Q1 2025 Rapid Micro Biosystems Inc Earnings Call

Operator: Please wait, the conference will begin shortly. Thank you for standing by.

Please wait the conference will begin shortly.

[music].

Speaker Change: Thank you for standing by my name is <unk> and I will be a conference operator today at this time I would like to welcome everyone to the rapid micro Biosystems first quarter 'twenty 25 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there.

RG: My name is RG, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Micro Bios...

Operator: First Quarter 2025 Earnings Conference. All lines have been placed on mute to prevent any background noise. 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 television. If you would like to withdraw your question, press star 1 again.

A question and answer session.

Speaker Change: 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 Mike Julia. Please go ahead.

Michael Beaulieu: I would now like to turn the call over to Mike Beaulieu, please go ahead. Good morning, and thank you for joining the Rapid Microbiosystems first quarter 2025 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer, and Sean Wirtjes, Chief Financial Officer.

Speaker Change: Good morning, and thank you for joining the rapid micro Biosystems first quarter 2025 earnings call join.

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

Sean Wirtjes: Rob is feeling under the weather today and his voice is quite strained, so Sean will deliver all of our prepared remarks and Rob will then join for Q&A.

Speaker Change: Rob is feeling under the weather today in his voice is quite strained so Sean will deliver all of our prepared remarks, and Rob will then joined for Q&A.

Michael Beaulieu: Earlier today we issued a press release announcing our first quarter 2025 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.

Shaun: Earlier today, we issued a press release announcing our first quarter 2025 financial results.

Sean: 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 Beaulieu: 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, guidance for 2025, including revenue, expenses, gross margins, system placements, and validation activities, Expectations for and planned activities related to Rapid Micro's business development and growth, including the expected benefits from our distribution and collaboration agreement with Millipore Sigma.

Sean: 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 995.

Sean: 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 guidance for 'twenty.

Sean: 25, including revenue expenses gross margins system placements and validation activities.

Sean: Expectations for and planned activities related to rapid micros business development and growth, including the expected benefits from our distribution and collaboration agreement with Millipore Sigma cut.

Michael Beaulieu: Customer Interest and Adoption of the Growth Direct System and the Impact of the Growth Direct System on their Businesses and Operations, and Statements regarding the Potential Impact of General Macroeconomic Conditions on our Business and that of our Customer. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors, including our ability to meet publicly announced guidance, our ability to deliver products to customers and recognize revenue, and market and macroeconomic conditions.

Sean: Customer interest and adoption of the growth direct system and the impact of the growth direct system on their businesses and operations and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers.

Sean: Actual results may differ materially from those expressed or implied in the forward looking statements due to a variety of factors, including our ability to meet publicly announced guidance our ability to deliver products to customers and recognize revenue and market and macroeconomic conditions.

Michael Beaulieu: For a more detailed list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the risk factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission as updated from time to time in our subsequent filings with the SEC. We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance.

Sean: For a more detailed 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.

Sean: As updated from time to time in our subsequent filings with the SEC.

Sean: 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 Beaulieu: This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9, 2025. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise.

Sean: This conference call contains time sensitive information and is accurate only as of the live broadcast today may nine 2025.

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.

Sean Wirtjes: And with that, I'll turn the call over to Sean. Thank you, Mike. Good morning, everyone, and thank you for joining us.

Sean: And with that I'll turn the call over to Sean.

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

Sean Wirtjes: I'll begin with an overview of our first quarter 2025 performance and key highlights. followed by insights from recent customer visits. I'll then provide a brief update on the Millipore Sigma collaboration.

Sean: I'll begin with an overview of our first quarter 2025 performance and key highlights.

Sean: Followed by insights from recent customer visits.

Sean: I will then provide a brief update on the millipore Sigma collaboration.

Sean Wirtjes: Following that, I'll move on to my CFO commentary, first quarter results, and our Q2 and full year 2025 outlook.

Sean: Following that I'll move on to my CFO commentary first quarter results and our Q2 and full year 2025 outlook as Mike mentioned, Rob will join for Q&A after our prepared remarks.

Sean Wirtjes: As Mike mentioned, Rob will join for Q&A after our prepared remarks. Total first quarter revenue increased 28% to $7.2 million, marking our 10th consecutive quarter of meeting or exceeding guidance. We experienced double-digit growth in both product and service revenue. Notably, service revenue increased 64% year-over-year and was a quarterly record. We placed three growth direct systems in Q1 and now stand at 165 cumulative global placements, including 146 fully validated systems. First quarter gross margins were 6%, representing a 33 percentage point improvement compared to the prior year quarter. We're pleased with our strong start to the year, meeting or exceeding each component of our first quarter guidance.

Sean: Total first quarter revenue increased 28% to $7 2 million, marking our 10th consecutive quarter of meeting or exceeding guidance.

Sean: We experienced double digit growth in both product and service revenue.

Sean: Notably service revenue increased 64% year over year and was a quarterly record.

Sean: We placed three growth <unk> systems in Q1, and now stand at 165 cumulative global placements, including 146 fully validated systems.

