Thank you for standing by. My name is RG, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Micro Biosystems First Quarter 2025 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, Thank you. I would now like to turn the call over to Mike Bullier. Please go ahead.

Good morning, and thank you for joining the Rapid Micro Biosystems first quarter 2025 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer, and Sean Wurches, Chief Financial Officer. Rob is feeling under the weather today, and his voice is quite strained, so Sean will deliver all of our prepared remarks and Rob will then join for Q&A. Earlier today, we issued a press release announcing our first quarter 2025 financial results. A copy of the release is 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 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, 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 the expected benefits from our distribution and collaboration agreement with MilliporeSigma, customer interest and adoption of the GrowthDirect system, and the impact of the GrowthDirect system on their businesses and operations and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors including our ability to meet publicly announced guidance, our ability to deliver products to customers and recognize revenue, and market and macroeconomic conditions. For a more detailed 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 as 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, May 9, 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. With that, I'll turn the call over to Sean.

Thank you, Mike. Good morning, everyone, and thank you for joining us. I'll begin with an overview of our first quarter 2025 performance and key highlights, followed by insights from recent customer visits. I'll then provide a brief update on the MilliporeSigma collaboration. Following that, I'll move on to my CFO commentary, including a more detailed review of our first quarter results and our Q2 and full-year 2025 outlook. As Mike mentioned, Rob will join for Q&A after our prepared remarks. Total first quarter revenue increased 28% to $7.2 million, marking our tenth consecutive quarter of meeting or exceeding guidance. We experienced double-digit growth in both product and service revenue. Notably, service revenue increased 64% year over year and was a quarterly record. We placed three GrowthRx systems in Q1 and now stand at 165 cumulative global placements, including 146 fully validated systems. First quarter gross margins were 6%, representing a 33 percentage point improvement compared to the prior year quarter. We're pleased with our strong start to the year, meeting or exceeding each component of our first quarter guidance. Multiple revenue streams drove this performance, including a growing base of durable, recurring revenue, which totaled $4 million in the quarter. Equally encouraging is our continued progress in achieving product cost reductions, manufacturing efficiencies, and service productivity, which drove significant gross margin expansion compared to the prior year quarter. Over the past two months, Rob spent considerable time meeting with customers, and these conversations yielded highly encouraging insights. Both current and prospective customers made it clear that demand for the GrowthDirect continues to be robust. This feedback, in addition to recent customer success stories and the announcement of our collaboration with MilliporeSigma, demonstrates the strength of our products and technology and our continued leadership in the market. In fact, we're currently working on multi-system GrowthDirect deployments with several customers who recognize its robust value proposition, including its ability to standardize workflows across their global organizations. As for the broader market, a recent and notable trend involves planned investments in the U.S. by global pharma and biotech companies, many of which are current customers, to expand their manufacturing capacities. Estimates for these investments over the coming years exceed $150 billion. New construction often incorporates the latest technologies, and we believe based on the GrowthDirect's value proposition and prior examples of supporting new customer facilities, RapidMicro is well positioned to take advantage of this multiyear trend. Turning now to a brief update on our progress with MilliporeSigma, we're off to a strong start with our key workstreams. As a reminder, this collaboration includes global co-exclusive rights to sell the GrowthDirect system and related consumables to pharmaceutical quality control and manufacturing as well as sizable adjacent segments such as personal care products. The agreement also includes a joint commitment to identify opportunities to bring efficiencies to our supply chain, reduce product costs, and accelerate our goal of improving gross margins, as well as collaborating on existing products and new development. Project teams from both organizations are working well together, and we have held joint meetings both in our Lexington, Massachusetts offices and MilliporeSigma's offices in Europe. We are excited about the opportunity this partnership provides to advance our priorities of accelerating GrowthREX system placements, improving gross margins, and developing innovative products. And we look forward to updating you on future calls. To summarize, our performance in the first quarter was strong, and we continue to demonstrate consistent execution. Customer feedback reinforces our positive outlook on the market opportunity for systems. Our funnel of sales opportunities is expanding year over year. Cost reduction efforts, manufacturing efficiencies, and service productivity improvements continue to drive meaningful margin improvement. We are excited about the MilliporeSigma collaboration and remain confident that there are significant opportunities to advance our key priorities. And finally, we are well-positioned to benefit from the expected build-out of U.S.