Rapid Micro Biosystems, Inc. (RPID) Earnings Call Transcript & Summary

All right. Hi, everyone. My name is Casey Woodring from the Life Science Tools team here at JPMorgan. Welcome to our Annual Healthcare Conference. I'm pleased to introduce our next company, Rapid Micro Biosystems. [Operator Instructions] So with that, I'll turn it over to Robert.

Thanks, Casey. Good morning, everyone, and thank you for your time. My name is Rob Spignesi. I'm the CEO of Rapid Micro Biosystems. I'm actually joined by Sean Wirtjes, our CFO, who will join us for the Q&A after the presentation. Slide 2, just a reminder that we'll be discussing forward-looking statements. On Slide 3, before we jump into the story, I just want to give you some background and context about Rapid Micro Biosystems. So we are focused on a critical part of the global pharmaceutical quality control infrastructure called microbial quality control, we'll talk quite a bit about this today. The problem with microbial quality control is it has not advanced. It hasn't innovated or changed literally since it was invented about 100 years ago by Louis Pasteur. And it's causing all manner of cost and risk for the industry. and there's pressure to change and innovate and bring this into the 21st century. We've developed a technology that does just that, a growth direct system that's designed to fully automate and replace a legacy system and pull this critical testing function into the 21st century. We're off to a great start commercially. We're proud to count more than half the global top 20 pharmaceutical companies as our customers and look forward to walking you through the story. Slide 4. A bit of background and context on the industry and what's going on. So the global pharmaceutical prescription drug market is about $1 trillion and growing, driven in large part by advances and demand for advanced modalities such as biologics and cell and gene therapies. There's a turnover the manufacturing plant in small molecule manufacturing to large molecule manufacturing. This is driving demand for more quality control testing, specifically microbial quality control. So microbial quality control is a mandatory regulated process that's done in every manufacturing, pharmaceutical manufacturing site anywhere in the world, again, fully regulated and is designed to detect any microbial contamination such as bacteria, mold and other containments and ultimately ensure any pharmaceutical product that is safe for patient use. Again, the problem is we're still using as an industry, this legacy manual petri-dish growth-based, paper-based method developed about 100 years ago, well before the advanced modalities and manufacturing were contemplated. The vast majority of the industry is using this legacy approach estimated 95-plus percent of companies around the world are using this legacy manual approach and its strong scrutiny of regulators due to data integrity challenges, really general pressure to change and innovate and bring this critical testing function into the 21st century. The market is large. So going after a large market. So we sized the current market at about $10 billion. That's about $350 million tests globally. That's growing strongly, driven largely by advanced modalities such as biologics and cell and gene therapies, we're leading the growth, but also small molecule formats are also contributing to the forward growth. It's important to note also that the test volume is distributed generally evenly across North America, Europe and Asia. A bit more about the dynamics on Slide 6. A bit more about the dynamics in the industry. There are a number of powerful and persistent secular tailwinds driving the industry towards automation and towards rapid microbio system. Now the first of which, which I touched on is regulatory scrutiny around data integrity. So data integrity to think of this as the quality of the data generated associated with the test format. Can you trust the data? Is it reliable? Several years ago, the EMA and the FDA, you can see in the bottom left-hand chart, issued guidance around updated data integrity guidelines and started to enforce against it. And you can see the result of impact on warning letters and other another regulatory action. So the vast majority of customers we interact with and speak with around the world, data integrity is one of their top priorities. Another driving factor in tailwind we have is just the development and growth in complex manufacturing modalities such as biologics and cell and gene therapies, where we're very strong. These formats typically require higher testing needs, faster turnaround, they're more complex with more interventions, which could lead to more contaminations. And as a result, the test volumes are higher, and the legacy microbial quality control protocol has a hard time keeping up many times with these advanced modalities and automation is a perfect fit to serve this particular market segment. And finally, the last secular trend that we see that's quite powerful, especially in the era of COVID is quality control issues causing shortage of drugs. You can see on the chart on the bottom right, the top issue tends to be a quality control problem to cause that industry-wide drug shortage. And I think we've all seen examples of that throughout the past 2 years with COVID. Slide 7, this gives you a sense of what a micro QC lab looks like and does. For those of you who have not seen a pharmaceutical micro QC lab. This is what 1 could look like. What you'll see typically is a lot of petri dishes, a lot of people, paper, incubators. And how this process typically works is you have a handful or dozens of