Q1 2022 Rapid Micro Biosystems Inc Earnings Call

May 10, 2022

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Good day and thank you for standing by. Welcome to the Rapid Microbiosystems First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode.

Good day and thank you for standing by welcome to the rapid micro Biosystems first quarter 2022 earnings conference call.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session.

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I'd now like to hand the conference over to your host today, Mike Bolliard with Investor Relations.

I'd now like to hand, the conference over to your host today, Mike <unk> with Investor Relations.

Good morning, and thank you for joining the rapid micro Biosystems first quarter 2022 earnings call.

Good morning, and thank you for joining the Rapid Microbiosystems first quarter 2022 earnings call.

Joining me on the call are Rob Spignessi, Chief Executive Officer, and Sean Wertjes, Chief Financial Officer.

Joining me on the call are Rob speaking, Nazi Chief Executive Officer, and Shaun <unk> Chief Financial Officer.

Earlier today we issued a press release announcing our first quarter 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.

Earlier today, we issued a press release announcing our first quarter financial results a copy of the release is available on the company's website at rapid micro bio dot 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.

Before we begin I'd like to remind you that many statements made during this call maybe 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 1095.

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 RapidMicro's financial condition, expectations for business development and growth, customer interest and adoption of the GrowthDirect system, and the potential impact of COVID-19 on RapidMicro's business.

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 expectations for business development and growth customer interest and adoption of the growth direct system and the potential impact.

Act of COVID-19 on rapid Micros business.

Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.

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 RapidMicro's business, please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission on March 24, 2022. 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.

For a list and description of the risks and uncertainties associated with rapid micros business. Please refer to the risk factors section of our Form 10-K filed with the Securities and Exchange Commission on March 24th 2022.

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.

Also, the company's contract with the U.S. Biomedical Advanced Research and Development Authority, or BARDA, was completed in the fourth quarter of 2021.

Also the company's contract with the U S. Biomedical advanced research and development authority or BARDA was completed in the fourth quarter of 2021.

Throughout our quarterly performance discussions, we'll be excluding the non-commercial revenue impact from BARDA by comparing total 2022 revenue to commercial revenue in 2021.

Throughout our quarterly performance discussions, we will be excluding the noncommercial revenue impact from BARDA by comparing total 2022 revenue to commercial revenue in 2021.

This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 10, 2022. 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 will

This conference call contains time sensitive information and is accurate only as of the live broadcast today May 10 2022.

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 will turn the call over to Rob.

Thank you Mike.

Thank you, Mike. Good morning, everyone. And thank you for joining us to review our first quarter 2022 business performance and financial results.

Good morning, everyone and thank you for joining us to review, our first quarter 2020 to business performance and financial results.

While we were very pleased with most elements of our business performance in Q1, system placements were weaker.

We were very pleased with most elements of our business performance in Q1 system placements were weaker.

Access to customer sites continued to be limited, which resulted in the placement of two growth direct systems, which was consistent with the guidance we provided in March, but nonetheless still disappointing.

Access to customer sites continue to be limited, which resulted in the placement of two growth direct systems, which was consistent with the guidance we provided in March but nonetheless still disappointing.

Both systems were placed in March as trends with customer access and in-person meetings began to improve marginally later in the quarter. While interest in our growth direct system remains high, we are not satisfied with these results and are focused on improving system placements enterprise-wide at RapidMicro.

Those systems were placed in March as trends with customer access and in person meetings began to improve marginally later in the quarter, our interest and our growth of our <unk> system remains high we are not satisfied with these results and our focus on improving system placements enterprise wide at rapid micro.

Excluding system placements, our performance in the first quarter met or exceeded our expectations. Recurring revenue grew more than 65 percent, led by consumables growth of nearly 100 percent, and we completed nine system validations in the quarter. Additionally, systems and consumables gross margins both improved significantly compared to Q1 last year, reflecting the progress our operations team is making in advancing our manufacturing efficiency in this year.

Excluding system placements our performance in the first quarter met or exceeded our expectations recurring revenue grew more than 65% led by consumables growth of nearly 100% and we completed nine system validation in the quarter.

Additionally systems and consumables gross margins, both improved significantly compared to Q1 last year, reflecting the progress our operations team is making in advancing our manufacturing efficiency initiatives.

Finally, I'm also pleased with the performance of our product development team, which is achieving key milestones as we progress our pipeline of innovative new product offerings.

Over the last few months, we began to see a gradual improvement in customer site access.

As we have discussed in the past, Fed access and in-person selling is important to our system sales process because it allows us to work more closely with our customers to understand their manufacturing and quality control challenges and opportunities.

As we have discussed in the past site access and in person selling is important to our system sales process because it allows us to work more closely with our customers who understand their manufacturing and quality control challenges and opportunities. We are also able to better showcase the differentiated capabilities of the growth direct which allows our team to demonstrate how it can improve.

