Q1 2023 Rapid Micro Biosystems Inc Earnings Call
Yeah.
Good morning, and welcome to the rapid micro Biosystems first quarter financial results call.
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For operator assistance at throughout the call. Please press Star Zero, and finally, I would like to advise all participants that this call is being recorded. Thank you I'd now like to welcome Mike, though year of Investor Relations to begin the conference Mike over to you.
Good morning, and thank you for joining the rapid micro Biosystems first quarter 2023 earnings call.
Joining me on the call are Rob <unk>, President and Chief Executive Officer, and Shaun <unk> Chief Financial Officer.
Earlier today, we issued a press release announcing our first quarter 2023 financial results.
A copy of the release is available on the company's website at rapid micro bio dot com under investors and the news and events section.
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 rapid micro's financial condition anticipated year end cash balance cash runway future revenue in system placements expectations for <unk>.
This development and growth customer interest and adoption of the growth direct system expectations for our new RMB nucleus mold alarm and the potential impact of macroeconomic uncertainty and the coronavirus pandemic 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 for a list and description of the risks and uncertainties associated with rapid micros business. Please refer to the risk factors section of our annual report on Form 10-K filed with the Securities and Exchange Commission on March 10.
2023, as such risk factors are updated 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 may five 2023.
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 now turn the call over to Rob.
Thank you Mike.
Morning, everyone and thank you for joining us to review our first quarter 2023 results.
I'll begin this morning's call with a summary of our first quarter performance followed by a brief discussion of the progress we are making to both accelerate growth direct system placements and advance our new product development opportunities.
I'll, then turn the call over to Sean for a more detailed discussion of our financial results.
Our execution in the first quarter was solid across systems consumables and services.
First quarter total revenue was $5 million representing growth of 21% compared to the first quarter last year.
Placed three systems and completed the validation of two customer systems in a quarter.
Recurring revenue increased 22% to $3 $3 million compared to Q1 last year.
On our fourth quarter earnings call in March we indicated that we had confidence in our plan to accelerate system placements in 2023 and return rapid micro to solid growth.
We believe our first quarter performance is an early indicator of the effective execution against those plans.
Based on our solid first quarter performance the progress we've made to improve execution and our funnel of system placement opportunities. We are reaffirming our full year 2023 revenue guidance of at least $22 million.
Lending growth of at least 30% compared to 2022.
That said and as we discussed in March we are still operating in a dynamic macroeconomic environment and our guidance reflects some of the uncertainty that this presents.
Our highest priority remains accelerating growth direct system placements now I want to discuss some of the progress that we've made as well as customer engagement activities that we have activated to support this priority.
During the first quarter of 2023, I had the opportunity to visit customers across Europe , and North America, as we seek to strengthen existing partnerships and establish new relationships with each visit I am reminded of the challenges our customers face and keeping up with an increasingly complex manufacturing environment.
Through these visits my understanding of how our customers utilize a growth direct system continues to develop.
I believe that the value proposition of the growth direct system, including faster time to results.
Automation and data integrity.
To resonate with our customers, which gives me confidence in our potential to grow both our recurring revenue and additional system placements.
In March we had the pleasure of hosting the quality leadership team of one of our key account customers at our electric and facility. We believe that key account customers tend to be some of our strongest users of growth direct systems and represent a meaningful portion of our future multi system order opportunities.
We were pleased to receive positive customer feedback on the <unk> system and overall rapid micro experience and we are excited about the prospect of collaborating with customers on future global manufacturing expansion plans.
While meeting at our Lexington facility. We were also able to share the progress we have made expanding our own manufacturing capabilities. Once completed Lexington will complement our primary manufacturing site in Lowell, Massachusetts.
And we will include a backup consumable manufacturing line full R&D capabilities, and importantly, a new growth direct customer demo lab construction and validation is expected to be completed by mid year 2023.
More recently in Europe , we held a two day workshop, we're protected customers, which covered the theory and practice of rapid micro methods, including regulatory compliance a roundtable discussion with best practices.
We believe that in person customer workshops are a highly effective element of our sales process that hands on experience with our growth direct demonstrates its value proposition to prospective customers.
And finally, although coming weeks, we plan to host industry professionals customers and prospective customers for site tours at a lower facility facility.
And as we move into the second half of the year. We continue to plan for growth direct days and to work with customers, who are advocating on our behalf by presenting globally and industry events.
These high value events include robust Q&A sessions, and our structure to educate customers on the real world benefits of automating their mtc processes and the value of the <unk> system.
Now I would like to provide an update on our new product development efforts, which are another key element of our growth strategy.
Following the recent launch of RMB nuclease mobile arm, we have transitioned into our product commercialization strategy.
This plan includes focusing on customer education, increasing awareness and driving utilization of this new software product offering.
I am excited to report that we're off to an encouraging start new customers have a high level of interest in mold alarm and we are working with existing customers to educate them on the value of this product.
Briefly on our rapid Sterility program, we have continued to make substantial progress with a top 20 global customer reach.
