Q2 2024 Rapid Micro Biosystems Inc Earnings Call

August 2, 2024

Operator: Thank you for standing by. My name is Dee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Micro Biosystems second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is D and I will be your conference operator today at this time I would like to welcome everyone to the rapid micro Biosystems second quarter 2002 out of four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker Change: If you would like to ask that questions. During this time simply press star followed by the number one get California to keep bad if you would like to withdraw your question Press Star. One again. Thank you I would now like to turn the call over to Mike held vulgar with Investor Relations. Please go ahead.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Michael Boulder with Investor Relations. Please go ahead.

Michael Boulder: Good morning, and thank you for joining Rapid Microbiosystems' second quarter 2024 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer, and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our second quarter 2024 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under investors in the news and events section.

Speaker Change: Good morning, and thank you for joining the rapid micro Biosystems second quarter 2024 earnings call joining.

Speaker Change: Joining me on the call are Rob stigma assay, President and Chief Executive Officer, and Shaun <unk> Chief Financial Officer.

Speaker Change: Earlier today, we issued a press release announcing our second quarter 2024 financial results.

A copy of the release is available on the Companys website at rapid micro bio dot com under investors and the news and events section.

Michael Boulder: Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements, including but not limited to, statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, and cash runway.

Speaker Change: 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.

Michael Boulder: Guidance for 2024, including revenue, expenses, gross margins, system placements, and validation activities. The anticipated impact of our Operational Efficiency Program, our efforts to reduce our use of cash for operating activities with the goal of enabling the company to achieve positive cash flow without additional financing. Expectations for and planned activities related to the company's business development and growth, customer interest in the adoption of the Growth Direct System, statements regarding rapid sterility, and the potential impact of macroeconomic uncertainty on Rapid Micro's business.

Michael Boulder: Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission, as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance.

Speaker Change: 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.

Speaker Change: Statements relating to rapid micro's financial condition assumptions regarding future financial performance anticipated future cash usage and cash runway guy.

Speaker Change: Guidance for 2024, including revenue expenses gross margins system placements and validation activities.

Speaker Change: The anticipated impact of our operational efficiency program, our efforts to reduce our use of cash for operating activities with a goal of enabling the company to achieve positive cash flow without additional financing expectations.

Expectations for and planned activities related to the company's business development and growth customer interest and adoption of the growth direct system statements regarding rapid sterility and the potential impact of macroeconomic uncertainty on rapid micros business.

Speaker Change: Actual results may differ materially.

Speaker Change: From those expressed or implied in the forward looking statements due to a variety of factors.

Speaker Change: For a list and description of the risks and uncertainties associated with rapid micros 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.

Speaker Change: 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.

Michael Boulder: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 2, 2024. 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.

Speaker Change: This conference call contains time sensitive information and is accurate only as of the live broadcast today August <unk> 2024.

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.

Speaker Change: And with that I'll turn the call over to Rob.

Rob Spignesi: Thank you, Mike. Good morning, everyone, and thank you for joining us. As Mike mentioned, we issued a press release announcing our second quarter financial results this morning. These results exceeded our guidance and included a statement that reaffirmed our full year 2024 revenue outlook. As part of today's earnings release, we also announced an operational efficiency program.

Rob: Thank you Mike.

Rob: Everyone and thank you for joining us as.

Rob: As Mike mentioned, we issued a press release announcing our second quarter financial results. This morning.

Rob: These results exceeded our guidance and included a statement that reaffirmed our full year 2020 for revenue outlook.

Speaker Change: As part of today's earnings release, we also announced an operational efficiency program.

Rob Spignesi: I will begin my discussion this morning with a review of our second quarter performance and highlights, followed by an update on the progress we are making against our 2024 priorities. I will then discuss the Operational Efficiency Program announced this morning and the key drivers we believe will meaningfully increase long-term shareholder value. I will then turn the call over to Sean, who will provide a more detailed review of our Q2 financial results, as well as our financial outlook.

Speaker Change: I will begin my discussion this morning with a review of our second quarter performance and highlights followed by an update on the progress we are making against our 2024 priorities.

Speaker Change: I will then discuss the operational efficiency program announced this morning, and the key drivers, we believe will meaningfully increase long term shareholder value.

I will then turn the call over to Sean who will provide a more detailed review of our Q2 financial results as well as our financial outlook.

Rob Spignesi: Starting with our second quarter performance, total revenue increased to $6.6 million, representing growth of 32% compared to the second quarter of 2023. Total revenue exceeded the guidance we provided in May and was a record quarter for the company. We placed five growth-directed systems in the second quarter, with placements in North America, Europe, and Asia-Pacific. In June, we held our first Growth Direct Rapid Stability Day, hosting potential customers at our Lexington Innovation Center and Demonstration Lab.

Sean: Starting with our second quarter performance total revenue increased to $6 $6 million.

Sean: Representing growth of 32%.

Sean: Compared to the second quarter of 2023.

Sean: Total revenue exceeded the guidance we provided in may.

Sean: Was a record quarter for the company.

Sean: We placed five growth direct systems in the second quarter with placements in North America, Europe and Asia Pacific.

Sean: In June we held our first growth direct rapid sterility day hosting potential customers at our lessons and innovation center and demonstration lab. Additionally.

Rob Spignesi: Additionally, we are excited to announce that we placed our first growth-direct rapid serology system with one of our existing customers during the second quarter. With respect to gross margins, we continue to increase manufacturing efficiencies and reduce product costs. These initiatives resulted in near break-even margins in the second quarter, which represented a significant sequential improvement from Q1.

Sean: Additionally, we are excited to announce that we placed our first growth direct rapid sterility system with one of our existing customers during the second quarter.

Sean: With respect to gross margins, we continue to increase manufacturing efficiencies and reduced product costs. These initiatives resulted in near breakeven margins in the second quarter, which represented a significant sequential improvement from Q1.

Rob Spignesi: We remain on track for further margin improvement in Q3 and Q4. Now, I would like to discuss the progress we have made against our 2024 strategic priorities, starting with accelerating system placement. During the second quarter, our customer engagement efforts resulted in several significant advances. We continue to move forward with multiple customers who are planning further deployment of the GrowthDirect platform across their global manufacturing network. These are existing customers who have already realized the value proposition of our technology at multiple sites and are now planning to further standardize their workflows and processes across their global organizations.

Sean: We remain on track for further margin improvement in Q3 and Q4.

Sean: Now I would like to discuss the progress we have made against our 2024.

Sean: Priorities, starting with accelerating system placements during the second quarter, our customer engagement efforts resulted in several significant advancements we.

Rob Spignesi: Also, one of our largest customers, who has deployed GrowthDirect systems globally, has selected our platform as a core technology for their Lab of the Future strategy and is planning significant further system deployments over future quarters. This customer strategy incorporates the most advanced technology and automation into state-of-the-art biomanufacturing facilities and better positions it for the increasing demands and complexity of drug development. These are exciting developments that are expected to drive system orders and continue to strengthen the growth directs position as the clear standard in pharmaceutical quality control globally.

Sean: We continue to move forward with multiple customers, who are planning further deployment of the growth direct platform across our global manufacturing networks.

Sean: And these are existing customers, we have already realized the value proposition of our technology at multiple sites.

Sean: And are now planning to further standardize our workflows and processes across our global organizations.

Sean: Also one of our largest customers who has deployed growth Rx systems globally has selected our platform as a core technology for their lab of the future strategy and is planning significant further assistance deployments over future quarters.

Sean: This customer strategy incorporates the most advanced technology and automation into state of the art bio manufacturing facilities and better positions. It for the increasing demands and complexity of drug development.

Sean: These are exciting developments that are expected to drive system orders and continued to strengthen the growth of our ex position as the clear standard in pharmaceutical quality control globally.

Rob Spignesi: Also, I would like to recognize a notable milestone. In July, we placed our 150th Growth Direct system with one of our existing customers. This system also represented our 9th placement for the year, putting us in a strong position to achieve our full year guidance of at least 20 system placements.

Sean: Also I would like to recognize a notable milestone in July we placed our 150 <unk>.

Growth direct system with one of our existing customers. This system also represented our ninth placement for the year, putting us in a strong position to achieve our full year guidance of at least 20 system placements.

Rob Spignesi: Looking forward to the balance of 2024, we once again have two of our largest and best attended customer events coming up. In October, we will be exhibiting at the PDA Pharmaceutical and Microbiology Conference in Washington, D.C., and in November, we will be holding our annual Growth Direct Day in partnership with one of our major customers. Similar to last year's Growth Direct Day, which was hosted by Johnson & Johnson, we are excited to announce that this year's two-day event will be hosted by Lonza, one of the world's largest CDMOs near their Maastricht site in the Netherlands.

Sean: Looking forward to the balance of 'twenty 'twenty four we once again had two of our largest and best attended customer events upcoming.

Sean: In October we will be exhibiting at the PDA pharmaceutical Microbiology conference in Washington D C and in November we will be holding our annual growth direct day in partnership with one of our major customers.

Sean: Similar to last year's growth direct day, which was hosted by Johnson <unk>. Johnson, we are excited to announce that this year's two day event will be hosted by Alonza.

Sean: One of the world's largest <unk> near their Maastricht site in the Netherlands.

Rob Spignesi: Current and prospective customers will discuss the operational and data integrity benefits of the GrowthDirect system as well as share best practices for global deployment. Additionally, participants will also hear a variety of customer success stories, including patient impact stories from their peer companies in attendance. Additionally, our new Rapid Sterility application will be a highlight of the event, and we expect strong customer interest. Participants will also tour the local Lanza site, which includes a fully validated growth direct system in a GMP environment. With approximately 100 attendees expected, we look forward to this exciting event.

Sean: Current and prospective customers, who will discuss the operational and data integrity benefits of the <unk> system as well as share best practices for global deployment.

Sean: Participants will also here a variety of customer success stories, including patient impact stories from their peer companies in attendance. Additionally.

Sean: Additionally, our new rapid sterility application will be a highlight of the event.

Sean: We expect strong customer interest.

Sean: Participants will also tour the local Alonza site that includes a fully validated growth direct system in a GMP environment.

Sean: With approximately 100 attendees expected we look forward to this exciting event.

Rob Spignesi: Turning to gross margins, we continue to make significant progress and deliver near break-even gross margins in the second quarter. We continue to drive leverage in our business through a combination of high revenue growth and focused cost reduction. To highlight this dynamic, our second quarter cost of revenue decreased one percent, while our revenue increased 32% as compared to the second quarter of 2020.

Speaker Change: Turning to gross margins, we continue to make significant progress in liver near breakeven gross margins in the second quarter.

Speaker Change: We continue to drive leverage in our business through the combination of high revenue growth and focused cost reduction.

To highlight this dynamic our second quarter cost of revenue decreased 1%.

Speaker Change: While our revenue increased 32% as compared to the second quarter of 2023.

Rob Spignesi: We expect to sustain these trends and remain confident in our ability to achieve positive gross margins in the second half of 2024. We are excited to announce the commercial availability of GrowthDirect Rapid Serility. In fact, during the second quarter, we placed our first Rapid Serility system with one of our existing top 10 global pharma customers. Additionally, during the quarter, we hosted two Serility-focused online webinars and an in-person Rapid Serility Day. This event included a hands-on demonstration of the new application, as well as expert-led discussions on topics that included rapid product release and Automating Workflows in a Regulatory Environment.