We are also able to better showcase the differentiated capabilities of the Growth Direct, which allows our team to demonstrate how it can improve existing workflows and deliver the value customers expect.

<unk> workflows and limited value customers expect I recently had the opportunity to visit some customers and we'd like to provide you with some real world examples of the importance of being on site with customers.

I recently had the opportunity to visit some customers and would like to provide you with some real world examples of the importance of being on site with customers.

In April , I traveled to Europe and, along with Andy Keyes, our Chief Commercial Officer, spent about two weeks meeting with existing and prospective customers.

In April I traveled to Europe band, along with Andy <unk>, Our Chief commercial officer spent about two weeks meeting with existing and prospective customers most of the existing customers. We met with top 20 pharma customers. We have multiple systems at multiple sites district underscored the importance of customer site access and.

Most of the existing customers we met were top 20 pharma customers who have multiple systems at multiple sites. This trip underscored the importance of customer-side access and reinforced customer interest in deploying our technology across their operations. Specifically, there were three important points I came away with from these visits. First, customer-side access.

To reinforce customer interest in deploying our technology across our operations specifically there were three important points I came away with from these visits.

First customer site access is starting to improve.

For many of our customers, we were the first on-site visitors they had welcomed into their facilities in over two years.

For many of our customers we were the first onsite visitors they had welcomed into their facilities in over two years. These.

These meetings included senior leaders with substantiate strong customer interest in the GrowthDirect system and RMB.

These meetings included senior leaders with substantiate strong customer interest and the growth direct system and RMB.

While this was encouraging, we were also reminded that there are still some customers who are not ready for in-person meetings due to ongoing COVID precautions.

While this was encouraging we were also reminded that there are still some customers who are not ready for in person meetings due to ongoing COVID-19 precautions, we will continue to pursue virtual meetings, where appropriate as we look forward to increasing onsite meetings with new and existing customers over the coming months.

We will continue to pursue virtual meetings where appropriate, as we look forward to increasing on-site meetings with new and existing customers over the coming months.

Second, and consistent with our commercial land and expand strategy, we spoke with multiple customers who shared their vision to make follow-on purchases to expand their global rollout of the GrowthDirect platform. These discussions reinforced a strong value proposition in our ability to positively impact our customers' complex operations.

Second and consistent with our commercial land and expand strategy, we spoke with multiple customers who shared their vision to make follow on purchases to expand their global rollout of the growth direct platform. These discussions reinforce a strong value proposition and our ability to positively impact our customers' complex operations.

And third, there was a broad level of excitement about our future new product launches. We took this opportunity to discuss our upcoming rapid sterility and mold detection products and received strong, positive feedback on the benefits these innovative products will have on our customers' manufacturing and quality operations.

And third there was a broad level of excitement about our future new product launches. We took this opportunity to discuss our upcoming rapid sterility and moral detection products and received strong positive feedback on the benefits of these innovative products will have on our customers' manufacturing and quality operations.

In summary, it was a highly productive two-week trip that we expect will be the beginning of improved site access and in-person collaboration with our customers. The benefits of our Go Direct technology are resonating with our existing customers, and many are looking to adopt our technology more broadly across their organization.

In summary, it was a highly productive two week trip that we expect will be the beginning of improved site access and in person collaboration with our customers. The benefits of our growth direct technology are resonating with our existing customers and many are looking to adopt our technology more broadly across their organizations.

To drive growth with this opportunity, we are making the right investments in building a world-class commercial and service and support organization, as well as new product innovation. I'm personally excited to be back out working with our teams and meeting current and prospective customers as we remain intensely focused on placing growth direct systems.

<unk> gross with this opportunity we are making the right investments in building a world class commercial and service and support organization as well as new product innovation.

Personally excited to be back out working with our teams and meeting current and prospective customers as we remain intensely focused on placing growth direct systems.

And while our system placements may be variable in the near term, our total addressable market is large, our value proposition is resonating, and our systems are providing value for our customers once they are in routine use.

And while our system placements, maybe variable in the near term our total addressable market is large our value proposition is resonating and our system providing value for our customers. Once they are in routine use.

I'll wrap up my prepared remarks with a brief update on some of our key initiatives for 2022.

It's important to note that first and foremost, we are intensely focused on new system placements as an organization. To this end, we have strengthened our commercial team by hiring multiple leadership and field-based roles in sales and marketing across North America and Europe , as well as Asia, where our new team is ramping and we see meaningful future opportunities.

It's important to note that first and foremost we are intensely focused on our new system placements as an organization to this end we have strengthened our commercial team by hiring multiple leadership and field based roles in sales and marketing across North America, and Europe , as well as Asia, where our new team is ramping and we see meaningful future opportunity we are.

We are very excited about the pace at which we are developing our global commercial capability and view it as the most critical component of our growth strategy.

Very excited about the pace at which we are developing our global commercial capability and view it as the most critical component of our growth strategy.

