Rapid Micro Biosystems, Inc. (NASDAQ:RPID) Q1 2024 Earnings Call Transcript May 3, 2024
Rapid Micro Biosystems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is John, and I will be your conference operator for today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Mike Beaulieu, Head of Investor Relations. Please go ahead.
Michael Beaulieu: Good morning and thank you for joining the Rapid Micro Biosystems’ first quarter 2024 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our first quarter 2024 financial results. A copy of the release is available on the company’s website at rapidmicrobio.com under Investors in the News & 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.
Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro’s financial condition; anticipated future cash usage and cash runway; guidance for 2024 including revenues, expenses, gross margin, system placements and validation activities; expectations for and planned activities related to the company’s business development and growth; customer interest and adoption of the Growth Direct system; statements regarding the planned launch and commercialization of Rapid Sterility; and the potential impact of macroeconomic uncertainty on Rapid Micro’s business. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.
For a list and description of these risks and uncertainties associated with Rapid Micro’s business, please refer to the risk factors section of our most recent annual report on Form 10-K 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. This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 3, 2024. Rapid Micro disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.
And with that, I’ll now turn the call over to Rob.
Robert Spignesi: Thank you, Mike. Good morning, everyone and thank you for joining us. I will begin this morning’s call with an overview of our first quarter performance and highlights, followed by a review of our priorities for 2024. I will then turn the call over to Sean for a more detailed review of our financial results and outlook. First quarter total revenue increased 11% to $5.6 million, compared to the first quarter of 2023. This performance is ahead of the guidance we provided in March and represents the sixth quarter in a row that our revenue exceeded guidance. We placed three Growth Direct systems in the quarter, all to existing customers. First quarter recurring revenue increased 15% compared to Q1 2023 and has now grown by double-digits in each of the 11 quarters since we became a public company.
Consumable sales, which are part of recurring revenue, increased 22% year-over-year and achieved a new quarterly record, exceeding our prior record set in the second quarter of 2023. This strength in consumables demonstrates that customers are actively using their Growth Direct systems and are realizing value across their global manufacturing networks. In total, our first quarter results reflect a solid start to 2024 and we are reaffirming our full year 2024 revenue guidance of at least $27 million, representing at least 20% growth and at least 20 system placements. We continue to execute against our strategic priorities of accelerating system placements, improving gross margins, commercializing innovative new products and prudently managing our cash.
I’d like to provide a brief update and context for these priorities. Over the past few months, I visited with customers across North America and Europe. These meetings are always productive. I would like to provide some recent customer feedback. The Growth Direct value proposition is resonating and customers are realizing meaningful benefits. They continue to plan further deployment of Growth Direct systems across their global manufacturing networks. Many benefits of the Growth Direct’s full automation include enhanced data integrity, improved accuracy, reduced human error and lower hands on labor costs. In addition, the Growth Direct offers operational efficiencies, which can enable faster product release, less waste and reduced inventories.
Moreover, given the clear demand in the industry for increased manufacturing capacity, Growth Direct’s speed and efficiency provide critical flexibility to manufacturing and quality control operations and can enable customers to unlock additional production capacity. Importantly, these operational efficiencies which are highly suited for these advanced modalities of biologics and cell and gene therapies are also therapies are also effective for other segments such as vaccines, sterile injectables and small molecule manufacturing. The pace of growth in advanced modalities and the need for improved data integrity industry-wide is accelerating the adoption of automation. As customers implement automation across their manufacturing networks, we are confident that the Growth Direct is an important part of the solution.
We continue to expect an acceleration in system placements in the second half of the year. Our confidence is underpinned by the size and quality of our sales funnel, a fully-staffed global sales team and visibility into Growth Direct purchases from our customers’ senior level executives. Turning to our next priority, which is improving gross margins. We expect to continue to benefit from our initiatives focused on product cost reduction, manufacturing efficiency and service productivity improvements. We remain on track for an inflection to positive gross margins in the second half of the year. Next, we look forward to the successful launch and commercialization of Rapid Sterility. Since our announcement earlier this year, customer interest with this breakthrough technology has been growing and has exceeded our expectations.
Our commercial teams are trained and we are completing the technology transfer from R&D and into manufacturing with the associated scale up activities. In June, we are hosting customers at our Lexington Innovation Center and Demonstration lab for a live hands on experience with the Growth Direct’s Rapid Sterility platform. We remain on schedule for a mid-2024 launch and look forward to providing an update on our second quarter earnings call in early August. Turning to cash management, we are focused on reducing our cash burn, by tightly controlling operating expenses, capital expenditures and working capital. So to summarize our key messages from the first quarter. It was a solid start to 2024, including a record quarter in consumable revenue.
The Growth Direct is providing a strong value proposition by delivering full automation, operational efficiencies and improved data integrity. Customers continue to plan further deployment of Growth Direct systems across our global manufacturing networks. Early customer interest in Rapid Sterility is strong and we are on schedule for a mid-year launch. Wrapping up my prepared remarks, I remain excited about our long-term outlook. We have a world-class customer base consisting of 70% of the top 20 global pharma companies. A proven technology with a strong value proposition that is embedded in customer workflows, an attractive high growth business model with durable recurring revenue. We are focused on our path to profitability and expect our cost, efficiency and productivity initiatives to lead to positive gross margins in the second half of 2024 with continued improvement thereafter.
With that, I’ll now turn the call over to Sean to discuss our first quarter performance and our outlook in more detail. Sean?