Speaker Change: We expect to sustain these trends and remain confident in our ability to achieve positive gross margins in the second half of 2024.

Speaker Change: Next we are excited to announce the commercial availability of growth direct rapid sterility in fact during the second quarter, we placed our first rapid sterility system with one of our existing top 10 global pharma customers. During the quarter. We hosted two sterility focused online webinars and an in person.

Speaker Change: Rapid sterility day.

Speaker Change: This event included a hands on demonstration of the new application as well as expert led discussions on topics that included rapid product release automating workflows in a regulatory environment.

Rob Spignesi: We continue to plan customer events and scale our manufacturing capability in the second half of 2024. So, in summary, our performance through the first half of 2024 has been strong, and we are encouraged by our outlook. We are on track for a positive inflection in gross margins in the second half of 2024, and customer interest and rapid sterility are high, building on our strong business momentum. We recently completed an enterprise-wide review of opportunities to realize operational efficiency.

Speaker Change: We continue to plan customer events and scale, our manufacturing capability in the second half of 2024.

Speaker Change: So in summary, our performance through the first half of 2024 has been strong and we are encouraged by our outlook. We are on track for a positive inflection in gross margins in the second half of 2024 and customer interest in <unk> is high.

Speaker Change: Building on our strong business momentum, we recently completed an enterprise wide review of opportunities to realize operational efficiencies.

Rob Spignesi: Based on the results of this review, we are implementing actions that are expected to enable the company to achieve positive cash flow by the end of 2027 without additional financing. This operational efficiency program is consistent with our priority to prudently manage our cash and improve the company's financial strength. This program is in addition to our ongoing and focused efforts to reduce product costs, drive higher manufacturing efficiencies, and increase service productivity. Sean will provide some additional details, but before turning over the call, I would like to highlight why we continue to believe Rapid Micro is well positioned to deliver significant shareholder value.

Speaker Change: Based on the results of this review we are implementing actions that are expected to enable the company to achieve positive cash flow by the end of 2027 without additional financing.

Speaker Change: This operational efficiency program is consistent with our priority to prudently manage our cash and improve the companys financial strength.

Speaker Change: This program is in addition to our ongoing and focused efforts to reduce product costs drive higher manufacturing efficiencies and increased service productivity.

Speaker Change: Sean will provide some additional details but before turning over the call I would like to highlight why we continue to believe rapid <unk> is well positioned to deliver significant shareholder value.

Rob Spignesi: These key drivers and catalysts include our leading, highly differentiated growth threat technology that is undergoing global adoption by the world's largest and most sophisticated biopharmaceutical companies, oftentimes implemented in their mission-critical, high-value biologics and cell and gene therapy products. A clear value proposition that becomes embedded in workflows, which enables customers to operate more efficiently and securely and allows them to move their microbial quality control operations into the 21st century with a fully automated data-secure platform. Broad commercial penetration, including a global growing base of 150 systems across North America, Europe, and Asia, which represents clear progress against our goal of becoming the industry standard for pharmaceutical quality control.

Sean: These key drivers and catalysts include our leading highly differentiated growth Rec technology is undergoing global adoption by the world's largest and most sophisticated biopharmaceutical companies oftentimes implemented in their mission critical high value biologics and cell and gene therapy products.

Sean: A clear value proposition that becomes embedded in workflows, which enables customers to operate more efficiently and securely and allows them to move their microbial quality control operations into the 20 <unk> century with a fully automated data secure platform.

Sean: Broad commercial penetration, including a global growing base of 150 systems across North America, Europe and Asia.

Sean: Represents clear progress against our goal of becoming the industry standard in pharmaceutical quality control.

Sean Wirtjes: A powerful business model that includes not only strong revenue growth but a significant and growing base of durable recurring revenue with rapidly improving gross margin. And finally, our operational efficiency program announced today further increases the company's financial strength by providing a clear path to achieving positive cash flow. Based on these drivers, our consistent performance over the last two years, and our expected outlook, we strongly believe we are positioned to create substantial shareholder value.

Sean: A powerful business model, which includes not only strong revenue growth, but a significant and growing base of durable recurring revenue with rapidly improving gross margins.

Sean: And finally, our operational efficiency program announced today further increases the company's financial strength by providing a clear path to achieving positive cash flow.

Sean: Based on these drivers are consistent performance over the last two years and expected outlook. We strongly believe we are positioned to create substantial shareholder value. We will reinforce these messages about our business momentum.

Sean Wirtjes: We will reinforce these messages about our business momentum, outlook, and strong customer value proposition to increase investor outreach, including upcoming meetings and conferences. And with that, I will now turn the call over to Sean to discuss our second quarter performance and outlook in more detail.

Sean: Outlook and strong customer value proposition through increased investor outreach, including upcoming meetings and conferences.

Sean: And with that I will now turn the call over to Shaun to discuss our second quarter performance and outlook in more detail John.

Sean Wirtjes: Thanks, Rob, and good morning, everyone. I'll start my comments today with a review of our second quarter results. I'll then review our third quarter and full year 2024 outlook, followed by additional color on the operational efficiency program we announced this morning. Q2 revenue increased 32% to $6.6 million, compared to $5 million in Q2 2023. During the second quarter, we placed five growth-direct systems, including our first rapid sterility system, compared to two in the second quarter last year.

Shaun: Thanks, Rob and good morning, everyone I will start my comments today with a review of our second quarter results.

Sean Wirtjes: We also completed five validations in the quarter compared to three in the second quarter last year. Product revenue, which is comprised of systems and consumables, increased 43% to $4.5 million in the quarter, compared to $3.2 million in Q2 last year. The growth in product revenue was primarily driven by the higher number of growth-directed systems placed in the quarter. However, the Q2 consumables revenue growth rate was in the single digits compared to what was, at the time, record revenue in Q2 last year. Service revenue increased approximately 14% to $2.1 million in the second quarter, compared to $1.8 million in Q2 last year. This growth is driven by higher validation and service contract revenue.

Shaun: I will then review our third quarter and full year 2024 outlook, followed by additional color on the operational efficiency program, we announced this morning.

Shaun: Q2 revenue increased 32% to $6 6 million compared to $5 million in Q2 2023.

Shaun: During the second quarter, we placed five growth direct systems, including our first rapid sterility system.

Shaun: <unk> two in the second quarter last year we.

Shaun: We also completed five validation in the quarter compared to three in the second quarter last year.

Shaun: Product revenue, which is comprised of systems and consumables increased 43% to $4 $5 million in the quarter compared to $3 2 million in Q2 last year.

The growth in product revenue was primarily driven by the higher number of growth direct systems placed in the quarter.

Shaun: Q2 consumables revenue growth rate was in the single digits compared to what was at the time record revenue in Q2 last year.

Shaun: Service revenue increased approximately 14% to $2 1 million in the second quarter compared to $1 8 million in Q2 last year.

Shaun: This growth was driven by higher validation and service contract revenue.

Sean Wirtjes: Second quarter recurring revenue, which consists of consumables and service contracts, increased 7% to $3.8 million compared to $3.6 million in Q2 last year. Non-recurring revenue, which is comprised mainly of systems and validation revenue, increased 97% to $2.8 million compared to $1.4 million in the prior year quarter. Turning to gross margins, product margins were negative $0.4 million, or negative 8%, in Q2 compared to negative $1.5 million, or negative 48%, in the second quarter last year. This 40 percentage point improvement demonstrates the meaningful progress we are making on our initiatives to reduce product costs and increase manufacturing efficiency.

Shaun: Second quarter recurring revenue, which consists of consumables and service contracts increased 7% to $3 8 million.

Shaun: Compared to $3 6 million in Q2 last year.

Shaun: Nonrecurring revenue, which is comprised mainly of systems and validation revenue increased 97% to $2 8 million.

Shaun: Compared to $1 4 million in the prior year quarter.

Shaun: Turning to gross margins product margins were negative <unk> 4 million or negative 8% in Q2 compared to negative $1 5 million or negative 48% in the second quarter last year.

Shaun: This 40 percentage point improvement demonstrates that demonstrates the meaningful progress we are making on our initiatives to reduce product costs and increased manufacturing efficiency.

Sean Wirtjes: The higher volume of growth or existence placed also positively impacted gross margins in the quarter. Service margins were positive $0.2 million, or positive 9%, in the second quarter, compared to negative $0.4 million, or negative 20%, in the second quarter last year, with a 29 percentage point increase driven by higher revenue and productivity. On a combined basis, our second quarter growth margin was negative $0.2 million, or negative 3%, compared to negative $1.9 million, or negative 38%, in Q2 last year. This represents a 35 percentage point improvement.

Shaun: The higher volume of growth <unk> systems placed also positively impacted gross margins in the quarter.

Shaun: Service margins were positive <unk> 2 million or positive <unk>, 9% in the second quarter compared to negative <unk> 4 million or negative 20% in the second quarter last year with the 29 percentage point increase driven by higher revenue and productivity.

Shaun: On a combined basis, our second quarter gross margin was negative <unk> 2 million or negative 3%.

Shaun: Impaired to negative $1 9 million or negative 38% in Q2 last year. This represents a 35 percentage point improvement.

Sean Wirtjes: Continuing down the P&L, total operating expenses were $13.2 million in Q2, which was flat compared to the prior year quarter. Within OPEX, R&D expenses and sales and marketing expenses were $3.7 million and $3.6 million, respectively, representing a combined increase of approximately 15%. This increase was mainly associated with the commercialization of our new Rapid Sterility application as well as other new product development activities and our new R&D Innovation Center and Demo Lab in Lexington, Massachusetts.

Shaun: Continuing down the P&L total operating expenses were $13 2 million in Q2.

Shaun: Which was flat compared to the prior year quarter within Opex, R&D expenses and sales and marketing expenses were $3 7 million and $3 6 million respectively.

Shaun: Representing a combined increase of approximately 15%.

Shaun: This increase was mainly associated with the commercialization of our new rapid sterility application as well as other new product development activities and our new R&D Innovation Center and demo lab in Lexington, Massachusetts.

Sean Wirtjes: At the same time, G&A expenses were down approximately 14% to $5.8 million in Q2 as a result of focused ongoing efforts to reduce spending in this area. These savings allowed us to hold total OPEX spending flat in the quarter. The net loss was $12.6 million in Q2, this compares to a net loss of $14 million in Q2 last year. Net loss per share was $0.29 in Q2, compared to a net loss per share of $0.33 in the prior year quarter. With respect to non-cash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million in the quarter, stock compensation expense was $1.2 million in the quarter, and capital expenditures were $0.5 million in the second quarter.

Shaun: At the same time G&A expenses were down approximately 14% to $5 8 million in Q2 as a result of focus ongoing efforts to reduce spending in this area. These savings allowed us to hold total opex spending flat in the quarter.

Shaun: Net loss was $12 6 million in Q2. This compares to a net loss of $14 million in Q2 last year.

Shaun: Net loss per share was <unk> 29 in Q2 compared to net loss per share of <unk> 33 in the prior year quarter.

Shaun: With respect to non cash expenses and capital expenditures depreciation and amortization expenses expenses were zero point $8 million in the quarter stock compensation expense was $1 2 million in the quarter and capital expenditures were zero point $5 million in the second quarter.

Sean Wirtjes: We ended the second quarter with approximately $70 million of cash and investment. Now I'll turn to our Q3 and full year 2024 outlook. We continue to expect total revenue of at least $27 million for the full year 2024, which assumes we will place at least 20 systems. This implies year-over-year revenue growth of at least 20%. This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions.