Also, we remain on track with the development and commercialization plans of our mold detection and rapid sterility products, which as discussed, are resonating strongly with customers. As a reminder, our mold detection products will enable customers to differentiate mold from other categories of microorganisms, such as bacteria.

Also we remain on track with the development and commercialization plans of our mobile detection and rapid sterility products, which as discussed are resonating strongly with customers. As a reminder, our mold detection products will enable customers to differentiate <unk> from other categories of micro organisms such as bacteria.

This is an important capability that supports our goal of giving customers information sooner so they can make decisions and respond to contamination events more quickly. Over the coming months, we plan to begin enrolling customers in beta testing.

This is an important capability that supports our goal of giving customers information sooner. So they can make decisions and respond to contamination events more quickly over the coming months, we plan to begin enrolling customers in beta testing.

Our rapid sterility beta system has been placed and installed with one of our existing top 20 global pharmaceutical customers with beta testing expected to commence later in the second quarter.

Our rapid sterility beta system has in place and installed with one of our existing top 20 global pharmaceutical customers beta testing expected to commence later in the second quarter.

Our rapid sterility product offers compelling differentiation versus existing sterility products and will be especially important for time-sensor products such as vaccines, biologics, sterile injectables, and cell and gene therapies.

Our rapid sterility product offers compelling differentiation versus existing <unk> products and will be especially important for time sensitive products, such as vaccines biologics sterile injectables and cell and gene therapies.

We are excited to be working closely with one of our top customers on this important new application and look forward to providing you updates as we move forward.

we remain laser-focused on executing against our goal plan. With over half of global top 20 pharmaceutical manufacturers as our customers, and our value proposition resonating strongly, a ramping high-quality commercial team focused on new system placements, an exciting new product pipeline, and significantly improving gross margins, I remain as excited as ever about the future of RapidMicro. With that, I will turn the call over to Sean to discuss our financial results. Sean? Thanks, Rob.

We remain laser focused on executing against our growth plan.

Over half of global top 20, pharmaceutical manufacturers as our customers and our value proposition resonating strongly.

Ramping high quality commercial team focused on new system placements and exciting new product pipeline and significantly improving gross margins I remain as excited as ever about the future of rapid micro with that I will turn the call over to Sean to discuss our financial results John .

Thanks, Rob and good morning, everyone.

This morning we reported first quarter 2022 revenue of $4.2 million. This compares to the $4.8 million of commercial revenue that we reported in Q1 2021.

This morning, we reported first quarter 2022 revenue of $42 million.

This compares to the $4 $8 million of commercial revenue that we reported in Q1 2021.

Product revenue, which consists of systems and consumables, was $2.6 million in Q1, compared to $3.7 million in the first quarter last year. The decline was due to fewer placements of growth-directed systems, but was partially upset by continued strong growth in consumables.

<unk> revenue, which consists of systems and consumables was $2 6 million in Q1 compared to $3 7 million in the first quarter last year. The decline was due to fewer placements of growth direct systems, but was partially offset by continued strong growth in consumables as.

As we discussed in our Q4 earnings call, pandemic-related customer site access limitations and customer-specific timing issues continue to impact our ability to sell and ship systems in the first quarter.

As we discussed on our Q4 earnings call pandemic related customer site access limitations and customer specific timing issues continue to impact our ability to sell and ship systems in the first quarter.

As a result of these headwinds, Q1 placements were limited to two systems, which was consistent with the guidance we provided in March, but still disappointing.

As a result of these headwinds Q1 placements were limited to two systems, which was consistent with the guidance we provided in March but still disappointed.

From a comparison standpoint, we placed eight systems in the first quarter last year, including three systems that were originally scheduled for placement in Q4 2020, but were pushed into Q1 2021 as a result of extended holiday shutdowns due to the pandemic.

Revenue from consumables exceeded our expectations, increasing nearly 100% in the first quarter compared to Q1 last year, as we continue to benefit from our growing base of validated systems and increased utilization of existing customers.

Revenue from consumables exceeded our expectations, increasing nearly 100% in the first quarter compared to Q1 last year as we continue to benefit from a growing base of validated systems and increased utilization at existing customers.

Over the past four quarters, the cumulative number of validated systems in the field grew from 52 to 93, an increase of 79 percent, and consumables revenue per average validated system increased 15 percent.

Over the past four quarters, the cumulative number of validated systems in the field grew from 52 to <unk> 93, an increase of 79% and consumables revenue per average validated system increased 15%.

As a reminder, recently validated systems go through a transition period that typically lasts several months before they move into full commercial routine use. Looking only at those systems we consider to be in routine use, consumables revenue per average system increased both year over year and sequentially in Q1 and was well over $100,000 on an annualized basis, with several individual customer systems at annual run rates well over $200,000. For more information visit www.FEMA.gov

As a reminder, recently validated systems go through a transition period that typically last several months before they move into full commercial routine years looking only at those systems, we considered to be in routine use consumables revenue per average system increased both year over year and sequentially in Q1 and was well over $100000 on an annualized basis.

