Q3 2024 Rapid Micro Biosystems Inc Earnings Call
Thank you for standing by my name is Nova and I will be your conference operator today at this time I would like to welcome everyone to the rapid micro Biosystems third quarter 'twenty 'twenty 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. 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.
Speaker Change: I would now like to turn the call over to Mike Beaulieu with Investor Relations. Please go ahead.
Mike Beaulieu: Good morning, and thank you for joining the rapid micro Biosystems third quarter 2024 earnings call. Joining me on the call are Rob <unk>, President and Chief Executive Officer, and John <unk>, Chief Financial Officer.
Mike Beaulieu: Earlier today, we issued a press release announcing our third quarter 2024 financial results.
Mike Beaulieu: A copy of the release is available on the company's website at rapid micro bio dot com under investors and the news and events section.
Mike Beaulieu: 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.
Mike Beaulieu: 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.
Mike Beaulieu: Anticipated future cash usage and cash runway guidance for 2024, including revenue expenses gross margins system placements and validation activities.
Mike Beaulieu: Micros goal of achieving positive cash flow without additional financing and the timing thereof.
Mike Beaulieu: Expectations for and planned activities related to rapid micros business development and growth customer interest and adoption of the growth direct system and statements regarding rapid sterility.
Speaker Change: 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 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.
Speaker Change: 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 financial future performance.
Speaker Change: This conference call contains time sensitive information and is accurate only as of the live broadcast today November one 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 and with that I'll turn the call over to Rob.
Rob: Thank you Mike.
Morning, everyone and thank you for joining us I'll begin this morning's call with an overview of our third quarter performance and highlights.
Including a review of our progress in advancing our 2024 priorities.
Rob: I will then turn the call over to Sean who will provide a more detailed review of our financial results as well as our full year guidance.
Rob: Third quarter total revenue increased 24% to $7 6 million.
Rob: Compared to Q3 last year.
Rob: This marked a quarterly revenue record for the company and our eighth consecutive quarter of exceeding our guidance.
Rob: Based on the strong performance, we are reaffirming our full year 2020 for revenue outlook of at least $27 million.
Rob: We placed seven growth direct systems across North America, Europe, and Asia Pacific, marking our strongest placement quarter. Since Q3 2021 through September we have now placed a total of 15 growth direct systems in 2024, bringing our total to 156 places.
Rob: Systems.
Rob: On recent earnings calls, we have discussed our progress with customers deploying growth direct systems across our global manufacturing networks.
Rob: This morning, we reported third quarter results that included a multi system order from one of our existing top 20 pharma customers that as part of an ongoing global rollout.
Rob: This placement is a clear example of our land and expand commercial strategy and is typical of how customers execute both direct global Rollouts.
Rob: To provide additional context on this commercial win.
Rob: Our partnership with this customer began a few years ago with a multi system order at a single site in North America.
Rob: This customer is a global leader in the development of biologics and cell and gene therapies. They are focused on automating manufacturing processes, including quality control to accelerate turnaround times and to ensure patients receive lifesaving therapies.
Rob: As the customer recognized the benefits of our growth direct such as full automation SaaS.
Rob: Fast turnaround times reduced labor costs and increased accuracy.
They place a second order for another U S site.
Rob: This past quarter, they expanded to a third site within their network to another multi system growth direct order, including software services and consumables.
Rob: We anticipate continued growth with this customer in the near term.
Rob: Including further expansion across our global network.
Rob: Importantly, we remain actively engaged with several other customers planning to expand their growth direct footprint across our manufacturing networks.
Rob: We believe this momentum together with our existing base of nearly 160 play systems, our strong presence among the top 20 global pharma companies.
Rob: And our 100% position in FDA approved car T therapy manufacturers establishes the growth direct platform as a clear industry standard and automating pharmaceutical microbial quality control.
Rob: Later this month, we will attend our annual growth direct day.
Rob: Last quarter, we announced that Alonza.
Rob: One of the world's largest cdos will host this event near one of their manufacturing sites in the Netherlands.
Rob: As a reminder, this unique two day event will bring current and prospective customers together to share best practices gains.
Rob: <unk> firsthand experience and increase our understanding of the value proposition of using the drug direct.
Rob: We expect up to 100 attendees and look forward to this exciting event.
Speaker Change: Turning to gross margins the guidance we provided earlier this year included a positive inflection beginning in the third quarter.
Speaker Change: I am pleased to report that we achieved a 35 percentage point improvement year over year.
Speaker Change: The resulting in positive 8% gross margins.
Speaker Change: To expand on this point the total cost of revenue in the third quarter declined 10% year over year, our total revenue increased by 24%.
Speaker Change: The improvement in our cost structure reflects our ongoing efforts to reduce product costs.