Sean: First quarter gross margins were 6%, representing a 33 percentage point improvement compared to the prior year quarter.

Sean: We're pleased with our strong start to the year meeting or exceeding each component of our first quarter guidance.

Sean Wirtjes: Multiple revenue streams drove this performance, including a growing base of durable recurring revenue, which totaled $4 million in the quarter. Equally encouraging is our continued progress in achieving product cost reductions, manufacturing efficiencies, and service productivity, which drove significant gross margin expansion compared to the prior year quarter.

Sean: Multiple revenue streams drove this performance, including a growing base of durable recurring revenue, which totaled $4 million in the quarter.

Sean: Equally encouraging is our continued progress in achieving product cost reductions manufacturing efficiencies and service productivity, which drove significant gross margin expansion compared to the prior year quarter.

Sean Wirtjes: Over the past two months, Rob spent considerable time meeting with customers, and these conversations yielded highly encouraging insights. Both current and prospective customers made it clear that demand for the Growth Direct continues to be robust. This feedback, in addition to recent customer success stories and the announcement of our collaboration with Millipore Sigma, demonstrates the strength of our products and technology and our continued leadership in the market. In fact, we're currently working on multi-system growth direct deployments with several customers who recognize its robust value proposition, including its ability to standardize workflows across their global organization.

Rob: Over the past two months, Rob spent considerable time meeting with customers and these conversations yielded highly encouraging insights.

Rob: Both current and prospective customers made it clear that demand for the growth direct continues to be robust. This feedback. In addition to recent customer success stories and the announcement of our collaboration with Millipore Sigma demonstrates.

Rob: That's the strength of our products and technology and our continued leadership in the market and.

Rob: In fact were currently working on multi system growth direct deployments with several customers, who recognize this robust value proposition, including its ability to standardize workflows across our global organizations.

Sean Wirtjes: As for the broader market, a recent and notable trend involves planned investments in the U.S. by global pharma and biotech companies, many of which are current customers, to expand their manufacturing capacities. Estimates for these investments over the coming years exceed $150 billion. New construction often incorporates the latest technologies, and we believe, based on the GrowthDirect's value proposition and prior examples of supporting new customer facility expansions, Rapid Micro is well positioned to take advantage of this multi-year trend.

Rob: As for the broader market our recent and notable trend involves planned investments in the U S by global pharma and biotech companies many of which are current customers to expand their manufacturing capacities.

Estimates for these investments over the coming years exceed $150 billion.

Rob: New construction often incorporates the latest technologies and we believe based on the growth direct value proposition in prior examples of supporting new customer facility expansions rapid micro is well positioned to take advantage of this multiyear trend.

Sean Wirtjes: Turning now to a brief update on our progress with Millipore Sigma. We're off to a strong start with our key workstreams. As a reminder, this collaboration includes global, co-exclusive rights to sell the GrowthDirect system and related consumables into pharmaceutical quality control and manufacturing, as well as sizable adjacent segments such as personal care products. The agreement also includes a joint commitment to identify opportunities to bring efficiency to our supply chain, reduce product costs, and accelerate our goal of improving gross margins, as well as collaborating on existing products and new developments. Project teams from both organizations are working well together, and we have held joint meetings both in our Lexington, Massachusetts offices and Millipore Sigmas offices in Europe.

Rob: Turning now to a brief update on our progress with Millipore Sigma.

Rob: We're off to a strong start with our key work streams. As a reminder, this collaboration includes global co exclusive rights to sell the growth direct system and related consumables into pharmaceutical quality control and manufacturing as well as sizable adjacent segments, such as personal care products. The.

Rob: The agreement also includes a joint commitment to identify opportunities to bring efficiencies to our supply chain reduce product costs and accelerate our goal of improving gross margins as well as collaborating on existing products and new development.

Rob: Project teams from both organizations are working well together and we have held joint meetings, both in our Lexington, Massachusetts offices, and Millipore Sigma has offices in Europe.

Sean Wirtjes: We are excited about the opportunity this partnership provides to advance our priorities of accelerating growth-directed system placements, improving gross margins, and developing innovative products, and we look forward to updating you on future calls.

Rob: We are excited about the opportunity. This partnership provides to advance our priorities of accelerating growth through X system placements, improving gross margins and developing innovative products and we look forward to updating you on future calls.

Sean Wirtjes: So, to summarize, our performance in the first quarter was strong and we continue to demonstrate consistent execution. Customer feedback reinforces our positive outlook on the market opportunity for system placement. Our funnel of sales opportunities is expanding year over year. Cost reduction efforts, manufacturing efficiencies, and service productivity improvements continue to drive meaningful margin improvement. We are excited about the Millipore Sigma collaboration and remain confident that there are significant opportunities to advance our key priorities.

Rob: So to summarize our performance in the first quarter was strong and we continue to demonstrate consistent execution cut.

Rob: Customer feedback reinforces our positive outlook on the market opportunity for system placements.

Rob: Our funnel of sales opportunities is expanding year over year.

Rob: Cost reduction efforts manufacturing efficiencies and service productivity improvements continued to drive meaningful margin improvement.

