Q3 2025 Rapid Micro Biosystems Inc Earnings Call
Speaker #1: Good day and thank you for standing by . Welcome to the RAPID MICRO BIOSYSTEMS, INC. third Quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .
Speaker #1: After the speakers presentation , there will be a question and answer session . To ask a question during the session , you will need to press star one one on your telephone .
Speaker #1: You will then hear an automated message advising that your hand is raised . To withdraw your question , please press star one one again .
Speaker #1: Please be advised that today's conference is being recorded . I would now like to turn the conference over to your first speaker today .
Speaker #1: Mike Bolger of Investor Relations . Please go ahead .
Speaker #2: Good morning , and thank you for joining the RAPID MICRO BIOSYSTEMS, INC. third Quarter 2020 Earnings call . Joining me on the call are Robert Spignesi President and Chief Executive Officer and Sean Wirtjes chief Financial officer .
Speaker #2: Earlier today , we issued a press release announcing our third quarter 2020 financial results . A copy of the release is available on the company's website at RAPID MICRO BIOSYSTEMS, INC. .
Speaker #2: Under investors in the News and Events section . Before we begin , I'd like to remind you that many statements made during this call may be considered forward looking statements within the meaning of federal securities laws , which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 .
Speaker #2: 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 financial condition , assumptions regarding future financial performance , anticipated future cash usage , statements relating to the company's term loan facility guidance for 2025 , including revenue , expenses , gross margin , system placements and validation activities .
Speaker #2: 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 .
Speaker #2: Customer interest and adoption of the Growth Direct System and the impact of the growth system on their businesses and operations , and statements regarding the potential impact of general macroeconomic conditions on our business and that of our customers .
Speaker #2: 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 , the impact of our existing and any future indebtedness on our ability to operate our business , our ability to access any future tranches under our debt facility and to comply with all of its obligations there under our ability to deliver products to customers and recognize revenue and market and macroeconomic conditions .
Speaker #2: 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 .
Speaker #2: 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 #2: This conference call contains time sensitive information and is accurate only as of the live broadcast today , November 7th , 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 .
Speaker #2: And with that , I'll turn the call over to Rob .
Speaker #3: Thank you . Mike . Good morning , everyone , and thank you for joining us . I'll begin this morning's call with a brief overview of our third quarter performance .
Speaker #3: Next , I will discuss the record multisystem Order . We announced this morning and then review our Millipore Sigma partnership . I'll conclude my prepared remarks with a few comments on our updated 2025 outlook .
Speaker #3: And then I'll turn the call over to Sean for a more detailed review of our financial results and outlook. This morning, we reported total third quarter revenue of $7.8 million, above the midpoint of our guidance range, representing our 12th consecutive quarter of meeting or beating revenue guidance.
Speaker #3: Within product revenue , consumables , which are a key indicator of customer demand and usage , increased 40% to a quarterly record . This strong performance helped offset a difficult comparison in system revenue , which included five growth direct placements versus seven in the prior year .
Speaker #3: Service revenue grew 12% compared to Q3 2020 for recurring revenue , which is comprised of consumables and annual service contracts increased more than 30% year over year .
Speaker #3: Third quarter gross margins were 9% , reflecting a 70 basis point improvement from the prior year quarter . Higher revenue and productivity gains drove service margins to 40% in the quarter , while product margins were slightly negative .
Speaker #3: We expect progress on our product cost reduction and manufacturing efficiency initiatives to deliver positive product margins in Q4 . Looking forward , we expect continued meaningful gross margin improvement in 2026 .
Speaker #3: Now , I like to turn to the significant commercial win we announced earlier this morning in October . We secured a record multisystem order from an existing top 20 global biopharma customer with contributions beginning in the fourth quarter and extending into 2026 and beyond .
Speaker #3: This customer is deploying growth systems across multiple sites in North America , Europe and Asia-Pacific . Additionally , the customer will utilize a growth platform across several manufacturing modalities and fully leverage all of our applications , including environmental monitoring , water and bioburden .