-based pharmaceutical manufacturing capacity by top global pharma and biotech companies. Now, I'd like to turn to a more detailed review of our Q1 performance and outlook. First quarter revenue increased 28% to $7.2 million compared to $5.6 million in Q1 2024. During the first quarter, we placed three GrowthRx systems, consistent with the first quarter last year. We completed nine validations in the quarter, including several we previously expected to complete in Q2, compared to three in Q1 last year. Product revenue, which is comprised of systems and consumables, increased 10% to $4.1 million in the first quarter compared to $3.7 million in Q1 2024. While system placements were consistent between the periods, higher sales of software drove an increase of over 20% in systems revenue. Consumable revenue grew in the mid-single digits compared to Q1 last year, which was our highest revenue quarter for consumables at the time. Service revenue increased 64% to $3.1 million in the first quarter compared to $1.9 million in Q1 2024. The growth compared to the prior year quarter was driven by significantly higher validation activity, one-time services for previously validated systems, and higher service contract revenue due to the increase in the number of validated GrowthDirect systems. First quarter recurring revenue, which consists of consumables and service contracts, increased 6% to $4 million. Non-recurring revenue, which is comprised mainly of systems and validation revenue, increased 73% to $3.2 million. Turning to gross margins, product margins were negative 23% or negative $900,000 in the first quarter, compared to negative 39% or negative $1.5 million in Q1 2024. We continue to execute effectively against our product cost reduction and manufacturing efficiencies initiatives. Service margins were 43%, or $1.3 million in the first quarter compared to negative 3% or negative $100,000 in Q1 last year. The 46 percentage point improvement was driven by higher revenue and productivity as well as lower headcount and other service-related costs. On a combined basis, the first quarter gross margins were 6% or $400,000 compared to negative 27% or negative $1.5 million in Q1 last year. The 33 percentage point improvement continues to demonstrate significant progress in expanding gross margins across our business. Moving down the P&L, total operating expenses were $12.1 million in the first quarter, representing a decrease of 5% from $12.8 million in Q1 2024, largely due to benefits from the operational efficiency program we announced in August 2024. As anticipated, the full benefit of the actions we took under this program have been realized as of the end of the first quarter. Within OpEx, R&D expenses were $3.6 million, a decrease of 6%. Sales and marketing expenses were $2.8 million, a decrease of 16%. G&A expenses were $5.7 million or essentially flat. Net loss was $11.3 million in Q1, compared to a net loss of $13.3 million in Q1 last year. Net loss per share was $0.26 in Q1 compared to a net loss per share of $0.31 in the prior year quarter. With respect to non-cash expenses and capital expenditures, depreciation and amortization expenses were $800,000, stock compensation expense was $1 million, and capital expenditures were $300,000 in the first quarter. We ended the first quarter with approximately $42 million in cash. Before I review our second quarter and full-year 2025 outlook, I'll make a few comments about the current macroeconomic environment. Regarding tariffs, we are closely monitoring the evolving landscape but do not currently expect a material impact from tariffs on our 2025 results. While certain materials we use in our products do have some tariff exposure, we expect our ongoing cost reduction and manufacturing efficiency initiatives combined with current inventory levels and proactive supply chain strategies to limit any impact this year. From a revenue standpoint, our guidance continues to account for 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. The tariff environment adds incremental uncertainty to this. Now turning to guidance, we are reaffirming our full-year 2025 total revenue guidance of at least $32 million with between 21 and 25 system placements. We expect Q2 revenue to be in a range of $6.75 million to $7.75 million, assuming a range of between four and seven system placements in the quarter. These ranges account for system orders we have in hand or expect to receive in Q2. Delivery of a few of these systems, triggers placement, and revenue recognition is dependent on progress against ongoing construction activities at customer sites. Given potential variability in construction timing, we believe it's prudent to incorporate a range of outcomes into our quarterly guidance. In the event these systems aren't placed in Q2, we expect them to be placed in the second half of the year. Turning to Consumables, we expect Q2 revenue to be relatively consistent with Q1. We then expect consumable revenue to step up in both Q3 and again in Q4, with variability driven by the timing of customer orders and shipments. With respect to service revenue, we expect to step down to between $2 million and $2.5 million in Q2 due mainly to the acceleration of certain validation activities into the first quarter. We continue to expect that Q1 will be our highest service revenue quarter and that we will complete at least 18 validations in the full-year 2025 with at least two in the second quarter. Turning to margins, we expect Q2 gross margins to be relatively consistent with Q1. With better product margins due to progress on our product cost reduction and efficiency initiatives, higher revenue from our mobile arm software, but lower service margins due to lower service revenue. Based on our revenue outlook, we then expect gross margins to increase in the second half as product margins improve due to continued progress on our internal initiatives and higher product revenues. For the full-year 2025, we continue to expect total gross margins as a percentage of revenue to be in the range of high single digits to low teens. We also continue to expect operating expenses to be between $44 million and $48 million for the full year. We expect depreciation and amortization expense of $3 million, stock compensation expense of $4 million, CapEx of $2 million, and other income, which is comprised primarily of interest income, of $2 million. Finally, we continue to expect to burn roughly $30 million in cash for the full year 2025, which would be a roughly $14 million reduction compared to our cash burn in 2024. That concludes my comments. So at this point, we'll open the call up for questions.

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Dan Harris of Stifel. Please go ahead.

Good morning, guys. Thank you. Sean or maybe Rob, can you start on the environment and just how you're feeling about business prospects right now, relative to the last time we spoke? I mean, it's obviously a fluid situation right now in the marketplace. Each company has its own set of spending priorities. So what are you hearing from customers about the importance of GrowthDirect? Are you sensing that there's either increased hesitancy on purchasing or maybe increased interest just because it plays into the efficiency angle that a lot of these companies are looking for right now?