Rob: We are excited about the millipore Sigma collaboration and remain confident that there are significant opportunities to advance our key priorities.

Sean Wirtjes: And finally, we are well-positioned to benefit from the expected build-out of U.S.-based pharmaceutical manufacturing capacity by top global pharma and biotech companies.

Rob: And finally, we are well positioned to benefit from the expected build out of U S based pharmaceutical manufacturing capacity by top global pharma and biotech companies.

Sean Wirtjes: Now, I'd like to turn to a more detailed review of our Q1 performance and outlook. First quarter revenue increased 28% to $7.2 million compared to $5.6 million in Q1 2024. During the first quarter, we placed three growth direct systems, which was consistent with the first quarter last year. We completed nine validations in the quarter, including several we previously expected to complete in Q2, compared to three in Q1 last year. Product revenue, which is comprised of systems and consumables, increased 10% to $4.1 million in the first quarter, compared to $3.7 million in Q1 2024. While system placements were consistent between the periods, higher sales of software drove an increase of over 20% in systems revenue.

Rob: Now I'd like to turn to a more detailed review of our Q1 performance and outlook.

Rob: First quarter revenue increased 28% to $7 2 million compared to $5 6 million in Q1 2024.

Rob: During the first quarter, we placed three growth direct systems, which was consistent with the first quarter last year.

Rob: We completed nine validation in the quarter, including several we previously expected to complete in Q2 compared to three in Q1 last year.

Rob: <unk> revenue, which is comprised of systems and consumables increased 10% to $4 1 million in the first quarter compared to $3 7 million in Q1 2024.

Rob: While system placements were consistent between the periods higher sales of software drove an increase of over 20% in systems revenue.

Sean Wirtjes: Consumable revenue grew in the mid-single digits compared to Q1 last year, which was our highest revenue quarter for consumables at the time. Service revenue increased 64% to $3.1 million in the first quarter, compared to $1.9 million in Q1 2024. The growth compared to the prior year quarter was driven by significantly higher validation activity, one-time services for previously validated systems, and higher service contract revenue due to the increase in the number of validated GrowthDirect systems. First quarter recurring revenue, which consists of consumables and service contracts, increased 6% to $4 million. Non-recurring revenue, which is comprised mainly of systems and validation revenue, increased 73% to $3.2 million.

Rob: Consumable revenue grew in the mid single digits compared to Q1 last year, which was our highest revenue quarter for consumables at the time.

Rob: Service revenue increased 64% to $3 1 million in the first quarter compared to $1 9 million in Q1 2024.

Rob: The growth compared to the prior year quarter was driven by significantly higher validation activity.

Rob: Onetime services for previously validated systems and higher service contract revenue due to the increase in the number of validated growth direct systems.

Rob: First quarter recurring revenue, which consists of consumables and service contracts increased 6% to $4 million.

Rob: Nonrecurring revenue, which is comprised mainly of systems and validation revenue increased 73% to $3 2 million.

Sean Wirtjes: Turning to gross margins, product margins were negative 23% or negative $0.9 million in the first quarter, compared to negative 39% or negative $1.5 million in Q1 2024. We continue to execute effectively against our product cost reduction and manufacturing efficiency initiatives. Service margins were 43%, or $1.3 million in the first quarter, compared to negative 3%, or negative $0.1 million in Q1 last year. The 46-percentage point improvement was driven by higher revenue and productivity, as well as lower headcount and other service-related costs. On a combined basis, the first quarter gross margins were 6%, or $0.4 million, compared to negative 27%, or negative $1.5 million in Q1 last year.

Rob: Turning to gross margins product margins were negative, 23% or negative <unk> 9 million in the first quarter.

Rob: Compared to negative, 39% or negative $1 $5 million in Q1, 2024, we continue to execute effectively against our product cost reduction and manufacturing efficiency initiatives.

Rob: Service margins were 43% or $1 3 million in the first quarter.

Rob: Compared to negative, 3% or negative zero point $1 million in Q1 last year.

Rob: The 46 percentage point improvement was driven by higher revenue and productivity as well as lower head count and other service related costs.

Rob: On a combined basis, the first quarter gross margins were 6% or zero point $4 million compared to negative, 27% or negative $1 5 million in Q1 last year.

Sean Wirtjes: The 33 percentage point improvement compared to Q1 last year continues to demonstrate the significant progress we're making in expanding gross margins across our business.

Rob: The 33 percentage point improvement compared to Q1 last year continues to demonstrate the significant progress, we're making in expanding gross margins across our business.

Sean Wirtjes: Moving down to P&L, total operating expenses were $12.1 million in the first quarter, representing a decrease of 5% from $12.8 million in Q1 2024, largely due to benefits from the Operational Efficiency Program we announced in August 2024. As anticipated, the full benefit of the actions we took under this program have been realized as of the end of the first quarter. Within OPEX, R&D expenses were $3.6 million, represented a decrease of 6%. Sales and marketing expenses were $2.8 million, representing a decrease of 16%, and G&A expenses were $5.7 million, or essentially flat. Net loss was $11.3 million in Q1 compared to a net loss of $13.3 million in Q1 last year.