Speaker #3: This milestone underscores the growth direct platforms position as a leading , fully automated solution capable of meeting the demands of increasingly complex , large scale and global biopharmaceutical manufacturing .
Speaker #3: It also reflects the trust and strong partnerships we built with our customers , and illustrates how customers have and will continue to adopt the Growth Direct platform .
Speaker #3: Importantly , we expect this customer to make additional purchases as they continue to expand and standardize across their network . This achievement is a testament to the outstanding work of our commercial team , and we are now focused on timely and efficient execution as our operations and service teams support this global deployment .
Speaker #3: In addition to this multi-system order , broader customer engagement remains strong . Last week , we attended the annual PDA Pharmaceutical Microbiology conference .
Speaker #3: The largest global industry event focused on microbiology and pharmaceutical manufacturing . Our key takeaways were twofold confirmation of the accelerating industry trend towards automation and validation from existing and prospective customers that the growth platform is the right product for modernizing pharmaceutical manufacturing and quality control .
Speaker #3: Now , turning to our collaboration with Millipore . We remain closely engaged with our commercial team as they develop their global sales funnel .
Speaker #3: In the third quarter, they began to order Growth Direct systems; though, as previously indicated, their purchase commitments will remain modest.
Speaker #3: In 2025 and become more meaningful in 2026 . Next week , Daiichi Sankyo will support our annual growth erect day near their facility outside Munich , Germany .
Speaker #3: As you'll recall , this event will feature existing and prospective customers discussing the benefits and sharing best practices of the growth . Platform .
Speaker #3: And this year, we're pleased to welcome colleagues from Millipore, Sigma, and several of their prospective customers, making this our largest Growth Direct Day ever.
Speaker #3: In addition , later in November , our sales and marketing colleagues will work alongside the Millipore Sigma team in adjacent booths at the Pharma Lab , Congress , also taking place in Germany .
Speaker #3: This will be a valuable opportunity to jointly engage customers and further accelerate commercial momentum for both organizations. Turning to the second component of our MilliporeSigma collaboration, we are nearing completion of an initial product supply agreement.
Speaker #3: We are currently conducting material validation studies and assessing additional areas to potentially expand the scope of the agreement . This agreement is a meaningful step towards driving margin improvement as these programs are expected to lower our direct product costs and improve gross margins .
Speaker #3: With financial benefits starting in the second half of 2026 . In summary , we're pleased with our execution and very encouraged by the momentum building as we exit 2025 with strong performance across the business and initial contributions from the recent multi-system order .
Speaker #3: We are raising our full year total revenue guidance to at least $33 million , which includes at least 27 growth direct system placements .
Speaker #3: As we look ahead to 2026 , there will be three core drivers of revenue growth . First , a robust pipeline . Our sales funnel remains strong with multiple customers planning multi-system global rollouts .
Speaker #3: These opportunities are similar to our recent record order , motivated by a compelling ROI and a drive to standardize and automate global manufacturing networks .
Speaker #3: Second , our business model is anchored by an expanding global installed base of over 150 fully validated growth direct systems generating durable , recurring revenue from consumable and service contracts .
Speaker #3: And third , our collaboration with Millipore Sigma continues to progress . Well , they have begun to order Growth direct systems and are building a global funnel of opportunities that we expect to contribute meaningfully to system placements in 2026 .
Speaker #3: In addition to these revenue growth drivers , we remain equally focused on improving profitability , margin expansion will accelerate in 2026 , driven by internal product cost reductions and manufacturing efficiency initiatives .
Speaker #3: As well as anticipated benefits from the Millipore Sigma supply collaboration, we are well positioned to capitalize on industry tailwinds, including the accelerating use of automation technology and increased investments in the onshoring of U.S.
Speaker #3: pharmaceutical manufacturing . The growth of strong customer value proposition , combined with our growing global top tier customer base , optimally positions us for future pharma industry investment and growth .
Speaker #3: And with that , I'll turn the call over to Sean . Thanks , Rob , and .
Speaker #2: Good morning , everyone .
Speaker #3: Third quarter .
