Rapid Micro Biosystems, Inc. Q2 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Rapid Micro Biosystems Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Beaulieu, with Investor Relations. Please go ahead.

Good morning, and thank you for joining the Rapid Micro Biosystems Second Quarter 2025 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 two press releases: The first announcing a new $45 million 5-year term loan facility with Trinity Capital and the second announcing our Q2 2025 financial results. 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 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, statements relating to the company's newly announced term loan facility, guidance for 2025, including revenue, expenses, gross margin, 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 Growth Direct System and the impact of the Growth Direct 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, the impact of our existing and any future indebtedness on our ability to operate our business, our ability to access any future tranches under our debt facility and to comply with all obligations thereunder, 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 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 12, 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. Good morning, everyone, and thank you for joining us. I'll begin my prepared remarks with an overview of the new term loan facility we announced this morning, followed by a review of our second quarter highlights. I will then provide a brief update on the MilliporeSigma partnership and my current perspectives on customer and market conditions before turning the call over to Sean for a more detailed review of our financial results and our 2025 outlook. As Mike mentioned, we issued a press release this morning announcing a new 5-year $45 million term loan facility with Trinity Capital. After careful evaluation by management and the Board and with consideration for all stakeholders, we determined that this was a good time to raise additional capital. The facility supports our continued execution against our long-term strategy and reinforces our ability to achieve positive cash flow. Importantly, the loan does not include financial or liquidity covenants and is non-dilutive to shareholders. We drew down the initial $20 million tranche at closing which will be reflected in our third quarter financials. Now turning briefly to our second quarter performance. Total revenue increased 10% year-over-year to $7.3 million, slightly above the midpoint of our guidance range. We were pleased with the strength across the broader business, including mid- to high-teens growth in both consumables and service. Of note, recurring revenue increased 15%. Turning to systems, we placed 4 Growth Direct Systems in the second quarter, which was within the guidance range we provided in May. As we noted on our first quarter call, our guidance reflected the potential for customer site readiness delays, including ongoing construction, which ultimately pushed several system placements into the second half of the year. Gross margins were 4% in the second quarter, reflecting an improvement of 7 percentage points from the prior year. This marks our fourth consecutive quarter of positive gross margins, a trend we expect to continue as we drive further operational improvements. Turning to our partnership with MilliporeSigma, we remain excited about the relationship and continue to make meaningful progress across key commercial and supply chain work streams. Our teams are engaging on a regular cadence, jointly developing commercial opportunities and supporting the advancement of the global Growth Direct sales funnel. Over the past few months, we conducted training and educational sessions with their automation specialists in North America, Europe and Asia. We share a collective view that a long-term industry shift is well underway to advance automation, robotics and digital tools within the Micro QC lab. The Growth Direct platform plays a central role in this transformation, serving as a key solution for modernizing QC workflows and increasing efficiency in microbial QC testing. Beyond our commercial partnership, we have identified and are pursuing several initiatives focused on lowering our product costs, enhancing supply chain efficiency to support gross margin expansion. Additionally, we are discussing a number of areas with exciting potential for joint innovation and product development. As a reminder, this is a 5-year agreement, and we are just 5 months in. We are confident in the long-term potential of this partnership to meaningfully accelerate Growth Direct System placements, improve gross margins and drive product innovation. Before I wrap up my prepared remarks and turn the call over to Sean, I'd like to share a few thoughts on the market. I continue to be encouraged by ongoing industry trends, including increasing investments in global pharmaceutical manufacturing capacity and a growing shift towards new technologies and automation. We're hearing strong customer support for these developments. Importantly, we are well positioned to benefit from a significant investment in and build-out of new pharmaceutical manufacturing capacity that has started to take place within the U.S. market. These new facilities will typically incorporate advanced technologies and automation and the Growth Direct platform is a clear fit to meet the demands of modern pharmaceutical manufacturing and ensure safe and effective patient care. At the same time, global trade dynamics are adding further uncertainty to the timing and scale of some customer purchase decisions, especially for larger capital investments. That said, I'd like to highlight a few of the key business drivers as we look ahead into 2026 and beyond. These include a robust sales funnel with multiple customers planning global multi-system rollouts and our strong customer engagement efforts, which provide solid visibility into future demand. Increasing contribution from MilliporeSigma, driven by their meaningful system purchase commitments beginning in 2026, consistent execution for over 10 quarters, which has been supported by our diverse revenue model, which includes systems, software and services, generating durable recurring revenue from consumables and annual service contracts, significant and consistent gross margin expansion. Since the positive inflection we reached in Q3 of last year, we've been delivering on our cost-reduction initiatives and remain on track to deliver significant margin improvements going forward. And our strong financial position, reinforced by the new term loan facility we announced today, positions us to build on the meaningful progress we have made across our business. Collectively, these elements reinforce our confidence in the strength of our long-term strategy and our ability to deliver sustained shareholder value. I'll close with a quick look ahead at the strong lineup of industry and customer events we had planned for the second half of 2025. In October, we will be exhibiting at the annual PDA Micro Conference in Washington, D.C., followed by the PharmaLab Congress in Germany in November. We will also hold our annual Growth Direct Day in November, which in the past was hosted by customers such as Lonza and Johnson & Johnson. This year, we're excited to announce that Daiichi Sankyo will host this 2-day event near their facility outside of Munich, Germany. As in prior years, Growth Direct Day is a 2-day event that will feature existing and prospective customers discussing the benefits of a Growth Direct platform, sharing best practices, success stories and the positive impact on their workflows. The event will also include a hands-on workshop and a customer site tour. We look forward to providing further updates on our third quarter earnings call. And with that, I will now turn the call over to Sean.

