Rapid Micro Biosystems - Earnings Call - Q1 2025

Executive Summary

• Q1 revenue grew 28% year over year to $7.21M, a beat vs S&P Global consensus of ~$6.63M, driven by record service revenue on elevated validations; gross margin improved 33pts YoY to 6% as cost actions and service productivity gained traction. Results mark the company’s 10th straight quarter meeting or exceeding guidance.
• EPS of -$0.26 was 1c better than consensus, with net loss improving to -$11.3M; product margin improved to -23% and service margin to 43% on mix, higher software, and lower service costs.
• Management reaffirmed FY25 revenue of at least $32M, 21–25 placements, gross margin “high-single digits to low-teens,” OpEx $44–$48M, and ~$30M cash burn; Q2 revenue guided to $6.75–$7.75M with 4–7 placements and service revenue step-down as validations were pulled forward.
• Catalysts: execution on Q2–Q4 placements/validations, margin trajectory (Mold Alarm/software and cost reduction), and initial supply-chain benefits from the MilliporeSigma collaboration; macro/tariff uncertainty viewed as manageable near term due to sourcing mix and USMCA exemptions.

What Went Well and What Went Wrong

• What Went Well

  • “Total first quarter revenue increased 28% to $7.2 million… service revenue increased 64%… and was a quarterly record,” showcasing diversified growth and execution across product and services.
  • Margin progress: “first quarter gross margins were 6%, representing a 33 percentage point improvement,” aided by product cost reductions, manufacturing efficiencies, and service productivity.
  • Strategic partnership: teams “highly engaged” with MilliporeSigma on joint commercial and cost workstreams; aim to accelerate system placements, improve margins, and drive innovation.

• What Went Wrong

  • Mix headwind in product margin: product margin remained negative (-23%), though improved from prior year; combined GM still low single digits, underscoring ongoing cost/mix work to reach sustainable double-digit margins.
  • Q2 step-down in services: validations pulled forward elevated Q1 service revenue; Q2 service revenue guided down to $2.0–$2.5M, creating sequential revenue/margin headwind.
  • Macro/tariff uncertainty: “incremental uncertainty” particularly in Europe; while direct impact is limited, management embeds variability in quarterly guidance and placement timing.

Transcript

Operator (participant)

Thank you for standing by. 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 Biosystems first quarter 2025 earnings conference call. 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 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 Beaulieu. Please go ahead.

Mike Beaulieu (VP of Investor Relations)

Good morning, and thank you for joining the Rapid Micro Biosystems first quarter 2025 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer, and Sean Wirtjes, Chief Financial Officer. 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. 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. 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 Biosystems' 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 Biosystems' business development and growth, including the expected benefits from our distribution and collaboration agreement with MilliporeSigma, 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.

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. For a more detailed list and description of the risks and uncertainties associated with Rapid Micro Biosystems' 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. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 9th, 2025.

Rapid Micro Biosystems 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. With that, I'll turn the call over to Sean.

Sean Wirtjes (CFO)

Thank you, Mike. Good morning, everyone, and thank you for joining us. 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 MilliporeSigma collaboration. Following that, I'll move on to my CFO commentary, including a more detailed review of our first quarter results and our Q2 and full year 2025 outlook. 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. 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. 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 MilliporeSigma, 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 organizations. 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 Growth Direct's value proposition and prior examples of supporting new customer facility expansions, Rapid Micro Biosystems is well positioned to take advantage of this multi-year trend.

Turning now to a brief update on our progress with MilliporeSigma. 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 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. Project teams from both organizations are working well together, and we have held joint meetings both in our Lexington, Massachusetts offices and MilliporeSigma's offices in Europe.

We are excited about the opportunity this partnership provides to advance our priorities of accelerating Growth Direct system placements, improving gross margins, and developing innovative products, and we look forward to updating you on future calls. 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 placements. 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 MilliporeSigma collaboration and remain confident that there are significant opportunities to advance our key priorities. 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.

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 2023. 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 2023. While system placements were consistent between the periods, higher sales of software drove an increase of over 20% in systems revenue. 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 2023. 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 Growth Direct 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. 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 2023. 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. 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. 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.

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, representing 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. 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. We ended the first quarter with approximately $42 million in cash.

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. The tariff environment adds incremental uncertainty to this.

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. We expect Q2 revenue to be in a range of $6.75 million-$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.

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. With respect to service revenue, we expect to step down to between $2-$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. 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. 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. 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. That concludes my comments, so at this point, we'll open the call up for questions. Operator?

Operator (participant)

At this time, I would like to remind everyone in order to ask questions, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Dan Arias. So, Stifel, please go ahead.

Dan Arias (Managing Director)

Hi, 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 marketplace. Each company has their own set of sort of spending priorities. 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 plays into the efficiency angle that a lot of these companies are looking for right now?