Speaker #4: Revenue of $7.8 million increased 3% compared to the $7.6 million we reported in Q3 2020 . For . We placed five growth direct systems and completed four validations in the quarter and now stand at 174 cumulative systems placed globally , including 152 fully validated systems .
Speaker #4: Product revenue was essentially flat at $5.2 million in Q3, with record consumable revenue offsetting the impact of two fewer system placements compared to Q3 2024.
Speaker #4: Service revenue was $2.6 million , an increase of 12% compared to Q3 last year , driven by higher service contract revenue resulting from an increase in accumulative number of validated systems on a year over year basis .
Speaker #4: Third quarter recurring revenue, which consists of consumables and service contracts, increased 32% to $4.8 million, with consumables growing 40% in the period.
Speaker #4: Non-recurring revenue , which is comprised mainly of systems and validation revenue , was $3 million . Third quarter gross margin was 9% , marking our fifth consecutive quarter of positive gross margins and a sequential improvement of over 500 basis points compared to Q2 .
Speaker #4: Product margins were -7% in the quarter compared to -1% in Q3 2020 . For while consumable margins improved meaningfully compared to Q3 last year , as we continued to make good progress on our product cost and manufacturing efficiency initiatives , overall product margins were slightly lower due to a short term shift in the mix of revenue from systems to consumables .
Speaker #4: On a sequential basis , Q3 product margins improved by four percentage points compared to Q2 . Service margins were 40% in the third quarter , compared to 29% in Q3 last year .
Speaker #4: The improvement was driven by higher revenue and productivity , as well as lower service headcount . Total operating expenses were $12.1 million in the third quarter , representing a decrease of 5% from the $12.7 million we reported in Q3 2020 .
Speaker #4: Four , due largely to benefits from the Operational efficiency program . We announced in August last year . Within OpEx , R&D expenses were $3.5 million .
Speaker #4: Sales and marketing expenses were $2.9 million , and G&A expenses were $5.6 million . Interest income was $0.3 million and interest expense was $0.4 million .
Speaker #4: In the third quarter . Net loss was $11.5 million in Q3 , compared to a net loss of $11.3 million in Q3 last year .
Speaker #4: Net loss per share was $0.26 , both in Q3 this year and last year . With respect to non-cash expenses and capital expenditures , depreciation and amortization expenses were $0.8 million .
Speaker #4: Stock compensation expense was $1.1 million and capital expenditures were $0.1 million . In the third quarter , we ended the quarter with approximately $42 million in cash and investments .
Speaker #4: Now I'll turn to our outlook . As Rob highlighted earlier , we are raising our full year 2025 revenue guidance to at least $33 million , which includes at least 27 Growth Direct system placements .
Speaker #4: This guidance reflects the initial contribution from the large multi-system customer order we recently received . We expect this order to contribute meaningfully to system placements and system revenue in Q4 with related installation and validation , service revenue recognized in the first half of 2026 .
Speaker #4: These new systems are also expected to begin generating consumable revenue as they ramp to routine use in the second half of 2026 . Turning to consumables , we expect Q4 revenue to step down sequentially and be consistent with Q2 levels with variability driven by the timing of customer orders and shipments .
Speaker #4: With respect to service revenue, we expect to temporarily step down to roughly $2 million in Q4 due to the timing of validation activities.
Speaker #4: Specifically , most validations of recently placed systems were either completed by the end of Q3 or are planned for 2026 , including the validation of systems under the multi-system order we received this quarter .
Speaker #4: We continue to expect to complete at least 18 validations in the full year 2025, with at least three in the fourth quarter.
Speaker #4: Turning to gross margins , we expect our gross margin percentage to be in the mid single digits in Q4 . Breaking this down , we expect positive product margins for the first time , driven by higher system placements and continued progress on our product cost reduction and manufacturing efficiency initiatives .
Speaker #4: Conversely , we expect service margins to step down both sequentially and year over year . This reflects lower service revenue and a challenging comparison to last year's Q4 , which remains our highest service revenue quarter on record for the full year .
Speaker #4: We expect our overall gross margin percentage to be in the mid to high single digits . We expect further meaningful gross margin improvement in 2026 , driven by our ongoing product cost reduction and manufacturing efficiency initiatives .