Rob: Moving down the P&L total operating expenses were $12 1 million in the first quarter, representing a decrease of 5% from $12 8 million in Q1 2024, largely due to benefits from the operational efficiency program, we announced in August 2024.

Rob: As anticipated the full benefit of the actions we took under this program have been realized as of the end of the first quarter.

Rob: Within Opex R&D expenses were $3 $6 million represented a decrease of 6%.

Rob: Sales and marketing expenses were $2 8 million, representing a decrease of 16% and G&A expenses were $5 $7 million or essentially flat.

Net loss was $11 3 million in Q1 compared to a net loss of $13 3 million in Q1 last year.

Sean Wirtjes: Net loss per share was $0.26 in Q1 compared to net loss per share of $0.31 in the prior year quarter. With respect to non-cash expenses and capital expenditures, depreciation and amortization expenses were $0.8 million, stock compensation expense was $1 million, and capital expenditures were $0.3 million in the first quarter.

Rob: Net loss per share was 26 cents in Q1 compared to net loss per share of 31 in the prior year quarter.

Rob: With respect to noncash expenses and capital expenditures depreciation and amortization expenses were 0.8 million stock compensation expense was $1 million and capital expenditures were <unk> 3 million in the first quarter. We ended the first quarter with approximately $42 million in cash.

Sean Wirtjes: We ended the first quarter with approximately $42 million in cash.

Sean Wirtjes: Before I review our second quarter and full year 2025 outlook, I'll make a few comments about the current macroeconomic environment. With respect to tariffs, we are closely monitoring the evolving landscape, but do not currently expect a material impact from tariffs on our 2025 results. While certain materials we use in our products do have some tariff exposure, we expect our ongoing cost reduction and manufacturing efficiency initiatives, combined with current inventory levels and proactive supply chain strategies, to limit any impact this year. From a revenue standpoint, our guidance continues to account for ongoing uncertainty around the timing and scale of customer purchase decisions, particularly with respect to larger multi-system opportunities, which often involve more complex purchasing considerations and processes.

Rob: Before I review.

Rob: Our second quarter and full year 2025 outlook I'll make a few comments about the current macroeconomic environment.

Rob: With respect to tariffs we are closely monitoring the evolving landscape, but do not currently expect a material impact from tariffs on our 2025 results.

Rob: While certain materials, we use in our products do have some tariff exposure, we expect our ongoing cost reduction and manufacturing efficiency initiatives.

Rob: Combined with current inventory levels and proactive supply chain strategies to limit any impact this year.

Rob: From a revenue standpoint, our guidance continues to account for ongoing uncertainty around the timing and scale of customer purchase decisions, particularly with respect to larger multi system opportunities, which often involve more complex purchasing considerations and processes the tariff environment adds incremental uncertainty to this.

Sean Wirtjes: The tariff environment adds incremental uncertainty to the Now, turning to guidance, we are reaffirming our full year 2025 total revenue guidance of at least $32 million with between 21 and 25 system places.

Rob: Now turning to guidance, we are reaffirming our full year 2025 total revenue guidance of at least $32 million with between 21% and 25 system placements.

Sean Wirtjes: We expect Q2 revenue to be in a range of $6.75 million to $7.75 million, which assumes a range of between four and seven system placements in the quarter. These ranges account for system orders that we have in hand or expect to receive in Q2. Delivery of a few of these systems, which triggers placement and revenue recognition, is dependent on progress against ongoing construction activities at customer sites. Given potential variability in construction timing, we believe it's prudent to incorporate a range of outcomes into our quarterly guidance. In the event these systems aren't placed in Q2, we expect them to be placed in the second half of the year.

Rob: We expect Q2 revenue to be in a range of $6 75 million to $7 $75 million, which assumes a range of between 4% and seven system placements in the quarter.

Rob: These ranges account for system orders that we have in hand or expect to receive in Q2 <unk>.

Rob: Delivery of a few of these systems, which triggers placement and revenue recognition is dependent on progress against ongoing construction activities at customer sites.

Rob: Given potential variability in construction timing, we believe it's prudent to incorporate a range of outcomes into our quarterly guidance.

Rob: In the event. These systems arent placed in Q2, we expect them to be placed in the second half of the year.

Sean Wirtjes: Turning to consumables, we expect Q2 revenue to be relatively consistent with Q1. We then expect consumable revenue to step up in both Q3 and again in Q4 with variability driven by the timing of customer orders and shipments.

Rob: Turning to consumables, we expect Q2 revenue to be relatively consistent with Q1. We then expect consumable revenue to step up in both Q3 and again in Q4 with variability driven by the timing of customer orders and shipments.

Sean Wirtjes: With respect to service revenue, we expect to step down to between $2 and $2.5 million in Q2, due mainly to the acceleration of certain validation activities into the first quarter. We continue to expect that Q1 will be our highest service revenue quarter, and that we will complete at least 18 validations in the full year 2025, with at least two in the second quarter. Turning to margins, we expect Q2 gross margins to be relatively consistent with Q1, with better product margins due to progress on our product cost reduction and efficiency initiatives and higher revenue from our mobile arm software, but lower service margins due to lower service revenue.