Shaun: We ended the second quarter with approximately $70 million of cash and investments.

Shaun: Now I'll turn to our Q3 and full year 2020 for outlook.

Shaun: We continue to expect total revenue of at least $27 million for the full year 2024, which assumes we will place at least 20 systems.

Shaun: This implies year over year revenue growth of at least 20%.

Shaun: This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions.

Sean Wirtjes: For the third quarter, we expect total revenue of at least $6 million, which assumes at least four system placements and reflects typical summer seasonality. We continue to expect revenue and placements to peak in Q4, consistent with our typical annual cadence and the guidance we originally provided in March. Looking at consumables, we expect Q3 revenue to be relatively consistent with Q2, subject to some normal variability from the timing of custom orders and shipments within the quarter.

Shaun: For the third quarter, we expect total revenue of at least $6 million, which assumes at least for system placements and reflects typical summer seasonality.

Shaun: We continue to expect revenue and placements to peak in Q4, consistent with our typical annual cadence in the guidance. We originally provided in March.

Shaun: Looking at consumables, we expect Q3 revenue to be relatively consistent with Q2.

Shaun: Subject to some normal variability from the timing of customer orders and shipments within the quarter. We then expect consumable revenue to increase sequentially in Q4.

Sean Wirtjes: We then expect consumables revenue to increase sequentially in Q4. With respect to service, we continue to expect revenue to be between $2 million and $2.5 million in both Q3 and Q4, with variability primarily driven by the timing of validation activity. We are reaffirming our guidance of at least 16 validations in 2024, including at least three in the third quarter.

Shaun: With respect to service, we continue to expect revenue to be between 2 million and $2 $5 million in both Q3 and Q4 with variability primarily driven by the timing of validation activities.

Shaun: We are reaffirming our guidance of at least 16 validation in 2024, including at least three in the third quarter.

Sean Wirtjes: Turning to gross margins, we continue to expect gross margins to be positive in both Q3 and Q4, as well as for the full year. We expect product margins to improve sequentially in Q3, driven by ongoing cost reduction and manufacturing efficiency initiatives, as well as increased volume. We expect higher service margins in Q3 based on higher revenue and increased productivity compared to Q2. We continue to expect operating expenses to be in a range of $48 million to $52 million in 2024, with savings from the Operational Efficiency Program largely offset by related severance and other one-time costs over the remainder of 2024.

Shaun: Turning to gross margins, we continue to expect gross margins to be positive in both Q3 and Q4 as well as for the full year.

Shaun: We expect product margins to improve sequentially in Q3, driven by ongoing cost reduction and manufacturing efficiency initiatives as well as increasing volumes.

Shaun: We expect higher service margins in Q3 based on higher revenue and increased productivity compared to Q2.

Shaun: We continue to expect operating expenses to be in the range of $48 million to $52 million in 2024 with savings from the operational efficiency program, largely offset by related severance and other onetime costs over the remainder of 2024.

Sean Wirtjes: For the full year, we expect depreciation and amortization expense of approximately $3 million, stock compensation expense of approximately $5 million, CapEx of approximately $2 million, and other income, which is comprised primarily of interest income, of approximately $3 million. To wrap up, I'll review the Operational Efficiency Program we announced today, as well as our revised expectations relating to our longer-term outlook and cash runway. The program involves focused reductions in our current workforce and planned hiring as well as reductions in other non-headcount related expenses across the business.

Shaun: For the full year, we expect depreciation and amortization expense of approximately $3 million stock compensation expense of approximately $5 million capex.

Shaun: Capex of approximately $2 million and other income, which is comprised primarily of interest income of approximately $3 million.

Shaun: To wrap up I'll review, the operational efficiency program, we announced today as well as our revised expectations relating to our longer term outlook and cash runway.

Shaun: The program involves focussed reductions in our current workforce and planned hiring as well as reductions in other non head count related expenses across the business.

Sean Wirtjes: We expect these actions to result in an approximate $7 million reduction in our annual expenses and cash burn. These savings are in addition to those being generated by our existing programs to reduce product costs, drive higher manufacturing efficiency, control manufacturing overhead costs, and increase service productivity. Through the combination of these actions, along with our assumptions for revenue growth, we expect to achieve positive cash flow by the end of 2027 without additional financing. A few assumptions regarding our financial performance over the next several years underpin this expectation. First, average annual revenue growth rates between the mid-20s and 30 percent.

Shaun: We expect these actions to result in an approximate $7 million reduction in our annual expenses and cash burn.

Shaun: These savings are in addition to those being generated by our existing programs to reduce product costs drive higher manufacturing efficiency control manufacturing overhead costs and increased service productivity.

Shaun: Through the combination of these actions.

Shaun: Along with our assumptions for revenue growth, we expect to achieve positive cash flow by the end of 2027 without additional financing.

Operator: Second, continued meaningful annual improvement in our gross margins, reaching mid-double digits by the end of 2027. Third, after a notable step down in 2025 as a result of our Operational Efficiency Program, relatively flat operating expenses over the following few years, and fourth, maintenance levels of CapEx and relatively minor cash impacts from changes in working capital each year. All of the above assumptions are based on our current 2024 guidance as a starting point, including our expectation that we will burn roughly $40 million in cash for the full year 2024.

Shaun: A few assumptions regarding our financial performance over the next several years underpin this expectation.

Shaun: <unk> average annual revenue growth rates between the mid twenties and 30%.

Shaun: Second continued meaningful annual improvement in our gross margins, reaching mid double digits by the end of 2027.

Shaun: Third after a notable step down in 2025 as a result of our operational efficiency program.

Shaun: Relatively flat operating expenses over the following few years and fourth maintenance levels of Capex and relatively minor cash impacts from changes in working capital each year.

Speaker Change: All of the above assumptions are based on our current 2024 guidance as a starting point, including our expectation that we will burn roughly $40 million in cash for the full year 2024.

Operator: It's also important to point out that we expect our P&L to include approximately $8 million in non-cash depreciation and amortization and stock compensation, which have no impact on cash, as well as a positive contribution from cash interest income each year. We are planning to host an investor event in November during which we intend to provide additional color supporting the assumptions I've just outlined. In summary, we believe the operational efficiency program we announced today is an important step in reducing cash burn meaningfully over each of the next several years.

Speaker Change: It's also important to point out that we expect our P&L to include approximately $8 million in noncash depreciation and amortization and stock compensation expense.

Speaker Change: Which have no impact on cash as well as a positive contribution from cash interest income each year.

Speaker Change: We are planning to host an investor event in November during which we intend to provide additional color supporting the assumptions I just outlined.

Speaker Change: In summary.

Speaker Change: We believe the operational efficiency program, we announced today is an important step in reducing cash burn meaningfully over each of the next several years to.

Speaker Change: Together with our expectation of continued strong revenue growth and significant gross margin improvement as well as active management of Opex Capex and working capital. This gives us confidence in achieving our goal of positive cash flow by the end of 2027 without additional financing.

Operator: Together with our expectation of continued strong revenue growth and significant gross margin improvement, as well as active management of OPEX, CAPEX, and working capital, this gives us confidence in achieving our goal of positive cash flow by the end of 2027 without additional financing. That concludes my comments, so at this point, we'll open the call up for questions. Operator?

Speaker Change: That concludes my comments so at this point, we will open the call up for questions operator.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.

Dr. Device: We are called upon to answer a question of listening via loud speaker. Dr. Device. Please speak up your handset and ensure that you're fully staffed when asking your question.

Speaker Change: Our first question comes from the line of DHS Stephane <unk> from Morgan Stanley. Please go ahead.

Yuko Oku: Good morning, this is Yuko on the call for Tejas. Thank you for taking our questions. With the announcement of new targets along with the Operational Efficiency Program, could you comment on working capital initiatives to improve cash usage? You previously called out inventory as one of the key levers. How did the trend this quarter, and how are you balancing inventory reduction?

Speaker Change: Good morning.

Speaker Change: Thank you for taking my question.

Speaker Change: Jordan.

Operational efficiency program could you on working capital.

Speaker Change: Cash uses.

Speaker Change: Great.

Speaker Change: Thank you Robert.

Speaker Change: This quarter.

Speaker Change: Inventory reduction and stocking.

Speaker Change: Matt.

Speaker Change: Thanks.

Speaker Change: Okay.

Sean Wirtjes: Hey Yuko, it's Sean. So, I think we are very focused on inventory as we look forward in terms of managing working capital. For the first half of the year, we're actually up a little bit. It involves a couple of different things that I'd say are kind of rebalancing, which will set us up well, we believe, for the second half of the year to be a period where we see a meaningful reduction in inventory.

Speaker Change: Hey, Hugo it's Sean.

Speaker Change: So I think we are very focused on inventory as we look forward in terms of managing working capital for.

Speaker Change: For the first half of the year were actually up a little bit.

Speaker Change: It involves a couple of different things that are I'd say are kind of re rebalancing, which will set us up well, we believe for the second half of the year to be a period, where we see meaningful reduction in inventory.

Sean Wirtjes: We have always maintained safety stock levels to make sure that we have inventory across the product offerings that we have to ensure that we have no disruptions. I think if you look back to the COVID period, a lot of people did have supply chain and inventory management issues. We did not, and we would attribute that to the practices we have around making sure we maintain those safety stock levels and expect to continue to do that going forward.

Speaker Change: We have always maintained safety stock levels.

To make sure that we have inventory across the product offerings that we have to.

Speaker Change: Ensure that we have no disruptions I think if you look back to the Covid period, and a lot of people did have supply chain and inventory management issues, we did not and we would attribute that to the the practices we have around making sure. We maintain those safety stock levels and expect to continue to do that going forward.

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

Speaker Change: Yes, you guys, Rob we we also.

Rob: What we call customer business reviews with customers and part of that review is our inventory.

Rob: Performance and we continually receive extremely strong feedback about the quality and timeliness of our supply chain globally from our customers.

Rob Spignesi: Great, thank you for that color. And then also, could you elaborate more on the customer who placed the sterility system and the underlying factors that drove them to place that system? Given sterility is a low-volume application, although it comes with higher pricing, is the benefit of an automated system potentially less attractive in that study versus environmental? Could you elaborate on any key differences in the workflow that may make the incentive to adopt or direct perhaps a slightly different value proposition in a sterile LXE setting?

Rob: Great. Thank you for that color.

Rob: Alright.

Rob: Tomorrow.

Rob: Sure.

Speaker Change: Your line.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Oh.

Speaker Change: I would now like with higher pricing.

Speaker Change: Okay.

Speaker Change: Potentially.

Speaker Change: Sure.

Hi, Brian.

Speaker Change: Questions on the workflow.

Speaker Change: Okay.

Speaker Change: Correct, perhaps slightly now from Ali prop Sterling.

Speaker Change: Applications.

Rob Spignesi: Sure, sure. I think I've...

Rob Spignesi: Sure, sure. I think that's a good question, Yuko.

Speaker Change: Sure sure.

Speaker Change: That's a.

Speaker Change: It's a good question Hugo So yes as you touched on in the <unk> is a higher volume.

Rob Spignesi: So yes, as you touched on, EM is a higher volume type of task where automation plays a role in automating a high volume kind of repetitive task. Although the value proposition of growth direct, I'll remind folks listening, is clearly full automation, but also strong data integrity, data management, and data security. And automation, even in a lower volume environment, is very important for the reduction in errors. So while automation plays a different role, I would say, in a high volume setting versus a low volume setting, the data integrity, the lower amount of hands-on time, and just the improved quality are incredibly important, again, in low volume or high volume.