We recently achieved an important development milestone and remain on track with our internal plans.
We expect to provide additional details on this development program on future earnings calls so to summarize a few key takeaways, we believe that our first quarter performance was solid across the business and above expectations in many respects.
We are executing against our plan to accelerate growth direct system placements are recurring revenue is growing meaningfully our funnel of new growth direct system opportunities remains solid and we are gaining traction on the commercial release of mold alarm and advancing development of rapid sterility.
Before turning the call over to Sean I want to highlight the press release, we put out last night announcing the appointment of Microsoft <unk> as our senior Vice President of sales and marketing effective Monday may eight.
Mike spent nearly two decades at general electric and GE healthcare and is a recognized commercial leader with a proven track record of implementing successful sales strategies that have driven significant revenue growth.
Mike will be a member of our executive leadership team and we're excited to have him onboard.
Now I would like to turn the call over to Sean to discuss our first quarter performance Sean.
Thanks, Rob and good morning, everyone.
This morning, we reported first quarter 2023 revenue of $5.0 million, which compares to $4 $2 million of revenue in Q1 2022.
We placed three growth direct systems in the first quarter compared to two in Q1 last year. Our Q1 2023 placements included one system that we previously forecasted in Q2, but we're able to pull into Q1.
Product revenue, which is comprised of systems and consumables was $3 3 million in Q1 compared to $2 6 million in Q1 last year. The additional system placed in Q1. This year accounted for the majority of the year over year increase in product revenue.
Consumables revenue grew 12% compared to Q1 last year.
Service revenue was $1 7 million in Q1, 2023 compared to $1 6 million in Q1 last year.
We completed the validation of two systems in the quarter compared to nine in the prior year quarter.
Validation revenue was lower in Q1 this year, primarily as a result of fewer system placements in 2022 versus 2021, which resulted in a lower volume of validation activity in the period.
Also as a reminder, several validation that we expected to complete in Q4 2021 were delayed into Q1 last year impacting the comparison.
As of March 31, we had a total of 105 validated systems, which drove growth in service contract revenue of almost 50% in Q1 2023 more than offsetting the lower validation revenue in the quarter.
First quarter recurring revenue increased 22% to $3 $3 million compared to $2 $7 million in Q1 last year driven by growth in both consumables and service contract revenue.
Non recurring revenue was $1 8 million in Q1 compared to $1 5 million in the prior year quarter.
Turning to gross margins product margins were negative $1 7 million in Q1 compared to negative $1 $8 million in the first quarter last year.
The improvement was driven by continued progress on our manufacturing efficiency and product cost reduction initiatives and consumables disc.
Despite the benefit of one incremental placement system margins were lower in Q1. This year as they continue to be impacted by lower production volumes.
Service margins were negative <unk> 1 million in Q1, 2023, which was essentially flat compared to Q1 last year.
The benefit of higher service contract revenue and good service cost control were offset by lower validation revenue in Q1 this year.
On a combined basis, our first quarter gross margin percentage was negative 36% compared to negative 46% last year. The year over year improvement was largely a result of ongoing progress on our manufacturer manufacturing efficiency and product cost reduction initiatives in both consumables and systems. We are also focused on increasing productivity.
Inefficiency in our service business, we continue to expect these activities as well as increasing volumes to lead us to positive gross margins in 2024.
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 $2 million in R&D and $6 $5 million in G&A.
Excluding <unk> $9 million in REIT tension.
Pension costs related to the restructuring plan, we announced in August last year total Opex was $12 2 million in Q1. This compares to total operating expenses of $13 1 million in the first quarter of 2022.
Net loss was $13 9 million in Q1 2023.
This compares to a net loss of $14 9 million in the first quarter last year.
The year over year improvement was primarily due to higher interest income due to higher rates earned on our short and long term investments.
Net loss per share was <unk> 32 in Q1 2023 compared to net loss per share of <unk> 35, and.
In the prior year quarter.
With respect to noncash expenses and capital expenditures depreciation and amortization was 0.8 million stock compensation expense was $1 2 million and capital expenditures were zero point $8 million in the first quarter of 2023.
I'll now turn to our 2023 outlook for the full year in the second quarter. We are reaffirming our previous full year 2023 revenue guidance. We continue to expect revenue of at least $22 million, which assumes we will place at least 15 systems and represents growth of at least 30%.
As Rob mentioned, we are still operating in a dynamic macroeconomic environment we.
We are seeing customer budgets receive increased scrutiny, which is affecting the timing and scale of some purchase decisions and could create revenue variability, especially in systems.
Our guidance reflects some of this uncertainty and we are continuously assessing the environment and monitoring customer interactions for changes in purchasing decisions.
For the second quarter, we expect commercial revenue of at least $4 million, which assumes at least to system placements from there. We expect to continue to build momentum as we move through the year with revenue in system placements accelerating as we move into the second half of 2023.
We continue to expect to complete at least 14 validation in 2023 with at least two in the second quarter with.