With several individual customer systems that annual run rates well over $200000.

These metrics are important factors in our forecasting and give us confidence in the contribution we expect recurring revenue to make to our long-term growth.

These metrics are important factors in our forecasting to give us confidence in the contribution we expect recurring revenue to make to our long term growth.

While we expect these metrics to continue to trend up over time, the can and do vary from quarter to quarter due to several factors including the pace and timing of validation and the transition to routine use for new systems.

While we expect these metrics to continue to trend up over time that can and do vary from quarter to quarter due to several factors, including the pace and timing of validation and the transition to routine use for new systems.

Service revenue was $1.6 million in Q1, compared to $1.1 million in the first quarter of 2021. The growth in service revenue was driven primarily by a higher volume of validations were completed during Q1, as well as higher revenue from service contracts attached to our growing base of validated systems.

Service revenue was $1 6 million in Q1 compared to $1 1 million in the first quarter of 2021.

The growth in service revenue was driven primarily by a higher volume of validation work completed during Q1 as well as higher revenue from service contracts attached to our growing base of validated systems. We completed the validation process on nine new systems in Q1, bringing our cumulative total of validated systems to 93 rigs.

We completed the validation process on nine new systems in Q1, bringing our cumulative total of validated systems to 93.

Recurring revenue, which continues to be a bright spot in our business, grew 66% to $2.7 million in the first quarter, driven by strong growth in both consumables and service contracts.

Recurring revenue, which continues to be a bright spot in our business grew 66% to $2 7 million in the first quarter driven by strong growth in both consumables and service contracts.

Non-recurring revenue was $1.5 million in Q1, with lower system placements and higher validation revenue compared to Q1 last year.

Nonrecurring revenue was $1 5 million in Q1 with lower system placements and higher validation revenue compared to Q1 last year.

Turning to gross margins, product margins were negative $1.8 million in both Q1 this year and last year, despite lower revenue this quarter. We are successfully executing against a number of manufacturing efficiency initiatives across both systems and consumables, and are seeing tangible benefits, particularly in consumables, where year-to-date progress is ahead of us.

Turning to gross margins product margins were negative $1 $8 million in both Q1, this year and last year, Despite lower revenue this quarter we.

We are successfully executing against a number of manufacturing efficiency initiatives across cross both systems and consumables and are seeing tangible benefits, particularly in consumables where year to date progress is ahead of plan.

Service margins were negative <unk> $1 million in both Q1, this year and last year with the benefit of higher revenue. This year offset by the cost of recent investments in personnel and travel related costs associated with field service and validation activities to support our growing base of growth direct systems.

Service margins were negative 0.1 million in both Q1 this year and last year, with the benefit of higher revenue this year offset by the cost of recent investments in personnel and travel-related costs associated with field service and validation activity to support our growing base of growth-directed systems.

We continue to expect efficiency initiatives we currently have underway to drive meaningful productivity improvements as we work our way through the remainder of 2022 and our activity volumes continue to increase.

We continue to expect efficiency initiatives. We currently have underway to drive meaningful productivity improvements as we work our way through the remainder of 2022 and our activity volumes continue to increase.

On a combined basis, gross margins declined slightly in Q1 compared to the first quarter last year, with the negative impact of relative product mix in Q1 this year largely offset by progress on our product manufacturing efficiency initiative.

On a combined basis gross margins declined slightly in Q1 compared to the first quarter last year with the negative impact of relative product mix in Q1, this year, largely offset by progress on our product manufacturing efficiency initiatives.

We continue to actively manage inflationary headwinds in some materials, freight and labor costs, as well as our supply chain and logistics operations. We did not experience any material business impact from either in the quarter.

We continue to actively manage inflationary headwinds and some materials freight and labor costs as well as our supply chain and logistics operations, we did not experience any material business impact from either in the quarter.

Moving down the P&L, total operating expenses were $13.1 million in the first quarter, consisting of $3.5 million in sales and marketing, $3.5 million in R&D, and $6.1 million in G&A. This compares to total operating expenses of $7.6 million in the first quarter of 2021. This increase was largely due to investments in commercial and product development, as well as higher G&A expenses incurred to operate as a public company.

Moving down the P&L total operating expenses were $13 1 million in the first quarter, consisting of $3 5 million in sales and marketing $3 $5 million in R&D and $6 $1 million in G&A. This compares to total operating expenses of $7 6 million in the first quarter of 2021.

This increase was largely due to investments in commercial and product development as well as higher G&A expenses incurred to operate as a public company.

net loss in the first quarter of 2022 was $14.9 million. This compares to a net loss of $22.1 million in the first quarter of 2021, which included an $11.4 million charge to adjust the fair value of our outstanding preferred stock warrants prior to their conversion into Class A common stock warrants in connection with our IPO last July .

Net loss in the first quarter of 2022 was $14 $9 million.