Rob Spignesi (President and CEO)

Yeah. Hey, Dan, good morning. It's Rob. For obvious reasons, I'll keep my comments brief, but still a lot of traveling with customers. 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. 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. While the environment is, I would say, incrementally more uncertain from our last call, high ROI key projects are being prioritized.

Dan Arias (Managing Director)

Yeah. Okay. That's encouraging. 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. Can you just talk to the trajectory, given the tariff headwinds that are in the mix? I mean, 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 the things that you're working on, efficiency, service, productivity, etc., with just the overall pressures that the macro picture brings?

Sean Wirtjes (CFO)

Yep. Yeah. Thanks, Dan. Yeah. I think not very different, I would say. Just to give you a little bit of background on our tariff kind of layout 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. Having said that, we do source some of our materials from the EU as well across both systems and consumables. It's at a meaningfully lower level, I'd say. 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. We are not seeing tariffs in that part of our cost structure right now. 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. We do not expect any meaningful impact from China at all based on where things stand right now. Even if things get worse in China, it should not impact us, just given the low level of sourcing we are doing there. That is really what lies behind it. I think, Dan, as you know, we are doing a lot around cost reduction, manufacturing efficiency. There are things in that area that we are 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, and we have the luxury of kind of waiting and seeing what happens here. 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 of months ago.

Dan Arias (Managing Director)

Okay. 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 teens.

If we kind of balanced out the puts and takes, what it is that you did in one Q, which is pretty good, and then some of these other factors, is it okay to model a double-digit number for the year?

Sean Wirtjes (CFO)

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.

Dan Arias (Managing Director)

Okay. Okay. Thank you.

Operator (participant)

Your next question comes from the line of Paul Knight of KeyBanc Capital Markets. Please go ahead.

Paul Knight (Managing Director)

Mentioned 18 validations this year. How many were last year? In Q1?

Sean Wirtjes (CFO)

That's for the year, Paul, right?

Paul Knight (Managing Director)

Yeah. Yeah. Yeah. I mean, and how should we—yeah. That's my first question. Yeah.

Sean Wirtjes (CFO)

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 guide number right now.

We're still pretty early in the year. Some of these validations take some time for us to get clarity around the timing of them because they do involve high levels of customer engagement. I think we feel good about the guide at 18. 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 (Managing Director)

The CapEx we're seeing, which is pretty massive CapEx in the U.S., is this new or has this really just been on the books? The follow-on to that is how quickly do you see this turn into business for you?

Rob Spignesi (President and CEO)

Hey, Paul, it's Rob. Yeah.

Whether it is new or existing, it is 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. It is an ongoing effort by our customers. This may signify a focus effort in the U.S., which we plan to benefit from. Generally, this feels to us like ordinary course of business with potentially projects being prioritized in the U.S. We typically view this as good news because new projects, new buildings typically adopt newer technology, and we are obviously a great fit for those installations.

Paul Knight (Managing Director)

Okay. Thank you.

Operator (participant)

Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Chad Wiatrowski of TD Cowen. Please go ahead.

Chad Wiatrowski (VP)

Hey, guys. This is Chad Wiatrowski on for Brendan Smith.

Just given the automation and sort of unique data generation that the Growth Direct provides, you'd sort of assume that maybe long-term there's ways that AI could kind of gain some value out of this machine. How materialize AI as part of your long-term strategy? Is there anything that we could look at specifically as updates on that front?

Rob Spignesi (President and CEO)

Yeah. 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. It's something that's very high on our R&D radar.

We are very bullish on the future of AI and how it could impact this business and the market, coupled with our software development pipeline as well.

Chad Wiatrowski (VP)

Got it. And then just on the MilliporeSigma 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 front?

Sean Wirtjes (CFO)

Yeah. I'll start with that. Rob may have some comments here too. I think on the question about MilliporeSigma and distribution, I do not think there's anything obvious to us, Chad. In terms of that, I think how they look at the market, how we look at the market has not 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. On the revenue side, it's really incremental uncertainty. It's not direct impact from tariffs. As they look at their markets, they may have a different—they probably would have a different picture to look at there because their distribution of revenue and their opportunities would look a little bit different than ours. I don't think we see anything obvious in terms of mitigation strategy for us around that necessarily. You had a second question. Could you repeat that?

Chad Wiatrowski (VP)

Yeah. Just you mentioned the progress we'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 signs of success? Yeah.

Sean Wirtjes (CFO)

I think as we look at that, 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 MilliporeSigma. 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. 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. I'd call that upside at this point.

I think looking out a little bit longer into the next year or two, I think there will be opportunity expansion in terms of our ability to leverage that relationship to drive incremental margin improvement.

Chad Wiatrowski (VP)

That's helpful.

Sean Wirtjes (CFO)

Thanks for the questions, Chad. Okay. Thanks, Chad. 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.