced hands-on time, and improved quality remains critical in both cases. Additionally, the Rapid Sterility feature of our Growth Direct system offers a notable advantage in speed. We can provide contamination detection in as little as one day and final results in just three days, compared to the typical two weeks with traditional methods. This means customers benefit from a fully automated platform that ensures swift sterility testing, crucial for patient releases and revenue recognition. Our strategy is focused on establishing next-generation quality control infrastructure for the pharmaceutical industry, emphasizing sterility as an essential component. This encompasses daily routine tests for environmental monitoring, water testing, bioburden testing, product testing, and now sterility testing, all benefiting from the Growth Direct platform's value proposition.

Our next question comes from the line of Dan Arias from Stifel.

Rob, maybe just following up on sterility, now that you've gotten some customers together on it, how are you feeling about uptake there in general? What do you think will be the difference between those that adopt that system or that capability versus those that don't within the existing user base of those that you've connected with and you've convinced that Growth Direct is something that they need to have?

Yes. So again, I wouldn't rule anyone out of using it at this point. It's early days in the commercial availability of the product, and we're excited about what we're seeing from the feedback. You heard in the remarks about our Sterility Day, we're having webinars and significant global customer connections. The feedback is strong and the funnel build is very strong. So within the existing customer base, I would say, universally strong feedback. We did place a system in the quarter to a large existing customer, and we would expect that trend to continue. It is a capital equipment sales process, so it will have some of those features with regard to the sales cycle timing. That being said, we also expect new customers, new customer segments, which we touched on in previous calls. So we’re very strong in biologics and cell and gene therapy. This drilling application does address quite strongly segments such as sterile injectables, for example, and vaccine category. So it's also excitingly opening up conversations, I would say, with incremental and new, very large customer segments for us. And there's a recent example where we're having a sterility conversation with a customer in one of these new categories, and it's triggered a sales process around environmental monitoring. So a bit back to the comments I made at the end of Yuko's question is our strategy here is to bring a platform technology that automates the majority of the microbial quality control requirements of companies. Our sales team now globally is equipped to have conversations up and down that workflow and help the customer solve their microbial QC problems, and we're starting to see the benefits of that already with the launch of Sterility.

Okay. I just need to dig into that a little bit more. I understand that hypothetically, everybody could be or should be interested, but that's probably unlikely to be the case for a while. So what I'm kind of trying to understand is when you talk to your sales team or you look at those that you gathered together, what are the characteristics of those that feel like they're the most likely adopters versus either less likely or adopters down the road? I know everybody should use it, but that's probably not going to happen anytime soon.

Yes, okay. So fair enough. So the most likely customers to adopt earlier in the cycle will be largely the larger companies that know us well. I don't think it's a hard and universal rule because the funnel does have some new customers in new segments. But if you think about it, again, consistent with our approach, we have a number of customers globally out there in biologics and cell and gene that have higher-value applications that know the Growth Direct, know the benefit of the Growth Direct, implemented the Growth Direct, and have managed the data around Growth Direct. And this is an extension of the menu around it. So that would be, if I could kind of point out what I would expect to be the earlier adopters and consistent with the placement we had, it is an existing large customer. I do want to highlight, though, the funnel has got a nontrivial amount of, I would say, new customer and new customer segments in it.

Okay. All right. That's helpful. And then, Sean, on the gross margin trajectory, you sound pretty confident there. It's not hard to see how you flip to positive for the back half. But in order to get positive for the full year, I do need to be in like the mid- to high single-digit range in Q3 and then actually like the high teens range in Q4 on total gross margin. So is that the right level of increase? If not, help me out? And if so, I just need to understand a little better how the incremental improvement materializes from here.

Yes, Dan, I think about it as the second half probably a little less specific to Q3 and Q4, and that high single digit to low teens number range makes sense based on where we see things right now.

Okay. If I could expand on that thought, I know we will discuss 2025 at another time, but how do you feel about Q4? It seems you have several positive factors for your gross margins. If the current trend continues, you could see an increase of over 20 percent from Q2 to Q4. Can you share anything about Q4 as a basis for gross margins next year?

Yes. I mean, I think one thing to point out is our typical seasonality is just volume still matters. I mean, we're obviously making a lot of progress on the internal initiatives we have across our revenue areas to get margins up. If we follow our typical seasonality, there will be some pressure on margins sequentially from Q4 to Q1. But we would still expect to be positive in Q1 and then build even more from there. I'm not going to give guidance at this point, but we did talk today about what we expect over the next several years across the business, and gross margin was part of that. We've given an endpoint by the end of '27 to get to mid-double-digit margins. I think that gives you some feel for think '25, '26, '27 will be on average. So I think if you think about where we could exit Q4, maybe a step down in Q1, but then we're building up positively throughout 2025 to get to a point where that overall full-year number for '25 is a meaningful step-up from the overall '24 number.

Yes. That makes sense. I can work with that. Okay. Last one, if I could, just to slip in a question on the operational efficiency. How does that impact anything you might do when it comes to just expansion of the commercial team? You've got some important new products here. I think you still have ambitions of growing the sales coverage outside the U.S. So can you maybe just talk about the cash conservation that sounds like it's important in the context of still growing out the franchise, still touching more customers?

Yes, Dan, it's Rob. Our commercial team is established, and we don't anticipate significant growth in the team. We've addressed this in previous calls. We do have a sterility specialist, but we primarily see our sales team as consultative sales professionals. This allows them to engage with customers across various applications, including environmental monitoring, water, bioburden, and sterility applications. Our global team is fully constituted in North America, Europe, and Asia. We are not expecting meaningful growth in the near term, and we feel confident with our current coverage and our capability to meet both our near-term goals and the longer-term outlook that Sean discussed in his prepared remarks.

Our next question comes from the line of an unidentified caller.

So thank you, everyone, for the questions today. I appreciate the continued interest in our business. We're very excited about the business and what we see in both the shorter term and over the horizon here with regards to some elements of our outlook, long-term outlook that you heard today from a commercial standpoint increasing customer discussions with senior-level customers about multi-system orders. We're quite encouraged with what we're seeing there and with regard to the funnel builds and conversations globally and specifically negotiations with customers currently on multi-system orders. Margin improvement is clearly one of our additional top priorities. And I think you can see clear and demonstrable progress there. Our third pillar of focused new products, very excited about Rapid Sterility and certainly, great early returns and more to follow. And then consistent with our fourth pillar of prudent cash management, excited about the operational efficiency program and what that means for the business with regard to achieving positive cash flow without additional financing. So again, thank you for your time.

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