Speaker #4: As well as increasing volume leverage in anticipated benefits from the Millipore Sigma supply collaboration . As we progress through the year . We expect operating expenses to step down from Q3 to Q4 and to now be around $48 million for the full year , with full year depreciation and amortization expense of approximately $3 million .
Speaker #4: Stock compensation expense of $4 million in CapEx of $2 million for the fourth quarter , we expect interest income of $0.5 million in interest expense of $0.6 million , to largely offset each other .
Speaker #4: Finally , we continue to expect to end the year with roughly $40 million in cash and investments . That concludes my comments . So at this point , we'll open the call up for questions .
Speaker #4: Operator . .
Speaker #1: Thank you . At this time , we will conduct the question and answer session . As a reminder to ask a question , you will need to press star one one on your telephone and wait for your name to be announced .
Speaker #1: To withdraw your question , please press star one . One again , please stand by while we compile our Q&A roster , and our first question will be coming from Thomas Flaten of Lake Street Capital Markets .
Speaker #1: Your line is open . Thomas .
Speaker #4: Hey good morning guys .
Speaker #5: Congrats on the quarter . Thanks for taking the questions , Sean . I just want to make sure I understand in the last call , you indicated that you would be at the low end of the 21 to 25 system placement , and now you're going to be at least 27 , which leads me to believe there might be more than a million bucks in terms of the guidance raise .
Speaker #5: Can you just square that circle for me ?
Speaker #4: Yeah , I think there's a couple of moving pieces here , Thomas . So we talked about . So on the large multi-system order , I think when we talked last quarter , we we have said consistently that we have a number of these kind of in the background .
Speaker #4: We have not been assuming them in the guide . So the transaction that we're talking about today is not something that was considered back then .
Speaker #4: So it is additive . You we've got some other things going the other way in Q4 in terms of the guide . So for example , service because of mainly timing , I think it's good news for 2026 service revenue .
Speaker #4: It does have a short term impact on Q4 service revenue will actually be lower than we expected . It to be going back a quarter .
Speaker #4: So you've got some puts and takes here that are kind of netting out to that increase in the overall increase in the revenue guide .
Speaker #4: Got it .
Speaker #5: And then kind of at a at a broader level , I know that the multi-system order is across three geographies . And you said that you're going to benefit from Onshoring .
Speaker #5: I'm curious though , if you look more broadly , the demand you're seeing from a geographical distribution , what does that look like ?
Speaker #3: Yeah . Thomas , it's Rob . So it's it's generally consistent with with where with where it has been . So we as you know , we operate in North America , Europe and Asia .
Speaker #3: I think this this most recent multi-system orders are pretty good . Example is a good proxy of of end market of end market conditions that we're seeing .
Speaker #3: You know , things are I wouldn't say they're more robust in one region than another . And many times it's really dependent on the specific company that that we're that we're working with .
Speaker #3: So we anticipate , you know it depends quarter to quarter . And timing is always an issue depending on where in the world things are coming from .
Speaker #3: But , you know , I think the takeaways from this from from our announcement is that our value proposition is resonating . Customers are trusting us to deploy globally , and we're seeing , generally broad based demand from our customer base to deploy , deploy globally .
Speaker #3: And notably this this particular win was not due to us Onshoring . So we expect that to be a potential benefit . In in 2026 and beyond .
Speaker #5: Excellent . Thanks for taking the questions .
Speaker #3: Thank you .
Speaker #4: Thank you . .
Speaker #1: And our next question will be coming from Paul Knight of KeyBanc . Your line is open . Paul .
Speaker #6: Hi . Yeah . Rob , congratulations on the order and the quarter . This is what you're going to have six delivered in Q4 on this order .
Speaker #6: What did you say ? Total order size ?
Speaker #3: I didn't say total order size , nor do we say how many we were going to deliver this quarter . Specifically out of the order .
Speaker #3: Paul . But we're not going to we're not going to disclose the , the exact order size . But you can think of it as a double digit order .