micro QC technicians with stacks and stacks of petri dishes and paper and they go out across the manufacturing of suites and manufacturing network in any given campus and collect samples. Samples from people, the air, the water, the product itself, and these petri dishes bring them back to a centralized lab, put them in incubators and then wait 5 days a week, 2 weeks in some cases. And after the end of that period, they'll actually look and read and count the actual organisms on each of these petri dishes and record that in paper and ultimately keep them into a system. So as you may imagine, it's a very slow process. There's quite a bit of human error associated with it with the reading and as transcribing. It's open to falsification. It gets paper-based, it's quite slow, and it lacks strong data integrity. So this is the state of play, if you will, with the vast majority of the microbial quality control infrastructure. And to give you a sense of volume with fun fact we like to throw out at a higher volume plant. That plant will use enough petri dish places you can see here in this photo, that would rise 8 miles high in the air in any given year. Just to give you a sense of the sheer volume that some of these sites process manually and visually every single year. So Slide 8 gives you a sense of the problem in context of the broader pharmaceutical value chain. Certainly, scientific and technology advancements have changed the way. We develop and discover drugs and certainly how we manufacture drugs downstream, but you have this weak link underpinning the value chain, the microbial quality control. And our vision is to replace that and again, bring this into the 21st century and bring this critical and very important global testing function on par with the balance of the value chain and bring it into the 21st century where it belongs. Slide 10. So it may be clear that this market is ripe for disruption, and we have developed and are bringing that disruption in the form of the Growth Direct platform. This is our second-generation system. It benefits from years of continuous engineering improvements. It's the only fully automated high throughput and secure microbial quality control solution in the world. The platform itself consists of the Growth Direct system. As you can see on the left hand of the slide here, a suite of proprietary consumables that's designed to automate the vast majority of routine use test volume and any pharmaceutical manufacturing plant in the world. A full data and software complement designed to enable and activate paperless lab with our customers and secure to a data transmission. And global validation and support services to give customers to the installation and validation process into routine use where we start to pull through a high-volume of consumables. We generate revenue from all these categories and our business model is very much a capital equipment placement to grow direct and then we pull through a high yield of our proprietary consumables and services. The platform delivers a very strong value proposition to our customers. We talked a bit about data integrity. Customers can go from a challenged data integrity environment to a very robust compliant from a regulatory standpoint environment with the Growth Direct. We are a rapid method, so not only fully automated and walk away but we also provide rapid results. So typically, we can provide a test result in half a time or less, in a fully secure data encrypted manner. So what that allows customers to do is to make decisions faster, ship to market faster, move to the next processing step faster, buying problems faster and potentially shut down manufacturing operations faster so they can stop producing scrap, turn inventory faster, et cetera. The system is also machine-driven and computer-driven. So it eliminates the human error associated with the process that we talked about, which could prevent a recall and other regulatory interventions. Slide 11, it just gives you a sense of the pre and post workflow impact of the Growth Direct. So customers go from the manual method, which is the top part of this slide, a slow 15-step convoluted, manual, unsecured process to a slimmed out rapid two-step fully automated process with result in half the time or less and full data integrity and security around the data of the operation. Slide 12. The strength of our value proposition has led to a top-tier global customer base. Again, we're proud to count the majority of the global top 20 pharmaceutical companies as our customers. As you can see in the slide, we're well balanced. Our site network is well balanced between North America and Europe. And we have a smaller but growing footprint in Asia, and we're currently investing in Asia now in our commercial team to drive growth in that region. 70 manufacturing sites ballpark globally, the majority of our customers are in the biologics, in cell and gene therapy segments to include CDMOs. But notably, we also have sales into small molecules, 503(b) compounders and personal care products. So we can address all the formats and modalities out there, but we are particularly strong in the large molecule biologics and cell and gene therapy segments. So the strength of our customer growth and our value profits led to give strong commercial traction. We've got about 120 systems placed globally. It's important to note that while that's a great start, the entire market is about 10,000 systems. If you convert into test volume globally that we reviewed on the previous slide onto our system, that would be about 10,000 of our Growth Direct systems, and we're currently at about 120. We've shipped over 