Rob: With respect to service revenue, we expect a step down to between two and $2 $5 million in Q2, due mainly to the acceleration of certain validation activities into the first quarter.

Rob: We continue to expect that Q1 will be our highest service revenue quarter and that we will complete at least 18 validation in the full year 2025 with at least two in the second quarter.

Rob: Turning to margins.

Rob: We expect Q2 gross margins to be relatively consistent with Q1 with better product margins due to progress on our product cost reduction and efficiency initiatives and higher revenue from our mobile arm software, but lower service margins due to lower service revenue.

Sean Wirtjes: Based on our revenue outlook, we then expect gross margins to increase in the second half as product margins improve as a result of continued progress on our internal initiatives and higher product revenue. For the full year 2025, we continue to expect total gross margins as a percentage of revenue to be in the range of high single digits to low teens.

Rob: Based on our revenue outlook. We then expect gross margins to increase in the second half as product margins improve as a result of continued progress on our internal initiatives and higher product revenues.

Rob: For the full year 2025, we continue to expect total gross margins as a percentage of revenue to be in the range of high single digits to low teens.

Sean Wirtjes: We also continue to expect operating expenses to be between $44 million and $48 million for the full year. We expect depreciation and amortization expense of $3 million, stock compensation expense of $4 million, CapEx of $2 million, and other income, which is comprised primarily of interest income, of $2 million. Finally, we continue to expect to burn roughly $30 million in cash for the full year 2025, which would be a roughly $14 million reduction compared to our cash burn in 2024.

Rob: We also continue to expect operating expenses to be between $44 million and $48 million for the full year, we expect depreciation and amortization expense of 3 million stock compensation expense of $4 million Capex.

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

Rob: Finally, we continue to expect to burn roughly $30 million in cash for the full year, 2025, which would be a roughly $14 million reduction compared to our cash burn in 2024.

Operator: That concludes my comments, so at this point we'll open the call up for questions. Operator? At this time, I would like to remind everyone, in order to ask questions, press star then the number 1 on your telephone keypad.

Rob: That concludes my comments so at this point, we'll open the call up for questions operator.

Rob: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.

Operator: We will pause for just a moment to compile the Q&A.

Daniel Arias: Your first question comes from the line of Dan Harris, so Stifel, please go ahead. Good morning, guys. Thank you, Sean, or maybe Rob, maybe just can you start a little on the environment and just how you're feeling about business prospects right now, relative to the last time we spoke? I mean, it's obviously a fluid situation right now in the market. Each company has their own set of sort of spending priorities. So what are you hearing from customers about the importance of growth direct? Are you sensing that there's either increased hesitancy on purchasing or maybe increased interest just because it's, you know, it plays into the efficiency angle that a lot of these companies are looking for?

Speaker Change: Your first question comes from the line of Dan Harris with Stifel. Please go ahead.

Dan Harris: Hey, good morning, guys. Thank you, Sean or maybe Rob maybe just can you start on the environment and just how youre feeling about business prospects right now.

Dan Harris: Relative to the last time, we spoke I mean, it's obviously a fluid situation right now in the marketplace. Each company has their own set of sort of a spending priority. So what are you hearing from customers about the importance of growth direct.

Dan Harris: Are you sensing that there is either <unk>.

Dan Harris: Kris hesitancy on purchasing or maybe increase interesting interest just because it plays into the efficiency angle that a lot of these companies are looking for right now.

Robert Spignesi: Hey, Dan, good morning. It's Rob. For obvious reasons, I'll keep my comments brief, but I do a lot of traveling with customers. And the takeaway is, key projects are being prioritized. In many cases, Growth Direct is part of that, which gives us confidence. I also heard, especially in Europe, some incremental, I would say, uncertainty around the tariff situation. So, but net-net, the multi-system orders in our funnel that give us confidence in the guide in the year, we feel like they're being prioritized. And it's buttressed by conversations that we've had with senior leaders at these companies.

Rob: Hey, Dan Good morning, it's Rob.

Speaker Change: Obvious reasons I'll keep my comments brief.

Speaker Change: Your line with customers.

Speaker Change: Takeaway is keep projects aren't being prioritized in many cases grew direct as part of that which gives us confidence.

I also especially in Europe.

Speaker Change: Incremental I would say.

Speaker Change: Okay.

Speaker Change: Uncertainty around the tariff situation.

Speaker Change: But net net.

Speaker Change: Multi system orders in our funnel.

Speaker Change: And that gives us confidence.

Speaker Change: And the guide in the year.

Speaker Change: We feel like they're being prioritized.

Speaker Change: It's buttressed by conversations that we've had with senior leaders at these companies so.

Robert Spignesi: So, while the environment is, I would say, incrementally more uncertain from our last call, high ROI, key projects are being prioritized.

Speaker Change: While the environment is I would say incrementally more uncertain from our last call.

Speaker Change: Roy key policies are being prioritized.