Thanks, Rob, and good morning, everyone. Total second quarter revenue of $7.3 million increased 10% compared to the $6.6 million we reported in Q2 2024. We placed 4 Growth Direct Systems and completed 2 validations in the second quarter and now stand at 169 cumulative global systems placed, including 148 fully validated systems. Product revenue increased 6% to $4.8 million. Mid-teens consumable growth and higher Mold Alarm software sales in the second quarter this year more than offset the impact of one less system placement compared to Q2 2024. Service revenue of $2.5 million increased 18% compared to Q2 2024. The increase was driven by higher field service activity and higher service contract revenue due to an increase in the cumulative number of validated systems on a year-over-year basis. Second quarter recurring revenue, which consists of consumables and service contracts, increased 15% to $4.4 million. Nonrecurring revenue, which is comprised mainly of systems and validation revenue, increased slightly to $2.8 million. Turning to gross margins, the second quarter gross margin was 4%, marking our fourth consecutive quarter of positive gross margins and an improvement of 7 percentage points over Q2 last year. Product margins were negative 11% in the quarter, down slightly compared to Q2 2024 due primarily to the impact of one fewer system placement and revenue mix between systems and consumables even as we continue to make progress on our internal product cost and manufacturing efficiency initiatives. On a sequential basis, Q2 product margins improved by 12 percentage points compared to Q1. Service margins were 32% in the second quarter compared to 9% in Q2 2024. The improvement was driven by higher revenues and productivity as well as lower headcount and other service-related costs. Total operating expenses were $12.4 million in the second quarter, representing a decrease of 6% from $13.2 million in Q2 2024, due largely to benefits from the operational efficiency program we announced in August 2024 and the timing of spending on new product development activities. Within OpEx, R&D expenses were $3.2 million, sales and marketing expenses were $3.1 million, and G&A expenses were $6.1 million. Net loss was $11.9 million in Q2 compared to a net loss of $12.6 million in Q2 last year. Net loss per share was $0.27 in Q2 compared to a net loss per share of $0.29 in the prior year quarter. With respect to noncash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million, stock compensation expense was $1.2 million, and capital expenditures were $0.4 million in the second quarter. We ended the second quarter with approximately $32 million in cash and investments. Now turning to our outlook. We are reaffirming our full-year revenue guidance of at least $32 million. Our systems outlook continues to account for ongoing near-term uncertainty around the timing and scale of customer purchase decisions, particularly around multi-system opportunities. Global trade dynamics, including tariffs, are adding to this uncertainty. While our teams are working aggressively to close our 2025 funnel, we now believe it's prudent to assume that we are more likely to finish the year towards the low end of our previous guidance range of 21 to 25 system placements. With that in mind, we expect Q3 revenue to be in a range of $7.25 million to $8 million, which assumes a range of between 4 and 6 system placements in the quarter. Turning to consumables. Consistent with my commentary last quarter, we expect revenue to step up on a sequential basis 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 Q3 and Q4 to be relatively consistent with Q2, with variability driven by the timing of validation activities. We continue to expect to complete at least 18 validations in the full year 2025, with at least 3 in the third quarter. Turning to gross margins, we expect Q3 to be in line with or slightly better than Q2 due to continued progress on product cost-reduction and efficiency initiatives. We then expect gross margins to improve meaningfully in the fourth quarter. 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 are closely monitoring the evolving tariff landscape from a cost standpoint. While we started to see some limited tariff-driven cost increases on certain materials in the second quarter, we continue to expect to limit any margin impact this year through a combination of our ongoing cost-reduction and manufacturing efficiency initiatives, current inventory levels, and proactive supply chain strategies. We expect operating expenses to step down from Q2 to Q3 and to now be between $46 million and $48 million for the full year. We expect full-year depreciation and amortization expense of $3 million, stock compensation expense of $4 million, and CapEx of $2 million. Other income and expense, which will now include both interest income on our increased cash balance and interest expense on our recently issued debt, is expected to be $1 million of income for the full year, with income and expense largely offsetting each other in the third and fourth quarters. Finally, I'll wrap up my prepared remarks with some additional commentary on our cash position and path to cash flow breakeven. As Rob outlined, we recently entered into a new $45 million term loan facility and drew down the first tranche of $20 million. The facility includes 2 additional $10 million tranches, which can be drawn subject to the achievement of certain future commercial and operational milestones as well as a further $5 million tranche that is subject to the lender's discretion. Following this transaction, we believe that the combination of our new term loan facility, our existing cash balance, expected benefits from our ongoing initiatives to increase system sales, expand gross margins and tightly control expenses and working capital, and expected benefits from our partnership with MilliporeSigma reinforces our ability to achieve positive cash flow. With respect to the full year 2025, we now expect to end the year with roughly $40 million in cash. That concludes my comments. So at this point, we'll open the call up for questions.