1 million consumables to market, and the majority of our customers have multiple systems and many have multiple systems at multiple sites around the world. You can see in the center of the Slide 13, the strong growth in placements and the attendant growth in validated systems. And the validation growth is very important. That's a point in time in which the system has been installed fully validated in the customer's workflow, and we start pulling through the high yield of consumables and services. So we have a very strong growth track record there as well. Slide 14. The strong commercial traction has led to, as you may imagine, strong commercial revenue growth. On the left-hand side of this slide, you can see from '18 through '21, we delivered about 85% compounded annual growth rate in our commercial revenue. On the right-hand side of the slide, more recent results, we did preannounce this last Sunday via press release 2021 preliminary results and 2022 guidance. I'll touch on that now and we can dive a bit more into that in Q&A. So we preannounced a commercial revenue range of $21.3 million to $21.7 million for 2021, which is about 50% revenue growth driven by about 100% growth in our recurring revenue, which is quite strong on the year. And we've guided to $27 million for 2022 -- $27 million to $32 million, which is about 25% to 50% year-on-year growth going into 2022. Slide 15. To drive growth, we are activating a number of targeted commercial strategies, both in our core market as well as expansion opportunities in new products and adjacent markets to expand our TAM. In our core market, our growth strategy is very much a land-and-expand strategy. So we continue to seek new customer acquisition and adoption then we seek to expand with those customers through enterprise deployments. Typically, the way this works, a customer will buy 1 to several instruments to start will go through the installation and validation process. And then they will expand that site network within the region, possibly to other regions around the world and other sites. We can also expand with customers via our application portfolio. So for example, we have environmental monitoring, water and bioburden applications commercially available now, and we publicly released that we're working on sterility. So a customer could adopt, for example, an EM application initially, and then we can expand with that customer for a water application, our bio-burden application and ultimately, our [indiscernible] application. Expansion into new geographies as part of our core strategy as well, as we've touched on, we're currently expanding and investing in Asia, where we see tremendous opportunity and 1/3 of the test volume is located in that region. We also see opportunity to increase our TAM and launch new products and services. So if you think about the Growth Direct as a platform technology, we have the opportunity to release products, upstream and downstream to grab more customer share of wallet and bring more of the customer workflow under the ages of our -- of our value proposition. We recently announced a product going into beta in 2022, a mold discrimination product. This is an example of a new product and services that would expand our wherewithal and customer workflows. And then the opportunity to expand in, for example, the personal care market, which is a close adjacency to ours. It's a different call point, so it will require likely a different commercial team, we do have sales into this space. But currently, our focus is in pharmaceutical manufacturing. But it's important to note, it is a close adjacency that we could grow into and unlock an additional $8 billion of TAM opportunity. Slide 16. Longer term, we see the opportunity to own more of the microbial quality control space. By way of, again, looking at the broader value chain and the players in it, there's well-established players upstream in the discovery and process development, functions of drug development and manufacturing and certainly downstream in bioprocessing and clinical. But the micro QC space, we believe, is largely an uncovered base and a technology like ours, a platform technology that has the ability to automate a major piece of microbial quality control workflow and then grow upstream and downstream presents a very attractive opportunity to become the leader in the microbial quality control environment. Slide 17 to wrap up. There's numerous reasons why we're excited about our opportunity. We're in a large market. It's ripe for disruption, driven in part by regulatory pressure industry change. We've got strong strategic position in the market with first-mover advantage. We've got strong barriers to entry. We have the right technology with the right patent portfolio protecting it. Great start commercially with the right customers, the leading customers in the market, who are adopting our technology and speaking about the Growth Direct, creating a tailwind from us -- for us from a branding standpoint and momentum standpoint. While we're strong and can address all modalities, we're particularly strong in cell and gene therapies and biologics. I didn't touch on this before, but it's important to note that 30% of the approved cell and gene therapies are currently our customers. And finally, we have a high growth, attractive business model. Again, where we place our capital equipment and our Growth Direct, and we pulled through a high rate, high yield of recurring consumables and services revenue. Great. Well, thank you for your time and attention to the prepared remarks. We'll turn it back to Casey for some Q&A, and we'll get Sean on the phone as well, if we can.