This compares to a net loss of $22 1 million in the first quarter of 2021, which included an $11 $4 million charge to adjust the fair value of our outstanding preferred stock warrants prior to their conversion to class a common stock warrants in connection with our IPO last July <unk>.

Excluding the impact of the warrant valuation adjustment last year, the increase in net loss was primarily due to the higher operating expenses I just discussed.

Excluding the impact of the warrant valuation adjustment last year. The increase in net loss was primarily due to the higher operating expenses I just discussed.

Net loss per share attributable to common shareholders was $0.35 in Q1 2022 as compared to $37.89 in the prior year quarter.

Net loss per share attributable to common shareholders was <unk> 35 in Q1 2022 as compared to $37 89 in the prior year quarter.

With respect to non-cash expenses and CapEx, depreciation and amortization expense was $0.6 million, stock cup expense was $1.0 million, and capital expenditures were $0.4 million in the first quarter of 2022.

With respect to noncash expenses and Capex depreciation and amortization expense was <unk> 6 million stock comp expense was 1.0 million and capital expenditures were zero point $4 million in the first quarter of 2022.

As of March 31st, we had $184.2 million in cash, cash equivalents, and investments, which we continue to deploy to invest in our growth initiatives. We are actively managing our cash plan to account for business performance and continue to expect full year 2022 cash burn to be comparable to 2021, excluding the impact of financing activities last year.

As of March 31, we had $184 2 million in cash cash equivalents and investments, which we continue to deploy to invest in our growth initiatives.

We're actively managing our cash plan to account for business performance and continue to expect full year 2022 cash burn to be comparable to 2021, excluding the impact of financing activities last year.

I'll now shift to guidance and our outlook for Q2 in the full year. We are reaffirming our full-year revenue guidance range of between $27 million and $32 million. As a reminder, system placements represent roughly 80% of the potential variability between the high-end and low-end of this range.

I'll now shift to guidance and our outlook for Q2 and the full year.

We are reaffirming reaffirming our full year revenue guidance range of between $27 million and $32 million as a reminder system placements represent roughly 80% of the potential variability between the high end and low end of this range.

As Rob mentioned earlier, we've started to see access to customer sites improve a bit over the past few months. On a relative basis, the improvement appears to be moving at a slightly faster pace in the U.S. compared to Europe , with Asia lagging behind. While this is very encouraging for the full year, we did not expect it to benefit our Q2 system placements, which we currently expect to be in line with Q1. Having said that, we have a number of additional placement opportunities that our teams are working that could provide upside to our system placement outlook in Q2.

As Rob mentioned earlier, we've started to see access to customer sites improve a bit over the past few months on a relative basis. The improvement appears to be moving at a slightly faster pace in the U S compared to Europe with Asia lagging behind all.

This is very encouraging for the full year, we did not expect it to benefit our Q2 system placements, which we currently expect to be in line with Q1, having.

Having said that we have a number of additional placement opportunities that our teams are working that could provide upside to our system placement outlook in Q2.

Looking forward to the second half of the year, we are optimistic that our customers will continue to open up more fully around the world, and that system placements will accelerate as a result. Over that same timeframe, we also expect our recent commercial investments to continue to mature and deliver increasing productivity. This includes advancing our second half funnel, which contains a number of potential multi-system placements with existing customers, as well as many placement opportunities with new customers.

Looking forward to the second half of the year, we are optimistic that our customers will continue to open up more fully around the world and that system placements will accelerate as a result.

Over that same timeframe. We also expect our recent commercial investments to continue to mature and deliver increasing productivity. This.

This includes advancing our second half funnel, which contains a number of potential multi system placements with existing customers as well as many placement opportunities with new customers.

All of these factors give us confidence that system placements will be significantly higher in the second half of the year. As a result, we expect that roughly 15% of our full-year system placements will be made in the first half of the year and roughly 85% in the second half, with placements peaking in Q4.

All of these factors gives us confidence that system placements will be significantly higher in the second half of the year. As a result, we expect that roughly 15% of our full year system placements will be made in the first half of the year and roughly 85% in the second half with placements, peaking in Q4.

As a reminder, our system placements are typically back-end loaded, taking place in the latter stages of each quarter in the year. For example, 64% of our system placements in 2019 and 81% of placements in 2020 took place in the second half of the year.

As a reminder, our system placements are typically back end loaded taking place in the latter stages of each quarter and year. For example, 64% of our system placements in 2019 and 81% of placements in 2020 took place in the second half of the year.

Moving to revenue, we continue to expect quarterly sequential increases as the year progresses, driven by system placements as well as increasing recurring revenue from consumables and service contracts as we continue to grow our base of validated systems and move them into routine commercial use. Looking at the year in halves and based on our Q1 performance, our 2022 outlook assumes that roughly 30 percent of our revenue will be delivered in the first half of the year with the remaining 70 percent in the second.

Looking at the year end <unk> and based on our Q1 performance. Our 2022 outlook assumes that roughly 30% of our revenue will be delivered in the first half of the year with the remaining 70% in the second half.