Speaker Change: Type of tests, where automation plays a role in automating a high volume kind of repetitive tasks, although the value proposition of.

Speaker Change: Growth direct I'll remind folks listening is clearly full automation.

Speaker Change: But also but also a strong data integrity data management data security and automation, even in a lower environment, a lower volume environment is very important for.

Speaker Change: Reduction in errors, so while it automation plays a different role I would say in a high volume setting versus a low volume setting the data integrity.

The.

Speaker Change: Lower amount of hands on time and just the improved quality is in is incredibly important and low volume or high volume. However, the additional extremely strong value proposition. That's really has is.

Rob Spignesi: However, the additional extremely strong value proposition that Rapid Stability has on our growth direct system is time to result. If you recall, as little as one day, we can give time for the detection of contamination, and as little as three days, final time for results. So this compares generally to about two weeks if things go well with the legacy method. So customers are getting not only all the benefits of a fully automated platform technology, which more and more of the planet, of the universe of customers are getting used to, but they have the incremental benefit with regard to sterility of the very fast time to detection and time to release, which in some cases is gating for release to patients and business implications too with regard to revenue recognition and things of that nature.

<unk> has an outgrowth direct system is his time to result.

Speaker Change: If you'll if you recall.

Speaker Change: As little as one days, we can give the time to detection two of contamination in as little as three days final time to results as this compares generally to about two weeks.

Speaker Change: If things go well to the legacy method. So customers are getting not only all of the benefits of a fully automated platform technology, which more and more of our planet.

Speaker Change: University of customers is is getting used to but they have the incremental benefit with regard to sterility.

Speaker Change: The very fast time to detection and time to release, which in some cases is gating for.

Speaker Change: Release to patients and business implications too with regard to revenue recognition and things of that nature. So the value proposition of <unk> is very strong and this is under the.

Rob Spignesi: So the value proposition of sterility is very strong. Again, just another reminder, you know, our strategy here is to build a next-generation infrastructure for quality control across pharma. So we are automating, and sterility is a key part of this, you know, essentially the full suite of daily routine use tests across environmental monitoring, testing, water testing, bioburden or product testing, and now sterility testing, all under the aegis, if you will, of the growth direct platform.

Speaker Change: Again, just another reminder, our strategy here is to build the next generation <unk>.

Speaker Change: Infrastructure for quality control cost pharma, so we are automating and <unk>.

As a key part of this the full essentially the full suite of daily routine use tasks across environmental monitoring testing water testing bio burden of product testing and now sterility testing all under the the agents. If you will the value proposition of the growth direct platform.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Dan Arias from Stiefel. Please go ahead.

Dan <unk>: Our next question comes from the line of Dan <unk> from Stifel. Please go ahead.

Daniel Arias: Hey, good morning, guys. Thanks for the questions. Rob, I'm just following up on sterility.

Dan <unk>: Hey, good morning, guys. Thanks for the questions.

Dan <unk>: Rob maybe just following up on sterility now that you've gotten some customers together on it how are you feeling about uptick there in general what do you think will be the difference between those that adopt that system more of that capability versus those that don't within the existing user base of those that you would connect with and you've convinced that growth direct is something that they need to have.

Daniel Arias: Now that you've gotten some customers together on it, how are you feeling about uptake there in general? What do you think will be the difference between those that adopt that system or that capability versus those that don't within the existing user base? So those that you've connected with, and you've convinced that GrowthDirect is something that they need to have.

Dan <unk>: Yes.

Rob Spignesi: Yeah, so again, I wouldn't rule anyone out of not using it at this point. So, you know, it's early, early days in the commercial availability of the product. We're excited about what we're seeing from the feedback. You heard the remarks about our sterility day.

Speaker Change: Yes, so again I wouldn't rule anyone out of not.

Speaker Change: Using it at this point so the it's early early days in the commercial availability of the product.

Speaker Change: Where.

Speaker Change: We're excited about what we're seeing from the feedback you've heard in the remarks about Australia day, we're having webinars and the significant global customer connections and the feedback is as strong funnel build as is very strong so within the existing customer base I would say universally strong feedback.

Rob Spignesi: We're having webinars and significant global customer connections, and the feedback is strong. The funnel build is very strong. So within the existing customer base, I would say, you know, universally strong feedback. We did place a system in the quarter for a large existing customer, and we would expect that trend to, you know, to continue. It is a capital equipment sales process, so it'll have, you know, some of those features with regard to, you know, the sales cycle timing.

Speaker Change: We did place a system in the quarter to a larger existing customer.

Speaker Change: And we would expect that trend to continue it is it is a capital equipment sales process. So it'll it will have some of those features with regard to the sales cycle timing that being said, we also expect new customers new customer segments, which we've touched on in previous calls.

Rob Spignesi: That being said, we also expect new customers, new customer segments, which we touched on in previous calls, right? So some of the areas we're very, very strong in are, you know, biologics and cell and gene therapy. This really application addresses quite strongly segments such as sterile injectables, for example, and vaccine categories. So it's also excitingly opening up conversations, I would say, with incremental and new very large customer segments for us.

Speaker Change: So some of the we're very very strong as you know in biologics and cell and gene therapy.

This really application does address quite strongly.

Speaker Change: <unk> such as sterile Injectables for example in vaccine category. So it's also.

Speaker Change: Excitingly opening up conversations I would say with incremental and new very large customer segments for us and there is a recent example, where we're having a sterility conversation with a.

Rob Spignesi: And there's a recent example where, you know, we had a sterility conversation with a customer in one of these new categories, and it's triggered a sales process around environmental monitoring. So a bit back to the comments I made at the end of Yuko's question: our strategy here is to bring platform technology that automates effectively the majority of the microbial quality control requirements of companies.

Speaker Change: A customer in one of these new categories and it's triggered a sales process around environmental monitoring so a bit back to the comments.

Speaker Change: I made at the end of <unk> question is the our strategy here is is to bring a platform technology that automates the effectively the.

Speaker Change: The majority of the microbial quality control.

Speaker Change: Requirements of company. So our sales team now globally is equipped to have conversations up and down that workflow and help the customer solve their microbial QC problems and we're starting to see the benefit of that already with the.

Rob Spignesi: So our sales team is now globally equipped to have conversations up and down that workflow and help the customer solve their microbial QC problems. And we're starting to see the benefit of that already with the launch of sterility.

Speaker Change: With the launch of sterility.

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

Speaker Change: Okay, just need to dig in on that a little bit more I understand that hypothetically everybody could be or should be interested but thats probably unlikely to be the case for a while so what I'm, what I'm kind of I'm trying to understand is when you talk to your sales team or you look at those that you've gathered together what are the characteristics of those that feel like they are most likely.

Speaker Change: Adopters versus either less likely or adopters down the road I know everybody should use it but.

It's probably not going to happen anytime soon yes, okay. So fair enough. So the most likely customers to adopt earlier in this cycle will be largely.

Rob Spignesi: Yeah, okay. So, fair enough.

Rob Spignesi: So, the most likely customers to adopt earlier in the cycle will be largely the larger companies that know us well. I don't think it's a hard and universal rule because the funnel does have new customers and new segments, but if you think about it, again, consistent with our approach, we have a number of customers globally out there in the biologics and cell and gene that have higher value applications that know the growth direct, know the benefit of the growth direct, have implemented the growth direct, have managed the data around growth direct, and this is an extension of the menu around it.

Speaker Change: The larger companies that know us well.

Speaker Change: I don't think its a hard in universal rule, because the funnel does have new customers and new segments, but if you think about it again consistent with our approach we have a number of customers globally out there in the biologics and cell and gene that that have higher value applications that know the growth direct another benefit of the growth of our active implemented the growth to react.

Speaker Change: Manage the data around growth direct and this is this is an extension of the menu around it so.

Rob Spignesi: So, that would be, you know, if I could kind of point out what I would expect to be the earlier adopters, and consistent with the placement we had, it is an existing large customer. It would be our existing customer base. I do want to highlight, though, the funnel has got a non-trivial amount of, I would say, new customers and new customer segments

Speaker Change: So that would be if I could.

Speaker Change: Kind of point out what I would expect to be the earlier adopters and consistent with the placement we had it.

Speaker Change: It is an existing large customer it would be our existing customer base I do want to highlight though the funnel is has got a non trivial amount of I would say new customer and new customer segments in it.

Rob Spignesi: Okay, all right, that's helpful. And then Sean, on the gross margin trajectory, you sound pretty confident there. It's not hard to see how you flip to positive for the back half, but in order to get positive for the full year, I do need to be in like the mid to high single-digit range in 3Q and then actually in the high teens range in 4Q on total gross margin. So is that the right level of increase? If not, help me out, and if so, can I just need to understand a little better how the incremental improvement will materialize from here? Yeah.

Okay. That's helpful.

Speaker Change: Sean on the gross margin trajectory you sound pretty confident there it's not hard to see how you flip to positive for the back half, but in order to get positive for the full year I do need to be in like the mid to high single digit range in <unk>, and then actually like the high teens range and <unk> on total gross margin. So is that the right.

Speaker Change: Will it increase if not helped me out and if so do you need to.

Speaker Change: <unk>, a little better how the incremental improvement materializes from here yes.

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

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

Daniel Arias: Okay, and then just if I could sort of extend the thought, so, and I know we'll talk about 2025 at a later date, but how do you feel about 4Q? Because you have some nice things working for you on the gross margin line very clearly. I mean, you'll be up, if that cadence holds, you'll be up a good 20 plus percent from 2Q to 4Q. So is there anything you can say about 4Q as a jumping off point for gross margins?

Speaker Change: Okay, and then just if I could sort of extend that thought so and I know, we'll talk to 2025 at a later date, but how do you feel about <unk> because you have some nice things working for you on the gross margin line very clearly I mean youll be up if that cadence holds youll be up a good 20 plus percent from <unk> to <unk>.

Speaker Change: <unk>. So is there anything you can say about <unk> as a jumping off point for gross margins next year.

Sean Wirtjes: Yeah, I think one thing to point out is that our typical seasonality is just volume still matters. We're obviously making a lot of progress on the internal initiatives we have across our revenue areas to get margins up. You know, if we follow our typical seasonality, there will be some pressure on margins sequentially from Q4 to Q1, but we would still expect to be positive in Q1 and then build even more from there.

Speaker Change: Yes, I mean I think.

Speaker Change: One thing to point out is our typical seasonality is just volume still matters I mean, we're obviously, making a lot of progress on the internal initiatives, we have across our revenue areas to get margins up.

Speaker Change: If we follow our typical seasonality there will be some pressure on margin sequentially from Q4 to Q1.

Speaker Change: But we would still expect to be positive in Q1, and then build even more from there I think not going to give guidance at this point, but we did talk today about.

Sean Wirtjes: I think, you know, I'm not going to give guidance at this point, but we did talk today about what we expect over the next several years across the business, and gross margins were part of that. We've given a kind of endpoint by the end of 27 to get to mid-double-digit margins. I think that gives you some feel for where we think 25, 26, 27 will be on average. So I think if you think about where we could exit Q4, maybe a step down in Q1, but then we're building up. Throughout 2025, to get to a point where that overall full-year number for 25 is a meaningful step up from the overall 24 number.

Speaker Change: What we expect over the next several years across the business in gross margins was part of that in.