Great. Thanks, Rob. That was a great overview. Maybe starting with the pre-announcement. Obviously, placements came in a bit below expectations, but validations actually exceeded in our own model. So can you maybe walk us through that dynamic in terms of COVID disrupting sales cycle for new placements, but not so much for the validation cycle? And then as a follow-up, how should we think about placements and validations in 2022 based on the guide?

Right. So the validation, if you recall from a Q3 earnings, we had a bit of a gap in our validations and talked a bit about a bit of headwind due to COVID and getting on site. We also mentioned that we were able to grab those validations pretty quickly in Q4. And that's basically what happened is we were able to complete those validations largely in the first part of Q4. The placement issue is a little bit different in that. The end of the quarter tends to be a bit more of a critical time for us with regard to system placements versus validations. And the rapid onset of Omicron did disrupt some of those sales and placement activities. We also mentioned there were some customer timing specific issues, for example, in 1 multisystem case multi-order -- multisystem order case -- placement case, we had a construction challenge, which pushed out that placement. But as you touched on the place -- the validations were quite strong. We drove strong recurring revenue in the quarter as well as 90-plus percent recurring revenue. So really, the story was mostly about placements. If you look into 2022, the guide is really the toggle is really around placements. As you know, with the strong validations in 2021, that drives a lot of the recurring revenue in 2022. And really, the range was driven -- the majority of that range is driven on the -- based on placement assumptions. And that is largely driven by the assumption around the propagation and strength of COVID and Omicron. So at the lower end of the range implies a bit more headwinds that persist longer. Higher end of the range implies that we move through this relatively quickly and have a bit more of an open field running. I'll pass it over to Sean and further comments on the...

Yes, a couple of things. I think on the guidance, I mean, the other thing that's important, I mean there is a level of conservatism in the guidance just given what the environment looks like right now. I mean it can a little more broadly than just on Omicron. So we -- that's something important to get out there so that people understand kind of how we're thinking about 2022 and the guidance that we put out earlier in the week. The other thing I'd say in validations is, if you look back at our history and Rob showed a slide that kind of shows the quarterly validation trends it can -- because we're measuring on a specific date at the end of the quarter, things can slip a week or 2 here and there and they tend to do that from time to time. So I think a few people were probably a little bit more nervous than we expected them to be when we did the Q3 call. Because we did express that those validations have been done essentially by the time we did the call. It can bounce around a bit but I think no cause for concern unless you see a couple of quarters go by and that number is consistently missing. We have a number of different things we can do to try to pull those things in. And even if we do have a validation slip out a little bit, we still going to work with the customer to get into routine use. So we'll continue to try to work with them to speed that process and catch up. So tying that into guidance for 2022, we did end up on validations where we expected to at the end of the year, and that puts us in a position where our expectations for consumables are unchanged from what we expected before.

And 1 final note, case, it's important to note that there's no structural or strategic change in the market. There was no new competition or other -- anything else that would change the fundamental thesis. This is a -- we believe this is a timing issue related to Omicron with regard to the placements.

Got it. That makes sense. I want to go back to an earlier comment on moving validated systems to routine use. Can we sort of talk about the rare process there? And maybe just more generally for people kind of new to the story here, can you just walk us through the process between when an instrument is installed versus validated versus finally scaled up for routine use. How long does that process take? And yes, any sort of further color on that?

You're are [indiscernible] , please.

Yes. As you saw in the deck in 1 of the slides, we have a very strong track record of placements and the attendant validation. So the validation process starts right after installation. And validation for those of you who may not be aware, is a process by which customers validate it under GMP basically ensure that our system and our method is at least as good as the legacy method, it's replacing. That's the fundamental reason why it gets validated under GMP. So after installation, validation can take anywhere between 3 and 9 months, at the higher end of that range for newer customers, at the lower end of that range for repeat customers. That being said, across that range, we have a number of activities and focused efforts on reducing that footprint. We've recently stood up a team focused on product management. So we're coordinated between Rapid Micro Biosystems and our customers were parallel processing, our number of the steps or -- We have a strategic goal to dramatically over time, reduce that footprint. But historically, it's been in that 3 to 9-month period. And after the system is validated, up to 3 months or so after that the system will tend to go into or will go into routine use. And that's the point in time where we start pulling through, as I mentioned, through the prepared remarks, a high -- a relatively high rate of both consumables and services. Anything else to add there, Sean?

Yes, I'd just add to that. I think Rob touched on it in validation. I think it's also true in the ramp to routine use. I mean new customers tend to go a bit slower than existing customers. Once they've been through it with us in a particular site, or particular application tends to go faster. So I think 3 months is what we would target for an existing customer who's kind of working through that with us again. New customers can take a little bit longer. And that's something that's important to know as we kind of work through and -- We have a good mix of new and existing customers typically over time. So you'll see some things within that range. You see some things maybe a bit outside that range. But in general, that's the target we're working towards.

Got you. Just had 1 come over via e-mail. How far away would you say your system is from becoming industry standard?

Yes. I guess that's how you define standard. So we think we're well on our way. I mean, with the customer footprint that we have, with the penetration we have into the -- as I touched on the cell and gene therapy segment, the global footprint. So it's not limited to a segment or a region of the world. We've got broad-based adoption and validation and use of our system globally. So we think we're well on our way to become the standard, which ultimately is our vision.