Daniel Arias: Okay, that's encouraging.

Speaker Change: Okay, that's encouraging.

Daniel Arias: I'll give you a break, Sean, maybe on the gross margin side, nice progress here. Obviously, the environment puts pressure on gross margin improvement for any company. So can you just talk to the trajectory, given the tariff headwinds that are in the mix, and it doesn't sound like that's gonna be overly material for you, but it is in the picture.

Speaker Change: I'll give you a break Sean maybe on the gross margin side nice progress here.

Speaker Change: Obviously, the environment puts pressure on gross margin improvement for any company. So can you just talk to the trajectory given the tariff headwinds that are in the midst of it doesn't sound like that's going to be overly material for you, but it is in the picture what does an exit rate for margins look like now versus last quarter, if we sort of balance of things that youre working on.

Sean Wirtjes: What does an exit rate for margins look like now versus last quarter, if we sort of balance the things that you're working on, efficiency, service, productivity, et cetera, with just the overall pressures that the macro picture. Yep. Yeah, thanks, Dan. Yeah, I think not, not very different, I would say. Just to give you a little bit of background on our tariff kind of layout on the inbound material side, which is really where the potential impacts could be. We do source most of our materials within the US. We, having said that, we do source some of our materials from the EU as well across both systems and consumables.

Speaker Change: <unk> service productivity et cetera, which is the overall pressures that the macro picture brings.

Speaker Change: Yes, yes, thanks, Dan.

Speaker Change: Zinc.

Speaker Change: Not not very different I would say.

Speaker Change: Just to give you a little bit of background on our tariff kind of.

Speaker Change: Lay out on the inbound materials side, which is really where the potential impacts could be we do source most of our materials within the U S.

Speaker Change: Having said that we do source some of our materials from the EU as well across both systems and consumables thats at a meaningfully lower level I'd say.

Sean Wirtjes: It's at a meaningfully lower level, I'd say. And then another important one for us is we source all of our plastics for our consumables out of Canada. The good news for us there is that that's significant, but it is subject to an exemption under the USMCA, so we're not seeing tariffs in that part of our cost structure right now. And then we do source a very, very small amount of material for our systems out of China, but I'd call it de minimis at this point. So we don't expect any meaningful impact from China at all, based on where things stand right now.

Speaker Change: And then another important one for us as we source all of our plastics for our consumables out of Canada. The good news for US there is that all that significant.

Speaker Change: But it is subject to an exemption under the U S. MCA. So we're not seeing tariffs and that that part of our cost structure right. Now and then we do source a very very small amount of material for our systems out of China, but I'd call. It de Minimis at this point so not we don't expect any meaningful impact from China at all based on where things stand right now and even if.

Sean Wirtjes: And even if things get worse in China, it shouldn't impact us, just given the low level of sourcing we're doing there. So that's really what lies behind it. I think, Dan, as you know, we're doing a lot around cost reduction, manufacturing efficiency. There are things in that area that we're looking to potentially accelerate a bit to help offset the limited impact we do expect to see here. Importantly, and we mentioned this on the prepared remarks, we've talked a lot in the past about the amount of inventory we have, safety stock across systems and consumables. That's very helpful in the current scenario, in the sense that it means a lot of the materials that have some exposure to them, we don't need to buy right away.

Speaker Change: If things get worse in China, it shouldn't impact us just given our low level of sourcing went through on there. So that's really what lies behind it I think Dan as you know we're doing a lot around cost reduction manufacturing efficiency. There are things in that area that we're looking to potentially accelerate a bit to help offset the limited impact we do.

Speaker Change: To see here.

Importantly, and we mentioned this on the prepared remarks.

Speaker Change: <unk> talked a lot in the past about the amount of inventory, we have safety stock across systems and consumables.

Speaker Change: That's very helpful. In the current scenario in.

Speaker Change: In the sense that it means a lot of the materials that have some exposure to them, we don't need to buy right away and we have the luxury of kind of waiting and seeing what happens here. So.

Sean Wirtjes: And we have the luxury of kind of waiting and seeing what happens here. So based on all that, we're not expecting to see the trajectory at the end of the year be very different than what we thought it was a couple months ago.

Speaker Change: Based on all of that we're not expecting to see the trajectory at the end of the year would be very different than what we thought it was a couple of months ago.

Speaker Change: Okay I think at the end of the year your gross margin.

Daniel Arias: I think at the end of the year, your gross margin The idea for gross margins for the full year was high singles or low teams. If we kind of balance out the puts and takes from what it is that you did in 1Q, which is pretty good, and then some of these other factors, is it okay to model a double-digit number for the year? Yeah, I think we'd expect the exit rate for the year to be higher than the guide. So I think that's a fair assumption, Dan. Okay, thank you.

Speaker Change: The idea for gross margins for the full year was high singles or low low teens, if we kind of balanced out the puts and takes of what it is that you did in <unk>, which is pretty good and then some of these other factors.

Speaker Change: Okay to model a double digit number for the year.

Speaker Change: Yes, I think we would expect that.