We are expecting the number of new systems validated in 2022 to be roughly in line with the 33 we did in 2021. From a quarterly standpoint, we expect new validations in Q2 and Q3 to be lower than the nine we did in Q1, due mainly to the number of system placements over the past few quarters. We then expect new validations in Q4 to be higher than Q5.

We are expecting the number of new systems validated in 2022 to be roughly in line with the 33, we did in 2021 from a quarterly standpoint, we expect new validation in Q2, and Q3 to be lower than the nine we did in Q1 due mainly to the number of system placements over the past few quarters. We then expect new validation in Q4 to be higher than Q1.

In consumables, we are expecting sequential quarterly revenue growth with year-over-year growth rates in the mid-double digits starting in Q2 due to tougher prior-year

In consumables, we are expecting sequential quarterly revenue growth with year over year growth rates in the mid double digit starting in Q2 due to tougher prior year comps.

In service, we are expecting average sequential revenue growth of approximately 10% over the period from Q2 to Q4, with some variation between the quarters due to the timing of validation services.

In service, we are expecting average sequential revenue growth of approximately 10% over the period from Q2 to Q4 with some variation between the quarters driven by the timing of validation services.

From an overall gross margin standpoint, we are expecting continued improvement on a sequential basis, reaching positive gross margins in Q4, driven by continued progress on our manufacturing efficiency initiatives, as well as increasing sales volume leverage in more favorable products.

From an overall gross margin standpoint, we are expecting continued improvement on a sequential basis, reaching positive gross margins in Q4, driven by continued progress on our manufacturing efficiency initiatives as well as increasing sales volume leverage and more favorable product mix.

Finally, we are expecting operating expenses to be relatively consistent with Q1 on a quarterly basis over the balance of the year. That concludes my comments on our 2022 outlook, so at this point we'll open the call up for questions. Operator?

Finally, we're expecting operating expenses to be relatively consistent with Q1 on a quarterly basis over the balance of the year.

That concludes my comments on our 2022 outlet. So at this point, we'll open the call up for questions operator.

If you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key.

If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.

Draw your question press the pound key.

Again, that is star, then one, if you'd like to ask a question.

Again that is star then one if you'd like to ask a question.

We have a question from the line of Teja Savant with Morgan Stanley .

We have a question from the line of Joseph <unk> with Morgan Stanley .

Hi, this is Yuko on the call for Tejas. Thank you for taking our call.

Hi, This is Hugo on the call for Tito. Thank you for taking our questions.

By our quick math, you will have, we're seeing like a single-digit placements in first half and 4 to 5X that amount in second half. First of all, is that math about right? And second, what gives you confidence that placement cadence will pick up materially?

Hi, a quick math you will have.

We're seeing single digit placements and first off and for four to five ex that amount in second half first of all is that math about right and and second what gives you confidence that placement cadence will pick up materially in the second half.

Hi, it's Sean here. Yeah. So your math is right. We're basically guiding the four. We think there's upside in the second quarter to that that we're working on, but we don't have clear visibility into that at this point. So we're being a little conservative on the quarter, but 15% of the year is represented by those four. So I think that's the starting point for the math, which is consistent.

Hi, Hugo it's Shaun here, yes, so your math is right.

We're basically guiding to four we think there is upside in the second quarter to that that we're working on but we don't have clear visibility into that at this point.

Being a little conservative on the quarter, but.

15% of the year is represented by those four so I think thats the starting point for the math, which is consistent with your comment.

Indigo, it's Rob. With regard to the confidence on the second half, multiple elements including here to give us confidence. But first, as you heard a few times during the prepared remarks, site access opening, we're starting to see, we're not out of the woods yet, but certainly turning the corner and the recent trip to Europe as I discussed.

And you go it's Rob with regard to the confidence on the second half.

Multiple elements, including here to give us confidence.

But first as you heard a few times during the prepared remarks site access opening.

Starting to see.

The woods, yet, but certainly turning the corner and recent trip to Europe as I discussed.

very enlightening. The U.S. is improving as well, and then even Asia is starting to open up quite a bit. And as you've heard us mention in the past, site access is a very strong contributor to our sales process.

It's very enlightening.

<unk>.

Is improving as well and then even Asia is starting to open up quite a bit and as you heard us mentioned in the past that access.

A strong contributor to our to our sales process. Another important element into our value prop is resonating with customers again in person meetings in Europe was that was a very strong reminder, but other evidence as you can see in our business our systems are being used.

Another important element is that our value prop is resonating with customers.

Again, in-person meetings in Europe was a very strong reminder, but, you know, other evidence, as you can see in our business, our systems are being used. Our consumers are being pulled through, you know, at or above our expectations.

Consumables are being pulled through at or above our expectations.