Speaker #6: Okay . And then the next question is real . You know , in the world of analytical instruments , you know , it's kind of an instrument becomes ubiquitous across the world within each major biopharma .
Speaker #6: So the question is how many multiple how many multiple order orders are you looking at ? How many customers are saying , I've got to have this in all three continents ?
Speaker #6: Well .
Speaker #3: Yeah .
Speaker #4: We .
Speaker #3: Certainly we're striving for ubiquity . Paul . So and of course , as the ultimate goal . So we've had we've had historically customers purchase multi-system orders and deploy globally .
Speaker #3: This is a notable example of a of a of a large single order . And we anticipate more of these , more of these going forward .
Speaker #3: As we said , we've got multiple multi-system orders in our funnel . And we we our plan is to continue to develop those and and close those and , and and get our customers going .
Speaker #3: Moreover , we also expect over time , the Merck Millipore relationship to to build upon this momentum and success . And that's how we look at the next certainly into 26 and beyond .
Speaker #6: And there's two aspects to Merck Millipore . Right . A you expect them to sell some units in their own channel . And the other is more cost efficiencies .
Speaker #6: Where do you think you're on the cost efficiency journey with them ? Are you just getting started . And we really see that in 26 .
Speaker #4: Yeah , I think that's right . Paul . This is Sean . We are working through . I think Rob mentioned some of this in his remarks .
Speaker #4: The process of of looking at materials specifically right now , some of the key materials that go into our consumables are things that we can procure from , from Merck .
Speaker #4: But as you do that , you've got to work through testing , validation , make sure it's all going to work . And the performance is where you want it to be .
Speaker #4: And then , you know , there's a process of kind of move that over to manufacturing , working through your existing inventory and transitioning over to the new inventory with that material in it .
Speaker #4: So I would think about the benefits from that kind of as we're looking at right now , is probably second half of next year is when we'll start to see some benefits from that activity .
Speaker #6: Thank you .
Speaker #3: Thanks , Paul .
Speaker #1: And our next question will be coming from Brendan Smith of TD Cohen . Your line is open . Brendan , great .
Speaker #7: Thanks for taking the questions , guys . And congrats on the print . Two . Just wanted to get a sense of how you all are thinking actually about this momentum against the current backdrop .
Speaker #7: I guess we've heard broadly that pharma , biotech spending has been , again , kind of broadly hitting instruments and services , maybe more than other segments .
Speaker #7: Obviously , you all are still seeing some pretty steady demand , maybe with some nuances , but I guess my question is really is folks are getting their 26 budgets together and maybe start feeling more comfortable with revisiting some of that .
Speaker #7: Spend . Do you guys expect that could potentially be an outsized growth tailwind in the first half of next year , or is kind of this steady sequential growth ?
Speaker #7: We've been seeing how we should think about it for the next couple of quarters.
Speaker #3: Rob , I would say that it's we don't we're not seeing a demonstrable change . We haven't seen a demonstrable change . It's a little hard to prognosticate at this point .
Speaker #3: About about 2026 , although it seems to be getting , I would say , you know , maybe a click or two better .
Speaker #3: You know , as we said in several , what we are seeing , though , the , you know , the 80 over 20 of it , if you will , is at least , you know , over the past several quarters , it's been fairly consistent .
Speaker #3: Where to your point . Yeah , it's the the CapEx budgets have been more scrutinized . And , you know , things are , you know , going through more , more diligence , if you will .
Speaker #3: But as we've said several times , high ROI , compelling investments are getting through . And I think we've been able to continue to be a beneficiary of that .
Speaker #3: And and I think I think this most recent announcement is a clear and present example that that pharma will continue to invest in high ROI projects and also , as mentioned on previous calls , in some cases , in this most recent one , I think is a good example where there's a strategic impact across an enterprise and and multiple sites .
Speaker #3: We have seen growth projects be a bit more resilient to the the vagaries of of of of the budget tightening .
Speaker #7: Got it . Yep . Makes sense . And then really quickly , just maybe piggybacking off of the Onshoring conversation a little bit .