Speaker Change: The exit rate for the year to be higher than the guide so I think thats a fair assumption that.

Speaker Change: Okay. Okay. Thank you.

Paul Knight: Your next question comes from the line of Paul Knight of KeyBank Capital Markets. Please go ahead. mentioned 18 validations this year. How many were last year? In Q1, that's for the year, Paul, right? Yeah, yeah, yeah. And how should we... Yeah. Yep, we did 16 validations last year. So it's slightly up. I think we would expect to have some potential for upside on that that guide number right now. We're still pretty early in the year. Some of these validations take some time to kind of for us to get clarity around the timing of them because they do involve high levels of customer engagement.

Speaker Change: Your next question comes from the line of Paul Knight of Keybanc Capital markets. Please go ahead.

Paul Knight: You mentioned 18 validation this year, how many were last year.

Paul Knight: Okay.

Paul Knight: In Q1, but thats for the year of Alright, yes.

Paul Knight: Yes, yes, yes.

Paul Knight: And how should we yes.

Paul Knight: That's my first question yes.

Paul Knight: Yes, we did 16 validation as last year.

Paul Knight: So it's slightly up I think we would expect to have some potential for upside on that guide number right now we're still pretty early in the year. Some of these validation takes some time to kind of for us to get clarity around the timing of them because they do involve high levels of customer engagement. So I think we.

Sean Wirtjes: So I think we feel good about the guide at 18. It would that would be up slightly from last year. I think there's opportunity for us to potentially do better than that as well.

Paul Knight: We feel good about the guide at <unk>. It would that would be up slightly from last year, I think there's opportunity for us to potentially do better than that as well.

Paul Knight: For more information visit www.FEMA.gov And then the CapEx we're seeing, which is pretty massive of CapEx in the U.S. this new or is this really just been on the books and then follow on to that is how quickly do you see this turn into business for you.

Paul Knight: And then the Capex, we're seeing which is pretty massive.

Paul Knight: Capex in the U S is this new or is this really just been on the books.

Paul Knight: A follow on to that as well.

Paul Knight: Quickly do you.

Paul Knight: See this turn into business for you.

Robert Spignesi: Hey, Paul, it's Rob. Yeah, so we, whether it's new or existing, it's hard to tell, but what I can tell you is we often work with customers on expansions of new facilities or expansions to existing facilities, expansions to existing labs. So it's an ongoing effort by our customers that this may signify a focus effort in the US, which we plan to benefit from.

Paul Knight: Hey, Paul it's Rob so we let them.

Speaker Change: Orange new or existing.

Speaker Change: Existing is it's hard to tell but what I can tell you is we often.

Speaker Change: Work with customers on expansions of new facilities or expansions to existing facilities expansions of existing lab. So it's an ongoing.

Speaker Change: Effort by our customers.

Speaker Change: This may signify a focus effort in the U S, which we plan to benefit from so generally this feels to us like.

Robert Spignesi: So, generally, this feels to us like an ordinary course of business with potentially projects being prioritized in the US, and we typically view this as good news because new projects, new buildings typically adopt newer technology, and we're obviously a great fit for those installations. Okay, thank you.

Speaker Change: Ordinary course of business with potentially projects being prioritized in the U S.

Speaker Change: We typically use as good news because you.

Speaker Change: Projects, new buildings typically adopt newer technology.

Speaker Change: Honestly, a great fit for those installations.

Speaker Change: Installations.

Speaker Change: Okay. Thank you.

Operator: Again, if you would like to ask a question, press star 1 on your telephone keypad.

Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.

Chad Wiatrowski: Your next question comes from the line of Chad Wiatrowski of TD Cohen, please go ahead. Hey guys, this is Chad Wiatrowski on for Brendan. Just given the automation and sort of unique data generation that the growth provides, you know, you sort of assume that maybe long-term there's ways that AI and A couple more.

Speaker Change: Your next question comes from the line of Chad <unk> of PD Colin. Please go ahead.

Speaker Change: Hey, guys. This is Chad transcon for Brendan Smyth.

Speaker Change: Given the automation and sort of unique data generation at the growth provides.

Speaker Change: You sort of assume that maybe long term this ways that AI.

Speaker Change: Kind of gain some value out of this machine, so sort of how materials AI as part of your long term strategy and is there anything that we can look at specifically as sort of updates on that front.

Robert Spignesi: Yeah, so in reverse order, updates will come in the future, but certainly software advancements to include AI are part of our R&D roadmap. I think we chatted about this at your conference, but our automation is creating an enormous amount of digital data, and helping customers manage that data across a fleet of growth directs is something that's very high on our R&D radar. So we are very bullish on the future of AI and how it could impact this business in the market, coupled with our software development pipeline as well. got it.

Speaker Change: Yes, so in reverse order.

Speaker Change: Updates will come in the future, but certainly software advancements to include a part of our.

Speaker Change: R&D roadmap I.

Speaker Change: I think we've chatted about this.

Patrick: Patrick Conference, but our automation is creating an enormous amount of digital data.

Patrick: And helping customers manage that data across a suite of both Rx and gentlemen, thats all.