As customers do that, they'll purchase follow-on systems more than likely. And as Sean mentioned, you know, our funnel, the shape of our funnel, which is a third element that gives us confidence, is well-balanced between new and existing customers across our geographies. And our funnel does include some sizable multi-system deals with existing customers and a nice balance with new customers as well. And the fourth element, I would tell you, that gives us confidence is a ramping, high-quality.

As customers do that.

Bill purchased follow on systems more than likely and as Sean mentioned, our funnel the shape of our funnel, which is a third element that gives us confidence is well balanced between new and existing customers across our geographies and funnel does include some sizeable multi system deals with existing customers and in.

Nice balanced with new customers as well in the fourth element I would tell you that gives us.

Confidence is a ramping high quality commercial team as.

As discussed previously, we onboarded a new chief commercial officer last year. Hiring's been good in Q1 and the tail end of last year for new direct selling and direct marketing people, and we expect increased productivity as they mature and roll to deliver against this sales plan.

As discussed previously we onboard a new chief commercial officer last year, our hiring has been good in Q1 and the tail end of last year for new direct selling and direct marketing people.

People and we expect increased productivity as they mature and roll to deliver against this the sales plan.

Great, thank you so much for that color. And then just a quick follow-up, with inflation on top of minds right now, could you comment on your ability to increase price?

Great. Thank you so much for that color and then just a quick follow up with.

With inflation on top of minds right now could you comment on your ability to increase prices on instruments services or consumables.

Sure, Yes, so I think we talked.

Sure, yeah, so I think we've we talked in a recent call about the fact that we were planning to take across many of our products this year. We're seeing some benefits from that. I'd say it's not completely uniform, but in general we are seeing some benefit from price this year in terms of the ASPs that we're charging out in the market.

In a recent call about the fact that we were planning to take price.

Across many of our products this year.

We're seeing some benefits from that I'd.

I would say it's not.

Completely uniform, but in general we are seeing some benefit from price. This year in terms of the asps that we're charging out in the market.

Great. Thank you so much.

As a reminder, if you'd like to ask a question at this time that is star then one.

As a reminder, if you'd like to ask a question at this time, that is star, then 1.

We have a question from the line of Rachel VanStall with J.P. Morgan. Hi. This is Noah. I'm for Rachel. I appreciate you guys taking the question. Just digging in a little bit to the sort of end-market applications of the system, can you provide any sort of additional color on how the mix shift might be changing either in placements or any sort of funnel between larger and smaller customers? Yeah, that would be my...

We have a question from the line of Rachel <unk> with J P. Morgan.

Hi, This is Neil on for Rachel I. Appreciate you guys taking the question.

Just taking a little bit to the sort of end market applications in the system can.

Can you provide any sort of additional color on like.

How the mix shift.

Might be changing either in placements or any.

Turning funnel.

Between larger and smaller customers.

Yes, I've been spending that will follow up.

Yeah, so with regard to, this is Rob, with regard to customer and market, and I can talk about applications as well with regard to our

Yes, so with regard to this is Rob with regards to <unk>.

Customer <unk>.

End market.

Can you talk about applications as well with regard to our our actual test applications I think so.

our actual test applications. I think you're more interested in the customer complexion. Okay, both.

I think you are more interested in the <unk>.

And the customer complexion, okay. Both yes, so the bulk of our of our current customer base.

Yes, so the bulk of our current customer base and for the most part of our funnel tends to be the larger enterprises out there, top 20, top 30, principal manufacturing, biopharma customers, as well as large CDMOs as well. That being said, we do address all modalities and all...

And for the most part of our funnel tends to be the larger enterprises top.

Top 20 top 30 principal manufacturing biopharma customers as well as large <unk> as well now that being said, we do address all modalities in all size.

So, we do have, you know, some small and particular midsize companies, not only in our, as a current customer, but also in our customer funnel. But we're generally weighted more towards large customer, both principal manufacturing and CDMO, and market modality, mostly towards biologics and cell and gene therapy. But we also address other modalities, such as sterile injections.

So we do have.

So small in particular mid size.

Companies not only in our current customer, but also in our customer funnel.

But we're generally weighted more towards large customer principal manufacturing and CMO.

And market modality.

Lead towards biologics and cell and gene therapy, but we also address other modalities such as sterile injectables.

With regard to Part B of your question, our end-market funnel application.

With regard to our part B of your question our end market.

Funnel.

<unk> locations.

In most manufacturing environments, environmental monitoring can be...

And any any most manufacturing environments environmental monitoring can be 70% or more of the routine test volume at least across the waterfront that we cover on our funnel reflects that the majority of our funnel across those types of customers environmental monitoring.

70% or more of the routine test volume, at least across the waterfront that we cover. And our funnel reflects that. The majority of our funnel across those types of customers, environmental monitoring, but we, of course, also have current customers using a water application and bioburden application, and our funnel also consists of those applications as well.

But we of course also have current customers using our water applications in bio burden application and our funnel also consists of.

Applications as well so we feel like we are.

We're balanced across the end market as well as our applications, at least relative to the relative volume in the market.