Our first question comes from Paul Knight with KeyBanc Capital Markets.

Congratulations on the quarter. Can you discuss the delays in decision-making within the pharma industry? To what extent did you experience this in the quarter, and do you anticipate improvements in Q3?

Thank you for the question, Paul. We're quite encouraged by the discussions we've had with senior executives regarding the Growth Direct plan, particularly with our larger existing customers. The build-out in North America appears to be progressing well with some customers. While there is a mix of priorities affecting their focus, high ROI projects like Growth Direct are still being prioritized. Additionally, there is notable investment in the U.S. market from some of our customers, which is currently a top project and will benefit Rapid Micro Biosystems in the long run. Despite some uncertainty in trade dynamics, I see several positive signs and trends concerning pharma decision-making and build-outs that could impact our business favorably.

And I know that there's a lot of capacity build in the industry, specifically CAR-Ts. There's just no capacity build that seems to be strong double digits, are you writing or taking share in that as we would expect?

In CAR-T specifically, Paul?

CAR-T and new build and then part of that question would be, are you going in and doing retrofit on systems as well? And what degree...

Yes, so it's a great question. Yes, the majority of our installations are in site placements are existing facilities. That being said, we're quite excited about any new build-out because typically pharma companies will seek to invest with the current edge. And if we're really clear, especially in high-cost regions like the U.S., I'd expect personally for the preponderance of automation to be even higher just given the cost of doing business in the region. So not only are we doing well with existing customers around the world, but certainly for any new build, we are a very clear and strong fit as well.

Our next question comes from Dan Arias with Stifel.

Sean, to Rob's point on Paul's question about just what's going on in pharma, it sounds like things are generally encouraging, particularly pharma-out build-out stuff. Can you just touch on why the low end of the range on systems is the way that you're thinking the year will shape up here?

Yes, Dan. We're concentrating on the next 4.5 months and the pace of developments. Currently, the trade dynamics in the market are affecting us negatively in the short term. However, in the long term, there are many reasons for optimism, as Rob mentioned. Right now, our focus is on our current opportunities. Our teams are working hard to close deals, but given the current state of those specific opportunities, it seems wise to anticipate results on the lower end of our expectations.

Okay. And then maybe on the consumables side, nice growth there. How stable do you think that is from a quarterly standpoint as we think about the second half of the year and into '26? Obviously, the placement dynamic is up and down, but I'm wondering whether you think there's some consistency that comes to a nice level of growth that you're seeing on the recurring revenue side?

Yes, I think that's a positive situation for us at the moment. We expect to see an increase from Q2 to Q3 and again from Q3 to Q4. We have a few new multi-system high-volume sites launching in the second half, which are expected to contribute to this growth. We anticipate seeing this progress in the second half, and I believe it will support our goals. This is also a factor in maintaining our revenue guidance, even as we aim towards the lower end of the range for placements. Our service and consumables businesses are performing well, and we feel optimistic about their performance in the second half.