Speaker Change: Enhanced manufacturing efficiencies and improve service productivity.
Speaker Change: This positive inflection in our gross margin marked a significant milestone for the company.
Speaker Change: Looking ahead, we anticipate further improvements to our cost structure, which will enable us to capitalize on the operating leverage in our business model.
Speaker Change: Now I'd like to shift to a brief update on the commercial launch of <unk> rapid sterility, we continue to expand customer engagement through conferences, such as last month's PDA Microbiology conference <unk>.
Speaker Change: Sterility focused webinars and onsite demonstrations at our Lexington, and European customer labs, our commercial teams are receiving positive feedback on our rambus really value proposition and these efforts continued to drive growth in our sales funnel.
So wrapping up my prepared remarks, I'd like to summarize our key messages and takeaways from the third quarter.
Speaker Change: We are pleased to report record quarterly revenue broken our strongest quarter for system placements in the past three years and clearly demonstrating our strong business momentum.
Speaker Change: We continue to make significant progress with multiple customers for our planning global deployments of both direct systems.
Speaker Change: Our focused efforts on cost and efficiencies have resulted in a positive inflection in gross margins, which we expect to continue to expand.
Speaker Change: We remain disciplined with respect to cash management with a focused goal of achieving positive cash flow by the end of 2027 without additional financing.
Speaker Change: These strong fundamentals are underpinned by a business model that includes the high differentiated growth direct system that is clearly the industry standard as the only fully automated high capacity high throughput data security platform.
Speaker Change: A demonstrated customer value proposition that can address all pharmaceutical manufacturing modalities and becomes embedded in manufacturing workflows.
Speaker Change: And a robust business model with multiple revenue streams, including a growing base of durable recurring revenue.
Speaker Change: We are confident that collectively these fundamentals and business drivers combined with our consistent performance positioning us to create substantial shareholder value.
Speaker Change: And with that I will turn the call over to Shaun to discuss our third quarter performance and outlook in more detail.
John.
Thanks, Rob good morning, everyone.
John: Consistent with our previous calls I'll begin my comments. This morning with a review of our third quarter results followed by our current outlook for the full year 2024, We will then open the call up for questions.
John: Third quarter revenue increased 24% to $7 6 million compared to $6 1 million in Q3 2023.
John: During the third quarter, we placed seven growth direct systems compared to five in the third quarter last year. We also completed for validation in the quarter, which was consistent with Q3 last year.
John: <unk> revenue, which is comprised of systems and consumables increased 25% to $5 3 million compared.
John: Compared to $4 2 million in Q3 2023 <unk>.
John: Systems revenue increased almost 50% due mainly to the higher number of system placements in the quarter, while consumable revenue grew in the mid single digits compared to Q3 last year.
John: Service revenue increased 21% to $2 3 million compared to $1 9 million in Q3 2023. This growth was driven by higher revenue from both validation services and service contracts.
John: Third quarter recurring revenue, which consists of consumables and service contracts increased 8% to $3 $7 million non.
John: Nonrecurring revenue, which is comprised mainly of systems and validation revenue increased 44% to $3 $9 million.
John: Turning to gross margins product margins were near breakeven at negative 1%. This represents a $1 5 million or <unk> 34 percentage point improvement compared to Q3 last year. Once again this demonstrates the consistent and meaningful progress we are making on our initiatives to reduce product costs and increased manufacturing efficiency.
To drive continued improvement in our product margins.
John: Higher volume of growth for <unk> systems placed also positively impacted product margins in the quarter.
John: Service margins were positive <unk> 7 million or positive, 29% in the third quarter compared to negative <unk> 1 million or negative 7% in Q3 last year.
John: The 36 percentage point margin improvement was driven by higher revenue and productivity as well as lower head count and other service related costs.
On a combined basis, our third quarter gross margin was positive <unk> 6 million or positive <unk>, 8% compared to negative $1 6 million or negative 27% in Q3 last year. This represents a 35 percentage point improvement we.
John: We are pleased to have delivered on our commitment to reach positive gross margins III and.
John: And remain laser focused on building upon this milestone to drive continued and significant year over year gross margin expansion moving forward.
John: Moving down the P&L total operating expenses were $12 7 million in the quarter.
John: While this was essentially flat with Q3 last year. It is important to note that this quarter's opex included <unk> 6 million in one time severance and other expenses related to the operational efficiency program, we announced in August.
John: Operating expenses were down approximately 7% in the quarter. Excluding these expenses.
John: Within Opex R&D expenses were $3 6 million, representing an increase of approximately 16%.
John: This increase was mainly associated with new product development activities, including the commercialization of our new rapid sterility application.