We've given a kind of endpoint by the end of 2007 to get to mid double digit margins I think that gives you. Some some feel for where we think 'twenty five 'twenty six 'twenty seven it'll be on average.

Speaker Change: So I think if you think about where we could exit Q4, maybe a step down in Q1, but then we are building up positively throughout 2025 to get to a point where that overall full year number for 25 is a meaningful step up from the overall 24 number.

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

Yes that makes sense I can work with that okay last one if I could just slip in a question on the operational efficiency, how does that impact anything we might do when it comes to just expansion of the commercial team.

Speaker Change: You've got some important new products here I think you still have ambitions of growing the sales coverage outside the U S. So can you maybe just talk about the cash conservation that sounds like it's important in the context of still growing out the franchise bill still touching more customers. Thanks.

Rob Spignesi: Yeah, Dan, it's Rob. So we, our commercial team is in place. So we're not, we don't see meaningful growth on the team. As we answered on previous calls, we do have a sterility specialist, but we really view our sales team, we train them to be consultative, you know, sales professionals. So they're able to position and work with customers on the full range of applications. Again, all environmental monitoring, water, bioburden, and sterility applications.

Daniel Arias: Thanks. Yeah Dan, it's Rob. So, um,

Speaker Change: Yes, Dan it's Rob so.

Speaker Change: We are our commercial team is in place so.

Speaker Change: We're not we don't see meaningful growth to the team.

Answered on previous calls we do have a.

Speaker Change: A sterility.

Speaker Change: Specialist, but we really view our sales team.

We train them to be consultative.

Speaker Change: Sales professionals, so they are able to position and work with customers on the full range of applications again, all of those environmental monitoring water bio burden and sterility applications. So we view.

Rob Spignesi: So we view our team in place globally, fully constituted teams in North America, Europe, and Asia. So we don't see meaningful growth in the near term and are comfortable with the coverage we have and the ability to drive to not only the near-term guide but also the longer-term outlook that, you know, Sean walked through in the prepared remarks. Okay, great. Thank you, guys. Okay, I think that's the end of the questions. So, thank you, everyone, for the questions today. I appreciate the continued interest in our business. Listen, we're just going to wrap things up.

Speaker Change: Our team in place globally fully constituted teams in North America.

Speaker Change: Europe and in Asia. So, we don't see meaningful growth in the near term and are comfortable with the coverage we have in the <unk>.

Speaker Change: And the ability to drive to not only the near term.

Speaker Change: Guide, but also the longer term outlook that Sean walked through in the prepared remarks.

Speaker Change: Okay, great. Thank you guys.

Speaker Change: Okay.

Speaker Change: Some questions.

Speaker Change: Okay.

Speaker Change: That's the end of the question. So thank you everyone for the questions today and appreciate the continued interest in our business.

Speaker Change: Listen, we're just going to wrap things up we're very excited about about the business.

Rob Spignesi: We're very excited about the business and what we see in both the shorter term and over the horizon here with regard to some elements of our outlook, the long-term outlook that you heard today. From a commercial standpoint, increasing customer discussions with senior-level customers about multi-system orders. I think you heard some of that in the prepared remarks. So we're quite encouraged by what we're seeing there and with regard to the funnel build and conversations globally and, specifically, negotiations with customers currently on multi-system orders.

Speaker Change: And what we see in both the shorter term and over the horizon here with regard to some elements of our outlook longer term outlook that you heard today.

Speaker Change: From a commercial standpoint.

Speaker Change: Leasing customer discussions with senior level customers about multi system orders I think you heard some of that in the prepared remarks. So we're quite encouraged what we're seeing there and with regard to the funnel builds in conversations globally and specifically negotiations with customers currently on multi system orders margin improvement is clearly one.

Rob Spignesi: Margin improvement is clearly one of our additional top priorities, and I think you can see clear and demonstrable progress there. Our third pillar of focus, new products, very excited about rapid sterility and certainly great early returns and more to follow. And then, consistent with our fourth pillar of prudent cash management, excited about the operational efficiency program and what that means for the business with regard to achieving positive cash flow without additional financing. So, again, thank you for your time. We'll wrap up the call now, and we look forward to speaking with many of you shortly.

Speaker Change: Of our additional top priorities and I think you can see clear and demonstrable progress there.

Speaker Change: Our third pillar of focused new products very excited about rapid sterility and certainly.

Speaker Change: Great early returns and more to follow and then consistent with our our fourth pillar of prudent cash management.

Speaker Change: Excited about the operational efficiency program and what that what that means for the business with regard to achieving positive cash flow without additional financing. So again. Thank you for your time, we'll wrap the call up.

Speaker Change: Now and we look forward to speaking with many of you shortly.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Please wait; the conference will begin shortly.

Speaker Change: Ladies and gentlemen.

Speaker Change: Today's call. Thank you all for Johnny you May now disconnect.

Operator: Please wait; the conference will begin shortly.

Speaker Change: Please wait the conference will begin shortly.

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<unk>: Thank you for standing by my name is <unk> and I will be your conference operator today at this time I would like to welcome everyone to the rapid micro Biosystems second quarter 2000, <unk> earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question. During this time simply press star followed by the number one media, California keep Bob if you would like to withdraw your question Press Star one again.

Speaker Change: I would now like to turn the call over to Michael Baldwin with Investor Relations. Please go ahead.

Michael Baldwin: Good morning, and thank you for joining the rapid micro Biosystems second quarter 2024 earnings call.

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

Speaker Change: Earlier today, we issued a press release announcing our second quarter 2024 financial results.

Speaker Change: Copy of the release is available on the Companys website at rapid micro bio dot com under investors and the news and events section.

Speaker Change: Before we begin I would 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.

Michael Boulder: Guidance for 2024, including revenue, expenses, gross margins, system placements, and validation activities. The anticipated impact of our operational efficiency program, our efforts to reduce our use of cash for operating activities with the goal of enabling the company to achieve positive cash flow without additional financing. Expectations for and planned activities related to the company's business development and growth, customer interest in the adoption of the GrowthDirect system, statements regarding rapid sterility, and the potential impact of macroeconomic uncertainty on Rapid Micro's business.

Speaker Change: Statements relating to rapid micro's financial condition assumptions regarding future financial performance anticipated future cash usage and cash runway guide.

Speaker Change: Guidance for 2024, including revenue expenses gross margins system placements and validation activities.

Michael Baldwin: The anticipated impact of our operational efficiency program, our efforts to reduce our use of cash for operating activities with a goal of enabling the company to achieve positive cash flow without additional financing expectations.

Speaker Change: Our expectations for and planned activities related to the company's business development and growth customer interest and adoption of the growth direct system statements regarding rapid sterility and the potential impact of macroeconomic uncertainty on rapid micros business.

Speaker Change: Actual results may differ materially.

Speaker Change: From those expressed or implied in the forward looking statements due to a variety of factors.

Speaker Change: 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.

Speaker Change: This conference call contains time sensitive information and is accurate only as of the live broadcast today August <unk> 2024.

Speaker Change: 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.

Speaker Change: And with that I'll turn the call over to Rob.

Rob: Thank you Mike Good morning, everyone and thank you for joining us.

Rob: As Mike mentioned, we issued a press release announcing our second quarter financial results. This morning.

Rob: These results exceeded our guidance and included a statement that reaffirmed our full year 2020 for revenue outlook.

Speaker Change: As part of today's earnings release, we also announced an operational efficiency program.

Speaker Change: I will then discuss the operational efficiency program announced this morning, and the key drivers, we believe will meaningfully increase long term shareholder value.

Speaker Change: I will then turn the call over to Sean who will provide a more detailed review of our Q2 financial results as well as our financial outlook.

Rob Spignesi: Starting with our second quarter performance, total revenue increased to $6.6 million, representing growth of 32% compared to the second quarter of 2023. Total revenue exceeded the guidance we provided in May and was a record quarter for the company. We placed five growth-directed systems in the second quarter, with placements in North America, Europe, and Asia Pacific. In June, we held our first Growth Direct Rapid Stability Day, hosting potential customers at our Lexington Innovation Center and Demonstration Lab.

Sean: Starting with our second quarter performance total revenue increased to $6 $6 million.

Sean: Representing growth of 32%.

Speaker Change: Compared to the second quarter of 2023.

Sean: Total revenue exceeded the guidance, we provided in May and was a record quarter for the company.

Sean: We placed five growth direct systems in the second quarter with placements in North America, Europe and Asia Pacific.

Speaker Change: In June we held our first growth direct rapid sterility day hosting potential customers at our Lexington Innovation Center and demonstration lab. Additionally.

Rob Spignesi: Additionally, we are excited to announce that we placed our first growth-directed Rapid Serility system with one of our existing customers during the second quarter. With respect to gross margins, we continue to increase manufacturing efficiencies and reduce product costs. These initiatives resulted in near break-even margins in the second quarter, which represented a significant sequential improvement from Q1.

Sean: Additionally, we are excited to announce that we placed our first growth direct rapid sterility system with.

Speaker Change: One of our existing customers during the second quarter.

Sean: We remain on track for further margin improvement in Q3 and Q4.

Rob Spignesi: Also, one of our largest customers, who has deployed GrowthDirect systems globally, has selected our platform as a core technology for their Lab of the Future strategy and is planning significant further system deployments over future quarters. This customer strategy incorporates the most advanced technology and automation into state-of-the-art biomanufacturing facilities and better positions it for the increasing demands and complexity of drug development. These are exciting developments that are expected to drive system orders and continue to strengthen GrowthDirect's position as the clear standard in pharmaceutical quality control globally.

Speaker Change: Now I would like to discuss the progress we have made against our 2024.

Speaker Change: Priorities, starting with accelerating system placements during the second quarter, our customer engagement efforts resulted in several significant advancements.

Speaker Change: We continue to move forward with multiple customers, who are planning further deployment of the growth direct platform across our global manufacturing networks.

Speaker Change: These are existing customers, we have already realized the value proposition of our technology at multiple sites.

Speaker Change: And are now planning to further standardize their workflows and processes across our global organizations.

Sean: Also one of our largest customers who has deployed growth direct systems globally has selected our platform as a core technology for their lab of the future strategy and is planning significant further assist in deployments over future quarters.

Speaker Change: This customer strategy incorporates the most advanced technology and automation into state of the art bio manufacturing facilities and better positions. It for the increasing demands and complexity of drug development.

Speaker Change: These are exciting developments that are expected to drive system orders and continued to strengthen the growth of Rx position as the clear standard in pharmaceutical quality control globally.

Rob Spignesi: Also, I would like to recognize a notable milestone. In July, we placed our 150th GrowthDirect system with one of our existing customers. This system also represented our 9th placement for the year, putting us in a strong position to achieve our full year guidance of at least 20 system placements.

Speaker Change: Also I would like to recognize a notable milestone in July we placed our 150 <unk>.

Speaker Change: Growth direct system with one of our existing customers. This system also represented our ninth placement for the year, putting us in a strong position to achieve our full year guidance of at least 20 system placements.

Speaker Change: Looking forward to the balance of 2024, we once again had two of our largest and best attended customer events upcoming in.

Speaker Change: In October we will be exhibiting at the PDA pharmaceutical Microbiology conference in Washington D C and in November we will be holding our annual growth direct day in partnership with one of our major customers.

Sean: Similar to last year's growth direct day, which was hosted by Johnson <unk>. Johnson, we are excited to announce that this year's two day event will be hosted by Alonza.