Sean Wirtjes: Thanks, Rob, and good morning, everyone. I’ll start my comments today with a review of our first quarter results and then discuss our second quarter and full year 2024 outlook. Q1 revenue increased 11% to $5.6 million compared to $5 million in Q1 2023. During the first quarter, we placed three Growth Direct systems compared to three in the first quarter last year. We also completed three validations in the quarter compared to two in the first quarter last year. Product revenue, which is comprised of systems and consumables, increased 12% to $3.7 million in the quarter compared to $3.3 million in Q1 last year. The growth in product revenue was primarily driven by a record quarter in consumables as a result of continued growth in validated systems as well as several shipments made during Q1 that were originally expected in Q2.
Service revenue increased 11% to $1.9 million in the first quarter compared to $1.7 million in Q1 last year. Service revenue growth was impacted in Q1 by some planned validation revenue that shifted into early Q2. The increase compared to the prior year quarter was primarily driven by a higher level of validation activity as well as higher revenue from service contracts due to the increase in the number of validated Growth Direct systems. First quarter recurring revenue, which consists of consumables and annual service contracts, increased 15% to $3.7 million, compared to $3.3 million in Q1 last year. Non-recurring revenue, which is comprised mainly of systems and validation revenue was $1.9 million in Q1, compared to $1.8 million in the prior year quarter.
Turning to gross margins. Product margins were negative $1.5 million in Q1 compared to negative $1.7 million in the first quarter last year. As we expected and is typical for our business, Q1 product margin stepped down from Q4 2023 mainly due to lower system placements and revenue. Compared to Q1 last year, the improvement was attributable to continued benefits from actions we’ve taken to lower product costs and increased manufacturing efficiency. These benefits were partially offset by some customer site readiness delays, which shifted $0.2 million in high margin LIMS software revenue from Q1 into Q2 and unfavorable product mix due to the higher proportion of consumable revenue in Q1 this year. Service margins were slightly negative in the first quarter, largely due to non-recurring expenses.
This compares to negative $0.1 million in the first quarter last year. On a combined basis, our first quarter gross margin was negative $1.5 million or negative 27% compared to negative $1.8 million or negative 36% in Q1 last year. We continue to expect our Q1 gross margins to be the lowest of the year. We then expect meaningful improvement as we work our way through the remaining quarters, as volumes and revenue increase and we continue to make progress on our initiatives focused on product cost reduction and manufacturing efficiency as well as service productivity. Continuing down the P&L, total operating expenses were $12.8 million in the first quarter, compared to $13.1 million in the prior year quarter, a reduction of approximately 3% versus the prior year period.
R&D expenses were $3.8 million in Q1, an increase of 22% versus the prior year period, largely due to activities associated with the upcoming launch of Rapid Sterility. Sales and marketing expenses were $3.3 million and G&A expenses were $5.6 million in the first quarter, representing a combined 10% reduction versus the prior year quarter, as we tightly control spending in the business. Net loss was $13.3 million in Q1. This compares to a net loss of $13.9 million in Q1 last year. Net loss per share was $0.31 in Q1 compared to net loss per share of $0.32 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 $1.1 million and capital expenditures were $0.6 million in the first quarter.
We ended the first quarter with approximately $80 million of cash and investments on our balance sheet. I’ll now turn to our Q2 and full year 2024 outlook. We continue to expect total revenue of at least $27 million for the full year 2024, which assumes that we will place at least 20 systems. This implies year-over-year revenue growth of at least 20%. This guidance continues to reflect some uncertainty related to the timing and scale of customer purchase decisions. For the second quarter, we expect total revenue of at least $6 million, which assumes at least four system placements. We then expect revenue and placements to increase sequentially in Q3 and peak in Q4, consistent with our typical annual cadence and the guidance we provided in March.
Looking at consumables, we expect revenue to decrease sequentially in Q2 compared to Q1, due primarily for the timing of customer orders and shipments. We then expect consumable revenue to increase sequentially in Q3 and then again in Q4, as mortgage systems complete validation and enter routine use. With respect to service, we expect revenue to be between $2 million and $2.5 million each quarter over the balance of the year, with variability within this range primarily driven by the timing of validation activities. We are reaffirming our guidance of at least 16 validations in 2024, including at least four in the Q2. Turning to gross margins. We expect meaningful sequential improvement in the second quarter compared to the first quarter, but we still expect Q2 margins to be negative.
Thereafter, we continue to expect positive gross margins in both Q3 and Q4 as well as for the full year. We expect product margins to improve each quarter, based on ongoing cost reduction and manufacturing efficiency initiatives as well as increasing volume, but remain negative. We expect double-digit positive service margins in each of the remaining three quarters of the year, based on higher revenue and improved productivity. Looking forward, we remain confident in our ability to meaningfully improve our gross margins in 2024 and beyond, as we continue to grow revenue, reduce product costs, drive higher manufacturing efficiency, control manufacturing overhead costs and increased service productivity. We continue to expect operating expenses to be in a range of $48 million to $52 million in 2024, with depreciation and amortization expense of approximately $3 million, stock compensation expense of approximately $5 million, CapEx of approximately $3 million and other income, which is comprised primarily of interest income of approximately $4 million.
Finally, we continue to expect cash burn of roughly $40 million for the full year 2024. Looking out further, our goal is to reduce cash burn meaningfully over each of the next several years, as we drive towards profitability through a combination of revenue growth, margin improvement and management of our OpEx, CapEx and working capital. This supports our expectation that our existing cash and investments provide us with runway at least into the second half of 2026. That concludes my comments. At this point, we’ll open the call up for questions. Operator?
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