With respect to validation revenue, we expect Q2 to be similar to Q1. We then expect validation revenue to increase in the second half compared to the first half, although there may be some quarter to quarter variability over the balance of the year based on the timing of customer validation activities for previously play systems.
All of the lag between system placements and related validation work for new system placements.
Based on our revenue outlook, we expect our Q2 2023 gross margin to be lower than Q1, due to lower revenue and lower system production volumes and then improve as the year progresses, as our cost reduction and manufacturing efficiency initiatives generate additional benefits, especially in consumables and volume leverage increases with.
Respect to operating expenses, we continue to expect between $12 5 million and $13 5 million per quarter over the balance of 2023 with variability mainly driven by nonrecurring severance expenses that will impact Q2, and Q3 of this year as well as the timing of certain new product development activities.
Finally, we had approximately $122 million in cash cash equivalents and investments as of March 31.
Our Q1 2023 cash burn included outflows related to the payment of several large 2022 expenses that we do not expect to recur over the balance of the year, including annual bonuses and costs related to the strategic alternatives review, we completed in Q4.
We also expect to realize significant cash benefits from working capital management, particularly ongoing inventory reduction activities over the balance of the year. As a result, we continue to expect to end 2023 with cash and investments at or slightly below $100 million, which is consistent with the guidance. We provided in March we.
Confident that this provides us with cash runway at least into 2026.
That concludes my comments on our full year and Q2 outlook. So at this point, we'll open the call up for questions operator.
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.
For just a moment to compile the Q&A roster.
Your first question comes from the line of Jazz Zavon of Morgan Stanley . Your line is open.
Hello. This is Hugo on the call for today, Thank you for taking our questions.
Maybe to start could you comment on what youre hearing around tightening budgets among your customers.
See it worse in one region versus another or is it pretty similar across the board at this point.
Yes. This is rob.
We're not perceiving any differences across the three primary regions and which in which we operate.
And as.
As far as far as the first part of the question of budgets Havent been.
Certainly not been slash as we talked about in our remarks. They are in some cases going through.
What can be considered more scrutiny, which could extend some of the some of the processes. It just feels like there is a.
A tighter filter on some of the internal processes with some of our customers.
Okay. That's helpful color. Thank you and then maybe somewhat.
A related question.
Or do you think about your current funnel could you share the mix between existing and new customers and how would you describe the proportion of multi unit potential versus single units and how that trended over the last several months.
Yeah. So the.
The best way to think about it I wont break it down in a quantitative way, but the best way to think about it and this is a metric that we look at quite often you think of it as a good balance.
<unk> new customers.
And and existing customers, we now have some incredibly encouraged by.
III nearly fully staffed commercial regions in North America Europe .
And Asia I'm incredibly excited about the talent a new talent that we're bringing onboard as.
As well as joining our existing our existing top talent.
So we've got we've got our regions.
Online, our working with developing new customer opportunities in our funnel reflects that and is the best evidence we have that our existing customers.
We are continuing to see growth direct value proposition as a recurring revenue and our consumption of consumables and services, so that propagation through our funnel and we've got a healthy mix across across our regions of both new and existing clearly where we're a bit we're a bit newer.
In our Asia region, So that's a little bit more weighted towards newer customers, but on balance we we've got a good mix between new and existing.
It's also important to note.
That we don't have.
Much at all early emerging biotech exposure the vast majority of our customer base and as you know tends to be the larger the larger customers.
That we have around around the world most of the global top 20 top 50, but very little.
Early stage biotech exposure.
Yeah.
Got it makes sense.
And then just one last one for me.
With.
RMB nucleus mobile arm launch then.
So really a consumable data testing underway based on customer feedback, where do you see the low hanging fruit in terms of product enhancements workflow improvements as you think about future product pipeline.
Yes, so future product pipeline beyond moulden sterility that the question.
Okay. Yeah. So our product strategy is fundamentally the growth direct as we view it as a platform technology.
We view it.
In the middle of a legacy.
Manual workflow.
We are able to automate accelerate and improve significantly with regard with regard to data integrity. So are our strategy is to provide more value in that workflow so to move upstream in our product.
In the workflow and downstream that workflow, which informs our product strategy. So mold as a as an example of providing more value to the into the current workflow, but also a step down downs.
Downstream as well typically customers will seek to.
Identify any kind of organism that downstream.
And Thats, a given them a kind of an early steer on that as part of our as part of our strategy Sterility is one step further and automating the vast majority of routine use consumables and our product strategy is very much that as well too to have.
Fully automated system that automates, the vast majority of daily routine use tests and any pharmaceutical manufacturing environment.
So look for <unk>.
Future, we won't get into too much detail now, but moving upstream and downstream and also as we enabled data and data analytics that general category is very much part of our thinking about future product development and release.
Thank you.
Okay.
Okay.
Well, thanks, Hugo I'm going to wrap the call the last call up now thanks for everyone for joining us today.
This now concludes today's conference call you may now disconnect.
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