Patrick: Hi.

Patrick: R&D.

Patrick: So we are very bullish on the future of <unk>.

Patrick: Hi, good impact.

Patrick: This business in the market.

Patrick: Coupled with our software development pipeline as well.

Patrick: Got it and then just on the Millipore Sigma.

Chad Wiatrowski: And then just on the Millipore Sigma deal, is there any reason that that gives you some flexibility to sort of offset any tariff impact from a selling standpoint working with a global distributor like them? And then are there any specific things to look for as you continue to progress through the year, just on margin or efficiency?

Patrick: Deal.

Patrick: Is there any reason that that gives you some flexibility.

Patrick: To sort of offset any tariff impacts from a selling standpoint, working with a global distributor like Dan and then are there any specific things to look for as you continue to progress through the year.

Patrick: Just on margin and efficiency fronts.

Sean Wirtjes: Yeah, I'll start with that, Robin. I have some comments here, too. I think on the question about Millipore Sigma distribution, I don't think there's anything obvious to us, Chad, in terms of how they look at the market, how we look at the market hasn't changed because of tariffs. I think we both need to manage the situation as it evolves. I think we've talked through kind of where we are, and on the revenue side, it's really incremental uncertainty. It's not direct impact from tariffs. You know, as they look at their markets, they may have a different, they probably would have a different picture to look at there because they, their distribution of revenue and their opportunities would look a little bit different than ours.

Patrick: Yeah, I'll start with that Rob may have some comments or two I think on the question about millipore Sigma distribution I don't think Theres anything obvious us Chad.

Patrick: In terms of I think how they look at the market. We look at the market Hasnt changed because of tariffs I think we both need to manage the situation as it evolves I think we've talked through kind of where we are in.

Patrick: On the revenue side, its really incremental uncertainty, it's not direct impact from tariffs.

Speaker Change: They look at their markets. They may have a different they probably would have a different picture to look out there because they.

Speaker Change: Our distribution of revenue and their opportunities would look a little bit different than ours, but I don't I don't think we see anything obvious in terms of mitigation strategy for us around that necessarily.

Sean Wirtjes: But I don't, I don't think we see anything obvious in terms of mitigation strategy for us around that necessarily.

Chad Wiatrowski: Then you had a second question, could you repeat that? Yeah, just, you know, you mentioned the progress you've made sort of through this year and the beginning of the year, and through the remainder of the year, is there anything to highlight kind of from that collaboration that we could look at as... and others.

Speaker Change: And then you've got a second question could you repeat that.

Speaker Change: Yes.

Speaker Change: The progress we've made.

Speaker Change: Through the year and the beginning of the year and through the remainder of the year is there anything to highlight kind of.

Speaker Change: From that collaboration that we can look at.

Sean Wirtjes: Thank you. Yeah, as we look at the activity that's happening there, a part of that does relate to supply. We talked on the last call about the fact that there's a very good match, for example, in consumables. A lot of the material that we use in our consumables, they are able to provide, and we're in active conversations about the potential of bringing that in and potentially driving cost reduction through sourcing those materials from Millipore Sigma. I'd say the base case. Margin plan we have right now or the forecast we have right now does not assume that we have benefit from that.

Speaker Change: <unk> success.

Speaker Change: Yes.

Speaker Change: As we look at that the activity that's happening there a part of that does relate to supply.

Speaker Change: We talked on the last call about the fact that there is a very good match for example in consumables.

Speaker Change: A lot of the material that we use in our consumables they are able to provide.

Speaker Change: We're in active conversations about.

Speaker Change: The potential of bringing that and potentially driving cost reduction through sourcing those materials from millipore Sigma I'd say the base case.

Speaker Change: Margin plan, we have right now with the forecast we have right now does not assume that we have benefit from that I think there is an opportunity to get some benefit late in the year from that potentially but theres execution that has to happen to get there. So I would call that upside at this point I think looking out a little bit longer into the next year or two.

Sean Wirtjes: I think there's an opportunity to get some benefit late in the year from that potentially, but there's execution that has to happen to get there. So I'd call that upset at this point. I think looking at a little bit longer, you know, into the next year or two, I think that there will be opportunity expansion in terms of our ability to leverage that relationship to drive incremental margin improvement.

Speaker Change: I think that there will be opportunity expansion in terms of our ability to leverage that relationship to drive incremental margin improvement.

Speaker Change: Okay. That's helpful. Thanks, Thanks for the question Scott.

Chad Wiatrowski: That's helpful.

Sean Wirtjes: Thanks for the questions. Thanks, Chet.

Jeff: Okay. Thanks, Jeff.

Sean Wirtjes: We're going to wrap up this morning's call. Thanks to everyone for joining us today. We look forward to speaking with many of you soon.

Jeff: We're going to wrap up this morning's call. Thanks to everyone for joining US today, we look forward to speaking with many of you soon.

Operator: That ends our Q&A session, and we appreciate your participation.

Speaker Change: And so I can day session and we appreciate your participation and ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

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

Operator: Please wait, the conference will begin shortly. Thank you for watching.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.