Sean: One of the world's largest <unk> near their Maastricht site in the Netherlands.

Rob Spignesi: Current and prospective customers will discuss the operational and data integrity benefits of the Grow2X system, as well as share best practices for global deployment. Participants will also hear a variety of customer success stories, including patient impact stories from their peer companies in attendance. Additionally, our new Rapid Sterility application will be a highlight of the event, and we expect strong customer interest. Participants will also tour the local Lonza site, which includes a fully validated Growth Direct system in a GMP environment. With approximately 100 attendees expected, we look forward to this exciting event.

Speaker Change: Current and prospective customers will discuss the operational.

Speaker Change: And data integrity benefits of the <unk> system as well as sharing best practices for global deployment.

Speaker Change: Participants will also here a variety of customer success stories, including patient impact stories from their peer companies in attendance. Additionally, our new rapid sterility application will be a highlight of the event and we expect strong customer interest.

Speaker Change: Participants will also tour, but local Alonza site that includes a fully validated growth direct system in a GMP environment.

Sean: With approximately 100 attendees expected we look forward to this exciting event.

Rob Spignesi: Turning to gross margins, we continue to make significant progress and deliver near break-even gross margins in the second quarter. We continue to drive leverage in our business through the combination of high revenue growth and focused cost reduction. To highlight this dynamic, our second quarter cost of revenue decreased one percent, while our revenue increased 32% as compared to the second quarter of 2020.

Speaker Change: Turning to gross margins, we continue to make significant progress and delivered near breakeven gross margins in the second quarter.

Sean: We continue to drive leverage in our business to the combination of high revenue growth and focused cost reduction.

Speaker Change: To highlight this dynamic our second quarter cost of revenue decreased 1%.

Sean: While our revenue increased 32% as compared to the second quarter of 2023.

Rob Spignesi: We expect to sustain these trends and remain confident in our ability to achieve positive gross margins in the second half of 2024. We are excited to announce the commercial availability of GrowthDirect Rapid Serility. In fact, during the second quarter, we placed our first Rapid Serility system with one of our existing top 10 global pharma customers. Additionally, during the quarter, we hosted two Serility-focused online webinars and an in-person Rapid Serility Day. This event included a hands-on demonstration of the new application as well as expert-led discussions on topics that included rapid product release and Automating Workflows in a Regulatory Environment.

Speaker Change: We expect to sustain these trends and remain confident in our ability to achieve positive gross margins in the second half of 2024.

Speaker Change: <unk> day.

Speaker Change: We continue to plan customer events and scale, our manufacturing capability in the second half of 2024.

Speaker Change: Building on our strong business momentum, we recently completed an enterprise wide review of opportunities to realize operational efficiencies.

Speaker Change: This operational efficiency program is consistent with our priority to prudently manage our cash and improve the companys financial strength.

Speaker Change: This program is in addition to our ongoing and focused efforts to reduce product costs drive higher manufacturing efficiencies and increased service productivity.

Rob Spignesi: These key drivers and catalysts include our leading, highly-differentiated growth-direct technology that is undergoing global adoption by the world's largest and most sophisticated biopharmaceutical companies, oftentimes implemented in emission-critical, high-value biologics and cell and gene therapy products. A clear value proposition that becomes embedded in workflows, which enables customers to operate more efficiently and securely and allows them to move their microbial quality control operations into the 21st century with a fully automated data-secure platform. Broad commercial penetration, including a global growing base of 150 systems across North America, Europe, and Asia, which represents clear progress against our goal of becoming the industry standard for pharmaceutical quality control.

Sean: A clear value proposition that becomes embedded in workflows, which enables customers to operate more efficiently and securely.

Speaker Change: Those empty move their microbial quality control operations into the 20 <unk> century with a fully automated data secure platform.

Speaker Change: Broad commercial penetration, including a global growing base of 150 systems across North America, Europe and Asia.

Speaker Change: It represents clear progress against our goal of becoming the industry standard in pharmaceutical quality control.

Rob Spignesi: A powerful business model that includes not only strong revenue growth but a significant and growing base of durable, recurring revenue with rapidly improving gross margins. And finally, our operational efficiency program announced today further increases the company's financial strength by providing a clear path to achieving positive cash flow. Based on these drivers, our consistent performance over the last two years, and our expected outlook, we strongly believe we are positioned to create substantial shareholder value.

Speaker Change: A powerful business model, which includes not only strong revenue growth, but a significant and growing base of durable recurring revenue with rapidly improving gross margins.

Speaker Change: And finally, our operational efficiency program announced today further increases the company's financial strength by providing a clear path to achieving positive cash flow.

Speaker Change: Based on these drivers are consistent performance over the last two years and expected outlook. We strongly believe we are positioned to create substantial shareholder value. We will reinforce these messages about our business momentum outlook and strong customer value proposition to increase investor outreach, including upcoming meetings and <unk>.

Rob Spignesi: We will reinforce these messages about our business momentum, outlook, and strong customer value proposition through increased investor outreach, including upcoming meetings and conferences. And with that, I will now turn the call over to Sean to discuss our second quarter performance and outlook in more detail.

Speaker Change: Francis.

Speaker Change: And with that I will now turn the call over to Shaun to discuss our second quarter performance and outlook in more detail John.

Sean Wirtjes: Thanks Rob, and good morning everyone. I'll start my comments today with a review of our second quarter results. I'll then review our third quarter and full year 2024 outlook, followed by additional color on the operational efficiency program we announced this morning. Q2 revenue increased 32% to $6.6 million, compared to $5 million in Q2 2023. During the second quarter, we placed five growth-direct systems, including our first rapid sterility system, compared to two in the second quarter last year.

Shaun: Thanks, Rob and good morning, everyone I will start my comments today with a review of our second quarter results.

Shaun: I will then review our third quarter and full year 2024 outlook, followed by additional color on the operational efficiency program, we announced this morning.

Shaun: Q2 revenue increased 32% to $6 6 million compared to $5 million in Q2 2023 <unk>.

Speaker Change: During the second quarter, we placed five growth direct systems, including our first rapid sterility system compared to two in the second quarter last year.

Sean Wirtjes: We also completed five validations in the quarter, compared to three in the second quarter last year. Product revenue, which is comprised of systems and consumables, increased 43% to $4.5 million in the quarter, compared to $3.2 million in Q2 last year. The growth in product revenue was primarily driven by the higher number of growth direct systems placed in the quarter. However, the Q2 consumables revenue growth rate was in the single digits compared to what was, at the time, record revenue in Q2 last year. Service revenue increased approximately 14% to $2.1 million in the second quarter, compared to $1.8 million in Q2 last year. This growth is driven by higher validation and service contract revenue.

Shaun: We also completed five validation in the quarter compared to three in the second quarter last year.

Speaker Change: Product revenue, which is comprised of systems and consumables increased 43% to $4 $5 million in the quarter compared to $3 2 million in Q2 last year.

Speaker Change: The growth in product revenue was primarily driven by the higher number of growth direct systems placed in the quarter.

Speaker Change: Q2 consumables revenue growth rate was in the single digits compared to what was at the time record revenue in Q2 last year.

Speaker Change: Service revenue increased approximately 14% to $2 1 million in the second quarter compared to $1 8 million in Q2 last year.

Speaker Change: This growth was driven by higher validation and service contract revenue.

Speaker Change: Second quarter recurring revenue, which consists of consumables and service contracts increased 7% to $3 8 million compared.

Speaker Change: Compared to $3 6 million in Q2 last year.

Speaker Change: Non recurring revenue, which is comprised mainly of systems and validation revenue increased 97% to $2 8 million.

Shaun: Compared to $1 $4 million in the prior year quarter.

Speaker Change: Turning to gross margins product margins were negative <unk> 4 million or negative 8% in Q2 compared to negative $1 5 million or negative 48% in the second quarter last year.

Speaker Change: This 40 percentage point improvement demonstrates that demonstrates the meaningful progress we are making on our initiatives to reduce product costs and increased manufacturing efficiency.

Sean Wirtjes: The higher volume of gross direct systems placed also positively impacted gross margins in the quarter. Service margins were positive $0.2 million, or positive 9%, in the second quarter, compared to negative $0.4 million, or negative 20%, in the second quarter last year, with a 29 percentage point increase driven by higher revenue and productivity. On a combined basis, our second quarter growth margin was negative $0.2 million, or negative 3%, compared to negative $1.9 million, or negative 38%, in Q2 last year. This represents a 35 percentage point improvement.

Speaker Change: The higher volume of growth <unk> systems placed also positively impacted gross margins in the quarter.

Speaker Change: Service margins were positive <unk> 2 million or positive, 9% in the second quarter compared to negative <unk> 4 million or negative 20% in the second quarter last year with the 29 percentage point increase driven by higher revenue and productivity.

Speaker Change: On a combined basis, our second quarter gross margin was negative <unk> 2 million or negative 3%.

Speaker Change: Impaired to negative $1 9 million or negative 38% in Q2 last year. This represents a 35 percentage point improvement.

Sean Wirtjes: Continuing down the P&L, total operating expenses were $13.2 million in Q2, which was flat compared to the prior year quarter. Within OPEX, R&D expenses and sales and marketing expenses were $3.7 million and $3.6 million, respectively, representing a combined increase of approximately 15%. This increase was mainly associated with the commercialization of our new Rapid Sterility application, as well as other new product development activities and our new R&D Innovation Center and Demo Lab in Lexington, Massachusetts.

Speaker Change: Continuing down the P&L total operating expenses were $13 2 million in Q2.

Speaker Change: Which was flat compared to the prior year quarter within Opex, R&D expenses and sales and marketing expenses were $3 7 million and $3 6 million respectively.

Speaker Change: Representing a combined increase of approximately 15%.

Speaker Change: This increase was mainly associated with the commercialization of our new rapid sterility application as well as other new product development activities and our new R&D Innovation Center and demo lab in Lexington, Massachusetts.

Speaker Change: At the same time G&A expenses were down approximately 14% to $5 8 million in Q2 as a result of focus ongoing efforts to reduce spending in this area. These savings allowed us to hold total opex spending flat in the quarter.

Sean Wirtjes: The net loss was $12.6 million in Q2, this compares to a net loss of $14 million in Q2 last year. Net loss per share was $0.29 in Q2, compared to a net loss per share of $0.33 in the prior year quarter. With respect to non-cash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million in the quarter, stock compensation expense was $1.2 million in the quarter, and capital expenditures were $0.5 million in the second quarter.

Speaker Change: Net loss was $12 6 million in Q2. This compares to a net loss of $14 million in Q2 last year.

Speaker Change: Net loss per share was <unk> 29 in Q2 compared to net loss per share of <unk> 33 in the prior year quarter.

Speaker Change: With respect to noncash expenses and capital expenditures depreciation and amortization expenses expenses were <unk> 8 million in the quarter stock compensation expense was $1 2 million in the quarter and capital expenditures were zero point $5 million in the second quarter.

Sean Wirtjes: We ended the second quarter with approximately $70 million of cash and investment. Now I'll turn to our Q3 and full year 2024 outlook. We continue to expect total revenue of at least $27 million for the full year 2024, which assumes we will place at least 20 systems. This implies year-over-year revenue growth of at least 20 percent. This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions.

Speaker Change: We ended the second quarter with approximately $70 million of cash and investments.

Speaker Change: Now I'll turn to our Q3 and full year 2020 for outlook.