We're balanced across across the end markets as well as our applications at least relative to what.

The relative volume into the market and just you didn't ask but I'll add a little bit of color from a geography standpoint.

And just, you didn't ask this, but I'll add a little bit of color from a geography standpoint.

We've historically been North American, Europe , pretty well-balanced, but as our Asia team grows, our funnel is starting to show some healthy progress there. Early days with that team being in place.

We've historically been.

North America, and Europe , pretty well balance, but as our Asia team grows our funnel is starting to show some some healthy progress there early days with that team being in place.

for a very short time, but we have an optimistic outlook generally with regard to what that market could yield, and a good team just getting started out there.

For a very short time, but we have an optimistic outlook generally with regard to what that market could yield. Good team just just getting started out there.

Awesome. And maybe digging a little bit more into the cell and gene therapy side, how has your confidence in the cell and gene therapy market sort of evolved since the IPO? And do you sort of see the funding being still consistent with how you felt when you IPO-ed?

Awesome.

Maybe thinking a little bit more into the.

Selling gene therapy side, and how is your confidence in the cell and gene therapy market.

Like.

Sort of evolved.

The IPO.

And do you sort of CD funding.

Still consistent with how you felt when you IPO.

Yes, I think we are as generally speaking as excited as ever about cell and gene therapy, we've got more customers up and running in that segment, we have an incredibly strong value proposition and we speak to those customers frequently they have had a unbelievable patient centric and patient.

Yeah, I think we are, as you know, generally speaking, as as excited as ever about selling gene therapy. We've got more customers up and running in that segment. We have an incredibly strong value proposition. We speak to those customers frequently. They have a have a unbelievable patient centric and patient passion approach to their business.

Passion approach to their business.

and are making a real difference, and our technology and our business is helping them do that. You know, the pipelines of cell and gene therapies, you know, with regard to how we look at it, are still quite healthy, certainly sizable enough for us to continue to attract new customers and build our cell and gene therapy market, again, where our value prop is especially strong.

We're making a real difference in our our technology and our business is helping us helping them do that.

The pipelines of.

Cell and gene therapies.

In regard to how we look at are still quite healthy.

Sizable enough for us to continue to attract new customers and build our cell and gene therapy.

Market again, where we where our value prop is especially strong.

Awesome. And then finally, do you view any potential sort of threats about mediums to report competition or anything sort of related?

Awesome and then finally on give.

To give you any potential.

Sort of threats about medium throughput competition or anything.

Sort.

Sort of.

<unk>.

Well, as we've said historically, we believe the competitive intensity is quite low in this market. Our largest competitor by far

Well, we yes.

We've said historically.

We believe the competitive intensity is quite quite low in this market our largest competitor by by far.

is the manual method. If you will, it's converting 100-year-old method to the 21st century is how we view the competitive landscape right now.

Is the manual method. If you will is converting is converting 100 year old method to the 20 <unk> century is how we view the competitive landscape right now.

Yes.

The top country there anyway.

Thanks for the questions.

I'm showing no further questions in queue at this time I'd like to turn the call back to Rob signal for closing remarks.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Rob Spignolty for closing remarks.

Well, great well. Thank you for joining us today, we appreciate your interest in our company and look forward to speaking with many of you in the coming weeks.

Well, great. Well, thank you for joining us today. We appreciate your interest in our company and look forward to speaking with many of you in the coming week.

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

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

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Good day and thank you for standing by. Welcome to the Rapid Microbiosystems First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode.

Good day and thank you for standing by welcome to the rapid micro Biosystems first quarter 2022 earnings conference call.

At this time, all participants are in listen only mode.

After the presentation, there will be a question and answer session.

To ask a question during the session, you'll need to press star, then 1 on your telephone keypad. Please be advised today's

To ask a question during the session you will need to press Star then one on your telephone keypad.

Please be advised today's conference maybe recorded.

If you require operator assistance during the call, please press star then zero.

If you require operator assistance during the call. Please press Star then zero.

I'd now like to hand the conference over to your host today, Mike Bollier with Investor Relations.

I would now like to hand, the conference over to your host today, Mike <unk> with Investor Relations.

Good morning and thank you for joining the Rapid Microbiosystems first quarter 2022 earnings call.

Good morning, and thank you for joining the rapid micro Biosystems first quarter 2022 earnings call joined.

Joining me on the call are Rob Spignessi, Chief Executive Officer, and Sean Wirtjes, Chief Financial Officer.

Joining me on the call are Rob <unk>, Chief Executive Officer, and Shaun <unk> Chief Financial Officer.

Earlier today, we issued a press release announcing our first quarter 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.

Earlier today, we issued a press release announcing our first quarter financial results a copy of the release is available on the Companys website at rapid microbiome dot com under investors in the news and events section.

<unk>, we begin I'd like to remind you that many statements made during this call maybe 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 1095.

Of COVID-19 on rapid micros business.