John: Sales and marketing expenses were $3 $4 million or down approximately 3% and.
John: And G&A expenses were $5 $7 million or down approximately 9% due mainly to lower head count related costs.
John: Net loss was $11 3 million in Q3. This compares to a net loss of $13 $4 million in Q3 last year.
John: Net loss per share was 26 cents in Q3 compared to net loss per share of <unk> 31 in the prior year quarter.
John: With respect to noncash expenses and capital expenditures depreciation and amortization expenses were <unk> 9 million stock compensation expense was <unk> 9 million and capital expenditures were zero point $2 million in the third quarter.
We ended the quarter with approximately $61 million in cash and investments.
John: Now I'll turn to our full year 2020 for outlook.
John: 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.
John: This implies year over year revenue growth of at least 20%.
Looking at consumables, we expect Q4 revenue to be relatively consistent with Q3, due mainly to the timing of customer orders and shipments.
John: With respect to service, we expect revenue to be between two five and $3 million in Q4 with variability primarily driven by the timing of validation activities. We are reaffirming our guidance of at least 16 validation in 2024.
Turning to margins, we expect gross margins to increase sequentially in Q4 with product margins relatively consistent with Q3 and service margins higher primarily due to increased service revenue.
John: We now expect operating expenses to be between $50 and $51 million for the full year with savings from the operational efficiency program, we announced in August largely offset by related severance and other one time costs, we expect depreciation.
John: Depreciation and amortization expense of approximately $3 million stock compensation expense of approximately $4 million capex.
John: Capex of approximately $2 million and other income, which is comprised primarily of interest income of approximately $3 million.
John: Finally, we continue to expect to burn roughly $40 million in cash for the full year 2024.
John: Looking ahead, we continue to expect to meaningfully reduce cash burn over each of the next several years through a combination of revenue growth margin improvement and tight management of Opex Capex and working capital with a goal of achieving positive cash flow by the end of 2027 without additional financing.
John: That concludes my comments so at this point, we will open the call up for questions operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: First question comes from Dan Brandon Smith with TD Cowen.
Speaker Change: Well John a moment please please.
Speaker Change: Please go ahead.
Speaker Change: Alright.
Speaker Change: Thanks for taking the question and thanks for all the collateral call.
Speaker Change: Maybe just a quick one from US I know you just touched on it a little bit there at the end but.
Speaker Change: Yes in the context of the solid Q3, and keeping 24 guidance in place I mean, how should we think maybe specifically about placements in Q4.
Speaker Change: Are you still kind of expecting topline growth into the end of the year or are there potentially some lumpy placement seasonal trends, we should keep in minds kind of really also I'm curious like what youre kind of seeing that can kind of be driving some of the trends heading into next year too. Thanks very much.
Speaker Change: Yes, Hey, Brendan Thanks for the question. So I think where the guide is kind of where it is I think as we've talked about before and we're continuing with this approach that the guide is.
Speaker Change: I think for US is prudent and we want to make sure it's achievable.
Speaker Change: There is still some.
Speaker Change: Some headwinds out there in the market.
Speaker Change: I think we're hopeful that what we're seeing and what others are seeing some glimmers of positivity in terms of what's happening out there with trends but.
Speaker Change: We're still seeing elongated.
Speaker Change: <unk>.
Speaker Change: In some cases purchasing cycles, we're seeing.
Speaker Change: More scrutiny of the purchasing process with some customers. So we want to be prudent in terms of what we put out there in terms of the guide for Q4.
But clearly that also allows us some room for upside if we're able to execute on things in the fourth quarter that we're not currently contemplating so.
I think.
Speaker Change: That's why.
Speaker Change: Our guide you for the fourth quarter right now.
Speaker Change: Bryan it's Rob Thanks for the question, maybe a little more color.
Speaker Change: Yes.
The trends that we're seeing I think are consistent with generally with what.
Speaker Change: Other other life science tools companies have been reporting and it's been consistent for the bulk of the year here.
Speaker Change: Some tight budgets.
Speaker Change: Scrutiny.
Speaker Change: On capital equipment purchasing is that being said, what we have seen and I think what we've clearly demonstrated in our businesses that are compelling.
Speaker Change: ROI projects are being prioritized and funded we think thats clear.
Speaker Change: Our business in.
Speaker Change: Our view has been has been a beneficiary of that so you asked about kind of running into 2025 and that's what we.
Speaker Change: Likely likely anticipate more of that and it's also what underpins our confidence for the balance of the year and going into 2025.
Speaker Change: Alright makes sense thanks, guys.
Speaker Change: Your next question comes from Dan Arias with Stifel.
Speaker Change: Please go ahead.
Dan Arias: Good morning, guys. Thanks for the questions Rob what are your expectations for accounts that are focused on.