Speaker Change: We continue to expect total revenue of at least $27 million for the full year 2024, which assumes we will place at least 20 systems.

Speaker Change: This implies year over year revenue growth of at least 20%.

Speaker Change: This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions.

Speaker Change: For the third quarter, we expect total revenue of at least $6 million, which assumes at least for system placements and reflects typical summer seasonality.

Speaker Change: We continue to expect revenue and placements to peak in Q4, consistent with our typical annual cadence in the guidance. We originally provided in March.

Speaker Change: Looking at consumables, we expect Q3 revenue to be relatively consistent with Q2.

Speaker Change: Subject to some normal variability from the timing of customer orders and shipments within the quarter. We then expect consumable revenue to increase sequentially in Q4.

Sean Wirtjes: We then expect consumables revenue to increase sequentially in Q4. With respect to service, we continue to expect revenue to be between $2 million and $2.5 million in both Q3 and Q4, with variability primarily driven by the timing of validation activities. We are reaffirming our guidance of at least 16 validations in 2024, including at least three in the third quarter.

Speaker Change: With respect to service, we continue to expect revenue to be between 2 million and $2 $5 million in both Q3 and Q4 with variability primarily driven by the timing of validation activities.

Speaker Change: We are reaffirming our guidance of at least 16 validation in 2024, including at least three in the third quarter.

Sean Wirtjes: Turning to gross margins, we continue to expect gross margins to be positive in both Q3 and Q4, as well as for the full year. We expect product margins to improve sequentially in Q3, driven by ongoing cost reduction and manufacturing efficiency initiatives, as well as increased volume. We expect higher service margins in Q3 based on higher revenue and increased productivity compared to Q2. We continue to expect operating expenses to be in a range of $48 million to $52 million in 2024 with savings from the Operational Efficiency Program, largely offset by related severance and other one-time costs over the remainder of 2024.

Speaker Change: Turning to gross margins, we continue to expect gross margins to be positive in both Q3 and Q4 as well as for the full year.

Speaker Change: We expect product margins to improve sequentially in Q3, driven by ongoing cost reduction and manufacturing efficiency initiatives as well as increasing volumes.

Speaker Change: We expect higher service margins in Q3 based on higher revenue and increased productivity compared to Q2.

Speaker Change: We continue to expect operating expenses to be in a range of $48 million to $52 million in 2024 with savings from the operational efficiency program, largely offset by related severance and other onetime costs over the remainder of 2024.

Speaker Change: For the full year, we expect depreciation and amortization expense of approximately $3 million stock compensation expense of approximately $5 million capex.

Speaker Change: Capex of approximately $2 million and other income, which is comprised primarily of interest income of approximately $3 million.

Speaker Change: To wrap up I'll review, the operational efficiency program, we announced today as well as our revised expectations relating to our longer term outlook and cash runway.

Speaker Change: The program involves focussed reductions in our current workforce and planned hiring as well as reductions in other non head count related expenses across the business.

Sean Wirtjes: We expect these actions to result in an approximate $7 million reduction in our annual expenses and cash burns. These savings are in addition to those being generated by our existing programs to reduce product costs, drive higher manufacturing efficiency, control manufacturing overhead costs, and increase service productivity through the combination of these actions.

Speaker Change: We expect these actions to result in an approximate $7 million reduction in our annual expenses and cash burn.

Speaker Change: These savings are in addition to those being generated by our existing programs to reduce product costs drive higher manufacturing efficiency control manufacturing overhead costs and increased service productivity.

Speaker Change: Through the combination of these actions.

Sean Wirtjes: Along with our assumptions for revenue growth, we expect to achieve positive cash flow by the end of 2027 without additional financing. A few assumptions regarding our financial performance over the next several years underpin this expectation. First, average annual revenue growth rates between the mid-20s and 30 percent.

Speaker Change: Along with our assumptions for revenue growth, we expect to achieve positive cash flow by the end of 2027 without additional financing.

Sean Wirtjes: Second, continued meaningful annual improvement in our gross margins, reaching mid-double digits by the end of 2027. Third, after a notable step down in 2025 as a result of our Operational Efficiency Program, relatively flat operating expenses over the following few years, and fourth, maintenance levels of CapEx and relatively minor cash impacts from changes in working capital each year. All of the above assumptions are based on our current 2024 guidance as a starting point, including our expectation that we will burn roughly $40 million in cash for the full year 2024.

Speaker Change: A few assumptions regarding our financial performance over the next several years underpin this expectation.

Speaker Change: <unk> average annual revenue growth rates between the mid twenties and 30%.

Speaker Change: Second continued meaningful annual improvement in our gross margins, reaching mid double digits by the end of 2027.

Speaker Change: Third after a notable step down in 2025 as a result of our operational efficiency program.

Speaker Change: Relatively flat operating expenses over the following few years and fourth maintenance levels of Capex and relatively minor cash impacts from changes in working capital each year.

Sean Wirtjes: It's also important to point out that we expect our P&L to include approximately $8 million in non-cash depreciation and amortization and stock compensation, which have no impact on cash, as well as a positive contribution from cash interest income each year. We are planning to host an investor event in November, during which we intend to provide additional color supporting the assumptions I've just outlined. In summary, we believe the operational efficiency program we announced today is an important step in reducing cash burn meaningfully over each of the next several years.

Speaker Change: It's also important to point out that we expect our P&L to include approximately $8 million in noncash depreciation and amortization and stock compensation expense.

Speaker Change: Which have no impact on cash as well as a positive contribution from cash interest income each year.

Speaker Change: We are planning to host an investor event in November during which we intend to provide additional color supporting the assumptions I just outlined.

Speaker Change: In summary.

Speaker Change: We believe the operational efficiency program, we announced today is an important step in reducing cash burn meaningfully over each of the next several years.

Sean Wirtjes: Together with our expectation of continued strong revenue growth and significant gross margin improvement, as well as active management of OpEx, CapEx, and working capital, this gives us confidence in achieving our goal of positive cash flow by the end of 2027 without additional financing. That concludes my comments, so at this point, we'll open the call up for questions. Operator?

Speaker Change: That concludes my comments so at this point, we will open the call up for questions operator.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not unmuted when asking your question. Your first question comes from the line of DHS 7, from Morgan Stanley. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press <unk>.

Speaker Change: Telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and listening via loud speakers no device. Please speak up your handset ensure that youre.

Speaker Change: Asking your question.

Speaker Change: Our first question comes from the line of DHS Zhang from Morgan Stanley. Please go ahead.

Speaker Change: Okay.

Yuko Oku: Good morning, this is Yuko on the call for Tejas. Thank you for taking our questions. With the announcement of new targets along with the Operational Efficiency Program, could you comment on working capital initiatives to improve cash usage? You previously called out inventory as one of the key levers. How did that trend this quarter, and how are you balancing inventory reduction and stocking to get customers comfortable that there will be consumables readily available?

DHS Zhang: Good morning.

Speaker Change: Thanks.

Speaker Change: Thank you for taking our questions.

Speaker Change: George.

Speaker Change: Operational efficiency program could you on working capital.

Speaker Change: For cash uses.

Speaker Change: Inventory is one of the keys Robert.

Speaker Change: How do you turn this corner.

Speaker Change: Thank you gentlemen.

Speaker Change: To get customers comfortable.

Speaker Change: Yes.

Speaker Change: Ramos.

Speaker Change: Okay.

Sean Wirtjes: Hey Yuko, it's Sean. So I think we are very focused on inventory as we look forward in terms of managing working capital. For the first half of the year, we're actually up a little bit. It involves a couple of different things that I'd say are kind of rebalancing, which will set us up well, we believe, for the second half of the year to be a period where we see a meaningful reduction in inventory.

Sean: Hey, Hugo it's Sean.

Sean: We are very focused on inventory as we look forward in terms of managing working capital.

Speaker Change: For the first half of the year were actually up a little bit.

Sean: It involves a couple of different things that are I'd say are kind of re rebalancing, which will set us up well, we believe for the second half of the year to be a period, where we see meaningful reduction in inventory.

Speaker Change: We have always maintained safety stock levels.

Speaker Change: To make sure that we have inventory across the product offerings that we have to.

Speaker Change: Ensure that we have no disruptions I think if you look back to the Covid period.

Speaker Change: Lot of people did have supply chain and inventory management issues, we did not and we would attribute that to the the practices we have around making sure we maintain those safety stock levels.

Speaker Change: Expect to continue to do that going forward.

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

Speaker Change: Yes, you guys, Rob we we also.

Rob: We have what we call customer business reviews with customers and part of that review is our inventory.

Speaker Change: Performance.

Speaker Change: And we continually receive extremely strong feedback about the quality and timeliness of our supply chain globally from our customers.

Speaker Change: Great. Thank you for that color.

Speaker Change: Yes.

Speaker Change: The customer will place.

Speaker Change: Sure.

Speaker Change: Please.

Speaker Change: Kevin Sterling Auty.

Speaker Change: I'll now it comes with higher pricing.

Speaker Change: Hi.

Speaker Change: Amit.

Speaker Change: Attractive.

Speaker Change: Okay.

Speaker Change: Could you elaborate on that.

Speaker Change: Workflow.

Speaker Change: Correct, perhaps slightly now from Raleigh Sterling Auty.

Rob Spignesi: So, yes, as you touched on, EM is a higher volume type of task where automation plays a role in automating a high-volume kind of repetitive task. But the value proposition of growth-direct, I'll remind folks listening, is clearly full automation, but also strong data integrity, data management, and data security. And automation, even in a lower-volume environment, is very important for the reduction in errors. So, while automation plays a different role, I would say, in a high-volume setting versus a low-volume setting, the data integrity, the lower amount of hands-on time, and just the improved quality are incredibly important, again, in low-volume or high-volume.

Rob Spignesi: Sure, sure. I think that's a good question, Yuko.

Speaker Change: Sure sure.

Speaker Change: It's a good question Hugo So yes as you touched on in the <unk> is a higher volume.

Speaker Change: Type of task, where automation plays a role in automating a high volume kind of repetitive tasks, although the value proposition of.

Speaker Change: Growth derived.

Speaker Change: Remind folks listening is clearly full automation.

Speaker Change: But also but also a strong data integrity data management data security and automation, even in a lower environment, a lower volume environment is very important for.

Speaker Change: A reduction in errors so while it automation plays a different role I would say in a high volume setting versus a low volume setting the data integrity.

Speaker Change: The.

Rob Spignesi: However, the additional extremely strong value proposition that Rapid Stability has on our growth-direct system is time to result. If you recall, as little as one day, we can give time for contamination to be detected, and as little as three days, final time to result. So, this compares generally to about two weeks if things go well with the legacy method. So customers are getting not only all the benefits of a fully automated platform technology, which more and more of the planet, of the universe of customers are getting used to, but they have the incremental benefit with regard to sterility of the very fast time to detection and time to release, which in some cases is gating for release to patients and business implications too with regard to revenue recognition and things of that nature.

Speaker Change: <unk> has an outgrowth direct system as it is time to result.

Speaker Change: If you'll if you recall.

Speaker Change: As little as one days, we can give the time to detection two of contamination in as little as three days final time to results as this compares generally to about two weeks.

Speaker Change: If things go well to the legacy method. So customers are getting not only all of the benefits of a fully automated platform technology, which more and more of our planet.

Speaker Change: University of customers is is getting used to but they have the incremental benefit with regard to sterility.

Speaker Change: The very fast time to detection and time to release, which in some cases is gating for.