Speaker #7: There's also something we get asked about quite a bit . You know , I guess it's feeling like most people are assuming it's not going to be a huge factor in 26 , but could maybe start to hit in 27 .
Speaker #7: Does that kind of gel with how you're thinking about it or what you're hearing ? Or should we think maybe more 28 plus ?
Speaker #7: Just kind of .
Speaker #3: I think I think .
Speaker #7: That that yeah .
Speaker #3: Yeah , I think that's I think that's listen , I don't think it's going to be a floodgate from , from what we can tell .
Speaker #3: And just we've been involved over the years and a lot of construction projects with new labs . So what you'll see is it won't be uniform in some cases , entire sites are being built and being built from a from a green field .
Speaker #3: And in other cases , other sites are being expanded , which can move a little faster . In other cases , even labs are being expanded .
Speaker #3: So you'll have this maybe uneven mix . As we talked about last time , there might be a logjam with some of the design and A and E firms out there , so that that may play a factor .
Speaker #3: But I think you could start to see potentially the leading edge more more broadly , I won't speak for , for , for for R&D specifically , but more broadly in 2026 .
Speaker #3: And then I would generally agree 27 could be certainly feature more . And then 28 and beyond . Absolutely .
Speaker #7: Got it . All right . Great . Thanks guys .
Speaker #1: And our next question will be coming from Dan Arias of Stifel Nicolaus . And Company Inc. . Your line is open .
Speaker #8: Hey guys . This is Dan . Thanks for the time . Here . Maybe a quick one regarding the large multi-system order in October .
Speaker #8: How long does it typically take to to place , validate and start seeing a ramp on consumable pull through from these systems ? Just trying to get a better view on the timeline .
Speaker #8: There . Just or maybe just in general , as you alluded to , having other I guess orders in the pipeline or potential orders in the pipeline .
Speaker #4: Yeah . Hey Rohan , it's Sean . I think as we look at this particular deal , I think we expect it to kind of follow the following path .
Speaker #4: The placements , they're going to have a meaningful impact in Q4 and moving into the first half of next year , we expect to get those systems installed and validated .
Speaker #4: I think we have a motivated customer and we are ready to go with them in that time to get that work done , which I think is a tailwind as we think about services in that time period .
Speaker #4: And then as we get into the second half of the year , what typically happens and what we expect in this case is that they'll we'll get the validations done .
Speaker #4: They'll kind of work through their internal process and start to ramp up into GMP use . And we expect to see at least the front end of that in the second half of next year .
Speaker #4: Consumable standpoint . So that's the kind of time frame we typically expect to see . I think different customers can move with different speed depending on resourcing and things like that .
Speaker #4: But I think this one we feel good is , you know , there's good alignment between us and the customer to to work along that timeline .
Speaker #8: Okay . Thank you for that . And maybe just one more quickly , you know , in the past , rapid has alluded to wanting to penetrate adjacent markets such as personal care , how much traction are you all seeing in that market ?
Speaker #8: You know , what has become of those efforts ? Thanks .
Speaker #3: Yeah , thanks . It's Rob again . So , you know , as we have mentioned , there are sizable adjacent markets , personal care as you mentioned , is certainly one of them .
Speaker #3: Our our current strategy from a rapid micro direct sales commercial effort is principally focused on global pharmaceutical and biopharma . Our strategy to develop those adjacent markets , personal care , med device and others is is generally focused on our collaboration with Merck Millipore Sigma .
Speaker #3: Some of those markets , they're large or can be large . They tend to be a bit more fragmented , a little bit different sales cycle .
Speaker #3: So having a larger sales force than Merck Millipore Sigma, which has a focus on those markets in a more uniformly spread manner globally, is really our strategy to go after those markets.
Speaker #3: And our collaboration agreement allows for that . And encourages that . Frankly .
Speaker #8: Okay . Thank you . I'll jump back in the queue . Okay .
Speaker #3: Great . Well , I think that's that's the last question . So thank you all for the question . We'll conclude the call at this time .
Speaker #3: Appreciate everyone's time and attention . And we look forward to speaking with many of you soon . Thank you .