Speaker Change: New modality that we've talked about users there being more intensive than in other areas, but some of those customers still seem to be a.
Speaker Change: A bit shaky, but less on the large biopharma side. So if you kind of net all that out do you think those applications that over the next 12 months are accretive dilutive kind of in line with everybody else.
Speaker Change: Just curious about the pace of <unk>.
Speaker Change: Take amongst some of your higher end users.
Speaker Change: And then when we see higher end users you mean, the biologic and cell and gene therapies, yes, exactly exactly yes, yes, I mean again, the bulk of our business.
Is in that space in the.
Speaker Change: The multi system order of ongoing order with a growing customer we a large one that we mentioned this quarter is in that biologics and cell and gene space. So so generally we're performing quite well and uptake continues to be strong and I think as importantly, the outlook in our funnel.
Speaker Change: With the multi system orders that we've spoken about are largely driven around the larger obviously large primarily but also mid size.
Speaker Change: <unk> biopharma suitable companies.
Speaker Change: As well as <unk>.
Speaker Change: As I mentioned on the last call Sterility is.
Speaker Change: Reinforcing that.
Speaker Change: That funnel build but also allowing us.
Speaker Change: It's a better.
Speaker Change: Access and funnel build and areas that we've been I would say relatively less represented in such as sterile injectables still generic things of that nature.
Speaker Change: To answer the question or not but that's how we see it right now.
Speaker Change: Yes, it does.
Speaker Change: I'm just trying to ask about.
Speaker Change: The area of the end market mix, where you know that when things really ramp up pick and they can be accretive to the overall average consumables usage.
Speaker Change: Just knowing that it's kind of fits and starts and some of those corners of the market depending on who you talk to.
Yes, yes, so so all consumables.
The good news is in.
Speaker Change: In the biologics and challenging categories in that order they tend to be the higher volume.
Speaker Change: Categories, So those systems, especially our <unk> application, but also the water and vibrant applications tend to be high yielding systems for offsetting the way I look at the funnel right now.
Speaker Change: It's largely the global pharma companies, but we have again, a non trivial amount of other segments in it and a lot of many of those majority of those will be and should be high yielding consumables. So certainly accretive from a.
Consistent with or potentially accretive to our.
Speaker Change: Our current set.
Speaker Change: Okay.
Then since you mentioned sterility I know, it's early days Im sure Youre not trying to get ahead of yourself on expectations, but.
Speaker Change: Does your does what youre seeing in terms of adoption lead you to believe that.
Speaker Change: When it comes to the model for 2020 fives to reel. It it can be something thats that shows up as an accretive.
Speaker Change: An incremental positive at the revenue line for you guys is it going to be enough to move the needle next year.
Speaker Change: Yes.
Speaker Change: So I can give you the qualitative now in war reserve sort of the quantitative for later, but from a qualitative early early days in the launch.
Speaker Change: The value proposition is is getting high notes with customers. So we're hitting.
Speaker Change: The interest level is high touch on their prepared remarks, we are actively engaged with customers across a multitude of areas. The feedback is.
Speaker Change: It's quite positive now clearly our job is to translate that into business and revenue that that will that will show up in our business and in 2025, but the leading indicators to include the funnel build are currently where we want them to be.
Speaker Change: Okay last one for me Sean on gross margins for products do you feel like you've crossed the Rubicon here such that you can be positive on a quarterly basis going forward barring some big change the picture.
Speaker Change: Yes, I wouldn't guide to that Dan, but I think we're definitely on the right trajectory for that to happen in the near term.
Speaker Change: Yes.
Speaker Change: Mix is important for that as you know systems are at a much higher gross margin rate right now than consumables or so depending on volume and mix within product that can bounce still bounce around a little bit but the trajectory is is similar to what we're kind of reporting overall within the categories within that so I think we're we're definitely on the right track there.
Speaker Change: Sure.
Speaker Change: We're close now who do we get there in Q4, and I think theres a chance to get there in Q4.
Speaker Change: And as volumes go up from there I think we're we should be able to push it up and continue to drive up beyond.
Speaker Change: Well into positive territory as we continue to drive the growth so it'll be driven by volume obviously, but also by the continued progress that we're making on the cost downs in the efficiency programs that we have going on within within the operations team here.
Speaker Change: Okay. Thank you guys.
Okay.
Speaker Change: Well. Thank you all for your time and attention. This morning, and thank you Dan and Brendan for Euro.
Speaker Change: Your questions with that we're going to wrap the call up and we look forward to speaking with many of you soon.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Sure.
Speaker Change: Yes.
Yes.
Speaker Change: Yes.
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Okay.
Speaker Change: Okay.
Speaker Change: Yes.