Yes. Hey, Dan, good morning. It's Rob. Obvious reasons, I'll keep my comments brief, but do a lot of traveling with customers, and the takeaway is key projects are being prioritized. In many cases, GrowthDirect is part of that, which gives us confidence. I also heard, especially in Europe, some incremental uncertainty around the tariff situation. However, the multi-system orders in our funnel give us confidence in the guidance and the year. We feel like they're being prioritized, which is supported by conversations we've had with senior leaders at these companies. So while the environment is, I would say, incrementally more uncertain from our last call, high ROI key projects are being prioritized.

That's encouraging. I'll give you a break, Sean. Maybe on the gross margin side, nice progress here. Obviously, the environment puts pressure on gross margin improvement for any company. So can you just talk to the trajectory given the tariff headwinds that are in the mix? It doesn't sound like that's going to be overly material for you, but it is in the picture. What does an exit rate for margins look like now versus last quarter if we sort of balance the things that you're working on efficiency and service productivity, etcetera, versus the overall pressures the macro picture brings?

Yeah, thanks, Dan. Yeah, I think not much different, I would say. Just to give you a little background on our tariff kind of layout on the inbound material side, which is really where the potential impacts could be. We do source most of our materials within the U.S. Having said that, we do source some of our materials from the EU as well across both systems and consumables, but it's at a meaningfully lower level. Another important one for us is we source all of our plastics for consumables out of Canada. The good news is that those are significant, but it is subject to an exemption under the USMCA. So we're currently not seeing tariffs in that part of our cost structure. We source a very small amount of material for our systems out of China, but it is de minimis. So not much expectation for a meaningful impact from China at all based on current standings. Even if things worsen in China, it shouldn't impact us much just given the low level of sourcing we're doing there. So that's really what lies behind our outlook. We're doing a lot around cost reduction, manufacturing efficiency, and potentially accelerating efforts to help offset the limited impact we do expect. Also, we've discussed our inventory safety stock across systems and consumables in the past. That's very helpful currently as it means many of the materials with some exposure don't necessarily need to be bought right away, giving us the luxury of waiting and seeing what happens. Based on all that, we're not expecting to see the trajectory at the end of the year be very different than we thought it was a couple of months ago.

Okay. I think at the end of the year, your gross margin idea for the full year was high singles or low teens. If we kind of balance out the puts and takes from what you did in Q1, which is pretty good, and some of these other factors, is it okay to model a double-digit number for the year?

Yes, I think we'd expect the exit rate for the year to be higher than the guidance. So I think that's a fair assumption, Dan.

Okay. Okay. Thank you.

You mentioned 18 validations this year. How many were last year?

In Q1, Paul, that's for the year. Last year we did 16 validations. So it's slightly up. We see potential for upside on that guide number right now. We're still early in the year. Some of these validations take time to clarify timing due to high levels of customer engagement. So we feel good about guiding at 18%. That would be up slightly from last year. There's opportunity for us to potentially do better than that as well.

And the CapEx we're seeing, which is pretty massive of CapEx in the U.S. Is this new or has it been on the books? How quickly could this turn into business for you?

Hey, Paul. It's Rob. Yes, whether it's new or existing is hard to tell, but I can tell you we often work with customers on new facilities or expansions to existing facilities, expansions to existing labs. This may signify a focused effort in the U.S., which we plan to benefit from. Generally, this feels like ordinary course of business with prioritized U.S. projects. New projects and buildings often adopt new technology, and we're a great fit for those installations.

Okay, thank you.

Hey, guys. This is Chad Oyatroski on for Brendan Smith. Just giving the automation and unique data generation GrowthDirect provides, you'd assume that maybe long-term, there are ways AI could value this machine. How material is AI to your long-term strategy? Are there updates on that front?

Yes. In reverse order, updates will come in the future, but software advancements to include AI are in our R&D roadmap. Our automation creates an immense amount of digital data, and helping customers manage that data across a fleet of GrowthDirects is high on our R&D radar. We are bullish on AI’s future impact on business coupled with our software development pipeline.

Got it. And with the Millipore Sigma deal, could it offset any tariff impacts from a selling standpoint, and any margin or efficiency updates?

Yes, on Millipore distribution, I don't think there's anything obvious to us, Chad. Terms haven't changed due to tariffs. On the revenue side, it introduces incremental uncertainty, but no direct impact. Their market picture may differ slightly as the revenue and opportunity distribution differ from ours. We don't see anything obvious in terms of mitigation strategy. The collaboration includes supply chain synergy potential, like our consumables material sourcing, providing margin opportunities this year. Execution is necessary, so it’s optimistic but upside. Longer term (next year or two), leveraging their relationship offers margin improvement.

Thank you. That’s helpful.

How is the customer feedback? With AI, do we talk about it long term?

Well, we certainly think automation and data analytics and AI have big opportunities, not just with our partnership, but in all directions of various products and next-gen versions thereof. As we look forward to the continuing evaluation of technological capabilities and introduce developments designed to meet customers' needs now and going forward.

Thank you.

We'll wrap up this morning's call. Thanks to everyone for joining us today. We look forward to speaking with many of you soon. Thank you all for joining. You may now disconnect.