Speaker Change: Released to patients and business implications too with regard to revenue recognition and things of that nature. So the value proposition of <unk> is very strong and this is under the.

Speaker Change: And then just another reminder, our strategy here is to build the next generation <unk>.

Mr. <unk>: Infrastructure for quality control cost pharma, so we are automating and Mr. <unk>.

Speaker Change: <unk> is a key part of this the full essentially the full suite of daily routine use tasks across environmental monitoring testing water testing bio burden of product testing announced really testing all under the the agents. If you will the value proposition of the growth direct platform.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Dan Arias from Stiefel. Please go ahead.

Dan <unk>: Our next question comes from the line of Dan <unk> from Stifel. Please go ahead.

Daniel Arias: Hey, good morning. Thanks for the questions. Rob, maybe just following up on sterility.

Speaker Change: Yeah.

Dan <unk>: Hey, good morning, guys. Thanks for the questions.

Dan <unk>: Rob maybe just following up on sterility now that you've gotten some customers together on it how are you feeling about uptake there in general what do you think will be the difference between those that adopt that system more of that capability versus those that don't within the existing user base of those that you can connect with and you've convinced that growth director is something that they need to have.

Dan <unk>: Yes.

Speaker Change: Yes, so again I wouldn't rule anyone out of not.

Speaker Change: Using it at this point so the it's early early days in the commercial availability of the product.

Speaker Change: Yes.

Speaker Change: Where.

Speaker Change: We did place a system in the quarter to a larger existing customer.

Speaker Change: And we would expect that trend to.

Speaker Change: Continue it is it is a capital equipment sales process total it will have.

Speaker Change: Some of those features with regard to the sales cycle timing that being said, we also expect new customers new customer segments, which we've touched on in previous calls right. So some of the we're very very strong is as you know in biologics and cell and gene therapy.

Rob Spignesi: That being said, we also expect new customers, new customer segments, which we've touched on in previous calls, right? So some of the areas we're very, very strong in are, you know, biologics and cell and gene therapy. This really application addresses quite strongly segments such as sterile injectables, for example, and vaccine categories. So it's also excitingly opening up conversations, I would say, with incremental and new very large customer segments for us.

Speaker Change: It's really application does address quite strongly segments, such as sterile Injectables for example in vaccine category. So it's also.

Speaker Change: Excitingly opening up conversations I would say with incremental and new very large customer segments for us and there is a.

Speaker Change: Recent example, where we're having a sterility conversation with a.

Speaker Change: With a customer in one of these new categories and it's triggered a sales process around environmental monitoring so.

Speaker Change: Back to the comments.

Speaker Change: Made at the end of <unk> question is the our strategy here is is to bring a platform technology that automates the effectively the.

Speaker Change: The majority of the microbial quality control.

Speaker Change: Acquirements of company. So our sales team now globally is equipped to have conversations up and down that workflow and help the customer solve their microbial QC problems and we're starting to see the benefit of that already with the.

Speaker Change: With the launch of sterility.

Speaker Change: Okay, I, just need to dig into that a little bit more I understand that hypothetically everybody could be or should be interested but thats probably unlikely to be the case for a while so what I'm, what I'm kind of trying to understand is when you talk to your sales team or you look at those that you've gathered together what are the characteristics of those that feel like they're most likely.

Speaker Change: Adopters versus either less likely or adopters down the road I know everybody should you that but that's.

Speaker Change: That's probably not going to happen anytime soon yes, okay. So fair enough. So the most likely customers to adopt earlier in this cycle will be largely.

Rob Spignesi: Yeah, okay, so fair enough. So the most likely customers to adopt early in the cycle will be largely the larger companies that know us well. I don't think it's a hard and universal rule because the funnel does have new customers and new segments, but if you think about it, again, consistent with our approach, we have a number of customers globally out there in the biologics and cell and gene applications that have higher value applications that know the growth direct, know the benefit of the growth direct, have implemented the growth direct, have managed the data around growth direct, and this is an extension of the menu

Speaker Change: The larger companies that know us well.

Speaker Change: I don't think its a hard in universal rule, because the funnel does have.

Speaker Change: New customers and new segments, but if you think about it again consistent with our approach we have a number of customers globally out there in the biologics and cell and gene that have higher value applications that know the growth direct now the benefit of the growth of our active implemented the growth of our active manage the data around growth direct and this is this is an extension of the <unk>.

Speaker Change: New around it.

Rob Spignesi: So that would be, if I could kind of point out what I would expect to be the earlier adopters, and consistent with the placement we had, it is an existing large customer. It would be our existing customer base. I do want to highlight, though, the funnel has got a non-trivial amount of, I would say, new customers and new customer segments in it.

Speaker Change: So that would be.

Speaker Change: Good.

Speaker Change: You can kind of point out what I would expect to be the earlier adopters and consistent with the placement. We had it is an existing large customer it would be our existing customer base I do want to highlight though the funnel is has got a non trivial amount of I would say new customer and new customer segments in it.

Daniel Arias: Okay, that's helpful. And then Sean, on the gross margin trajectory, you sound pretty confident there. It's not hard to see how you flip to positive for the back half. But in order to get positive for the full year, I do need to be in like the mid to high single-digit range in 3Q and then actually in the high teens range in 4Q on total gross margin.

Speaker Change: Okay. That's helpful.

Sean: And then Sean on the gross margin trajectory you sound pretty confident there it's not hard to see how you flip to positive for the back half, but in order to get positive for the full year I do need to be in like the mid to high single digit range in <unk>, and then actually like the high teens range and <unk> on total gross margin. So is that the right.

Daniel Arias: So is that the right level of increase? If not, help me out. And if so, I just need to understand a little better, you know, how the incremental improvement materializes from here.

Speaker Change: Level of increase if not helped me out and if so.

Speaker Change: Understand a little better how the incremental improvement materializes from here.

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

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

Daniel Arias: Okay, and then just if I could sort of extend the thought, so do you, and I know we'll talk to 2025 at a later date, but how do you feel about 4Q? Because you have some nice things working for you on the gross margin line very clearly. I mean, you'll be up if that cadence Holds, you'll be up a good 20 plus percent from 2Q to 4Q. So is there anything you can say about 4Q as a jumping off point for gross margins? Next.

Speaker Change: So you'll be up a good 20 plus percent from <unk> to <unk>. So is there anything you can say about <unk> as a jumping off point for gross margins next year.

Speaker Change: Yes, I mean I think.

Speaker Change: If we follow our typical seasonality there will be some pressure on margin sequentially from Q4 to Q1.

Speaker Change: But we would still expect to be positive in Q1, and then build even more from there I think not going to give guidance at this point, but we did talk today about.

Speaker Change: What we expect over the next several years across the business in gross margins was part of that in.

Speaker Change: We've given a kind of endpoint by the end of 2007 to get to mid double digit margins I think that that gives you. Some some feel for where we think 'twenty five 'twenty six 'twenty seven will be on average so.

Sean Wirtjes: So, I think, you know, if you think about where we could execute for maybe a step down in Q1, but then we're building up positively throughout 2025 to get to a point where that overall full-year number for 25 is a meaningful step up from the overall 24 number.

Speaker Change: I think if you think about where we could exit Q4, maybe a step down in Q1, but then we are building up positively throughout 2025 to get to a point where that overall full year number for 25 is a meaningful step up from the overall 24 number.

Speaker Change: Yes that makes sense that can work with that okay last one if I could just slip in a question on the operational efficiency, how does that impact anything we might do when it comes to just expansion of the commercial team.

Daniel Arias: Thanks. Yeah Dan, it's Rob. So...

Rob Spignesi: Yeah, Dan, it's Rob. So, our commercial team is in place. So, we're not, we don't see meaningful growth on the team. We've answered on previous calls. We do have a sterility specialist, but we really view our sales team, we train them to be consultative, you know, sales professionals. So they're able to position and work with customers on the full range of applications, again, all of environmental monitoring, water, bioburden, and sterility applications.

Speaker Change: Yes, Dan it's Rob So we are our commercial team is in place. So we're not we don't see meaningful growth to the team we've answered on previous calls we do have a.

Speaker Change: A sterility.

Speaker Change: Specialist, but we really view our sales team.

Speaker Change: We train them to be consultative.

Speaker Change: Sales professionals, so they are able to position and work with customers on the full range of applications again, all of environmental monitoring water bio burden and sterility applications. So we view our team in place globally fully constituted teams in North America.

Rob Spignesi: So, we view our team in place globally, fully constituted teams in North America, Europe, and Asia. So, we don't see meaningful growth in the near term and are comfortable with the coverage we have and the ability to drive to not only the near-term guide but also the longer-term outlook that, you know, Sean walked through in the prepared room. Okay, great. Thank you, guys. Okay, I think that's the end of the questions. So, thank you, everyone, for the questions today. I appreciate the continued interest in our business. Listen, we're just going to wrap things up.

Speaker Change: Europe.

Speaker Change: And in Asia, So we don't see meaningful growth in the near term and are comfortable with the coverage we have in the <unk>.

Speaker Change: And the ability to drive to not only that the near term.

Speaker Change: Guide, but also the longer term outlook that Sean walked through in the prepared remarks.

Speaker Change: Okay, great. Thank you guys.

Speaker Change: Okay.

Speaker Change: Some questions.

Speaker Change: Okay.

Speaker Change: That's the end of the question. So thank you everyone for the questions today I appreciate the continued interest in our business.

Rob Spignesi: We're very excited about the business and what we see in both the shorter term and over the horizon here with regard to some elements of our outlook, a long-term outlook that you heard today from a commercial standpoint, increasing customer discussions with senior-level customers about multi-system orders. I think you heard some of that in the prepared remarks, so we're quite encouraged by what we're seeing there. And with regard to funnel build and conversations globally, and specifically negotiations with customers currently on multi-system orders, margin improvement is clearly one of our additional top priorities.

Speaker Change: Listen, we're just going to wrap things up we're very excited about about the business.

Speaker Change: And what we see in both the shorter term and over the horizon here with regard to some elements of our outlook longer term outlook that you heard today.

Rob Spignesi: And I think you can see clear and demonstrable progress there. Our third pillar of focus, new products, we are very excited about rapid sterility and certainly great early returns and more to follow. And then, consistent with our fourth pillar of prudent cash management, I am excited about the operational efficiency program and what that means for the business with regard to achieving positive cash flow without additional financing. So again, thank you for your time. We'll wrap up the call now, and we look forward to speaking with many of you shortly.

Speaker Change: From a commercial standpoint.

Speaker Change: Increasing customer discussions with senior level customers about multi system orders I think you heard some of that in the prepared remarks. So we're quite encouraged what we're seeing there and with regard to the funnel builds in conversations globally and specifically negotiations with customers currently on multi system orders margin improvement is clearly.

Speaker Change: One of our additional top priorities and I think you can see clear and demonstrable progress there.

Speaker Change: Our third pillar of focused new products very excited about rapid sterility and certainly.

Speaker Change: Great early returns and more to follow and then consistent with our our fourth pillar of prudent cash management excited.

Speaker Change: Excited about the operational efficiency program and what that what that means for the business with regard to achieving positive cash flow without additional financing.

Speaker Change: So again, thank you for your time, we'll wrap the call up.

Speaker Change: Now and we look forward to speaking with many of you shortly.

Speaker Change: Okay.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Yes.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for Johnny you May now disconnect.

Q2 2024 Rapid Micro Biosystems Inc Earnings Call

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