Our next question comes from Brendan Smith with TD Cowen.

Congrats on the quarter. Maybe just a quick one from us. I guess, first, you referenced a few different options to kind of continue driving gross margins. I guess, just wondering if you can expound a bit on some of maybe the more near-term levers you see there and when you think some of those might come into play?

Yes, I'll take that question. It's Sean here. Yes, so I think pretty consistent with what we've been talking about for a while now in terms of where we're focused. I think product cost is a very big area of focus for us. We are making good progress. We expect to continue to make significant progress as you look out over the balance of the year and over the next several years. So product costs, there's different ways to go after that. There's a procurement angle there where we're driving conversations with vendors. As we grow in volume, there's more opportunity to leverage that volume into better pricing with vendors as well. We're getting more efficient in how we manufacture. We're reducing things like waste. We're moving more manufacturing in consumables onto our automated line. So those are all areas we're focusing on in terms of driving margin improvement, with a lot of it focused on consumables, but not all. We're looking at different things around product cost as well on systems, and there's opportunity there for sure. So I think those are critical areas that we're focused on. I think we have talked a little bit about it's one of the key pillars of the agreement, is that we're working with them actively right now, as Rob mentioned, on some different opportunities. I think there are some near-term things that are right in the crosshairs right now, likely not to help '25, but we do think that there is some real opportunity to start to create additional tailwinds to margin improvement in '26, and that's really just the first phase. There are other opportunities there that probably take a bit longer to get at, but we're also working with them in early stages to dive deeper into those and assess what the opportunity might look like there. So very big focus in the business on that broader area, and those are a few of the areas that we're focused on specifically.

Got you. Okay. Makes good sense. And then maybe just one more on some of those, call them, potential medium-term tailwinds for the onshoring initiatives. That's the question we get a lot from investors. So I guess just trying to understand a little bit the potential expected timing for all that to start. I totally understand that a lot of this is a little bit nebulous, but is it fair to assume that maybe a lot of those onshoring-related tailwinds would potentially be like a mid- to second half next year push? Or do you think there's like an opportunity to see some of that manifest even sooner? I guess we're just trying to see how you all view that time line, if there are any considerations we should be aware of in that calculus?

Yes, it's Rob. I think that's generally accurate. A key aspect to observe is that many pharmaceutical companies are entering the U.S. market while the supply of engineering and design build firms is limited. It's important to monitor the supply and demand situation, particularly in relation to construction timelines. This will eventually influence the ordering of lab equipment, which relates to our business. I've had discussions with customers who have ongoing projects, and it's clear that the timing of our potential benefits is uncertain, but we are optimistic about the developments. It appears to be a genuine trend. Typically, new constructions are equipped with the latest technology. Additionally, in a high-cost labor market like the U.S., there's a greater emphasis on automation. We believe this is a significant theme. While the exact timing may not be entirely clear right now, we expect to see some progress relatively soon regarding how these projects get implemented. There is a clear indication of an overall trend from our point of view.

Our next question comes from Thomas Flaten with Lake Street Capital Markets.

Just a quick one. I don't want to belabor the macro environment more than necessary. But I was curious if there's a difference in kind of the attitude among customers who have already adopted Growth Direct versus those that are kind of in the funnel, if they have a different outlook towards bringing systems on board if there's anything to read into that?

It's a good question, Tom. It's Rob. There is. So I think the ones that have adopted the Growth Direct typically have, in many cases, our larger customers, in particular, have ongoing projects or initiatives and some of them meaningful and quite significant. And you can tend to see those better weather uncertainty. And then the customers and their sites, importantly, know and understand the Growth Direct, they've already achieved in many cases, an ROI. So they're certainly, they can tend to be more resilient in these sorts of situations. And as you know, we've got a fairly decent penetration into the top 20 and our funnel does have a meaningful proportion of existing customers, which helps us, I would say, weather some of the uncertainties out there. And there are some exciting, which we haven't fully accounted for, larger opportunities in our funnel that could potentially land this year that kind of fall into this category. But generally, the answer is yes. On existing customers, I would say, if you will, lower risk-ish with regard to the current environment than a new customer to our business. I think that's the last question. So thanks for that, Thomas. We're going to wrap the call this morning. So thank you all for joining, and we look forward to speaking with many of you soon. Thanks, all.

This concludes today's conference call. Thank you for participating. You may now disconnect.