Got you. Maybe shifting to cell and gene therapy. You just mentioned it. I think you're 30% penetrated in that market. I guess what's the value proposition in cell and gene therapy versus maybe standard biologics? Is it those therapies require a higher frequency of tests? Or are they more regulated sort of why are you more penetrated in that market versus your general TAM?

A couple of important points. So on absolute basis, we will have more sales and do have more sales into kind of core biologics versus cell and gene therapy. There are -- the cell and gene therapy approved therapies are a lot smaller right now. So it's a little bit different of a comparison. But generally speaking, especially in certain parts of cell and gene therapy like autologous cell therapy, where is a very, very fast turnaround with regard to the patient cycle time so called vein-to-vein time. It's a specific and dedicated process, a number of interventions, which creates the risk of contamination and hedge against that, the test volume is quite high. So what you have is an environment where there's a lot of test volume that has to be incredibly accurate with very fast turnaround times. So that, as you may imagine, plays very, very strongly to our automated system. And the legacy systems struggles to keep up with that from a speed, accuracy and turnaround standpoint. That's why we are -- our value prop resonates so strongly in particular, on the cell and gene segment, not only in the principal manufacturers, but also that we're getting good traction with the CDMOs who are manufacturing cell and gene therapies as well.

That's helpful. Just had another 1 come in via e-mail. So are the rapid media plates used interchangeably with other QC systems? Or is it a closed system? .

It's proprietary to our system.

Got you. I had a question on what's the specific testing volume threshold that would justify adding a Growth Direct system? And then further, what does it take for a customer to add a second and then a third and fourth? Can you just talk about sort of that process?

Yes. It really isn't a volume issue in many cases. In some cases, it is for some of the more higher volume test like environmental monitoring. But we have customers who have adopted our system at relatively low rates because they have a critical testing application they want to automate and accelerate. It could be a product testing part of their portfolio. or in different parts of the biologics manufacturing process, they just want the speed and data integrity. And customers adopt us to your second part of your question, multiple different ways. So some customers will to trigger the second and third and fourth and beyond system. It depends on how they want to automate and roll out the technology. And it can vary. There's no 1 size fits all. So some customers may automate. We've got customers automating with environmental monitoring their cell and gene therapy portfolios globally. Other customers say, "Hey, I'm going to start at a site complex" and roll out environmental monitoring water and bioburden across the site complex and then go to other sites, for example, in the region. Others may look at starting with water and ultimately going to environmental monitoring based on either a product category or regional category as well. So really, there's no 1 size fits all as how customers roll us out. And back to the volume -- of the volume question, again, I would say we're volume is only a part of the discussion. Typically, environmental monitoring, which tends to be a higher volume assay. Otherwise, the value prop stands up quite well at a variety of volumes. And we anticipate that will also be the case when we launch Rapid Sterility the market, which is a lower -- a much lower volume test, but a very, very high value test for our customers.

Got you. Just had a couple more come through via e-mail. What's the sales cycle like? And how much of a priority is the instrument in the sales cycle?

A priority to the customer? Yes. So it is a capital equipment sales process. So the sales process can be a year or more, but we've seen cases of it being under a year, even a few months. So just -- it will depend on the customer, depend on their relative priorities. And the priorities, it can vary. It's a high priority in many cases where our customer is either launching an application or a drug or bring a new site. If they're retrofitting the site, it can be more of a kind of, say, high moderate priority. We typically don't fall to the bottom of the pile, but there is a priority sort of stacking depending on the criticality of the testing, whether it's a new or retrofit type of situation, and if they're launching a new commercial application as well.

You mentioned that it's a capital sale. What's the cost of the system? And then what's the margin? I know that the contribution margin for system placements is quite high, that's driving sort of the gross margin outlook. So can you just talk towards the system margins? .

Sure. I'll pass that to Sean, do you want to handle that one?

Yes, sure. So I think roughly think about our upfront capital sale is about $0.5 million. The bulk of that is the system itself, but that also includes a couple of other things. One is about $25,000 for a LIMS connection that we sell, which is 1 of the features Rob talked about earlier, we have 2-way connectivity with customers [ one ] systems, which they find quite valuable from a data integrity standpoint and from an operational standpoint. The bulk of the remainder is about the cost of the validation to get the system validated. As you think about overall profitability there, contribution margins today, systems, as you said, are reasonably good. and they'll get better, we believe, as we go forward, not at 50%, but they're not too far away from that right now in terms of incremental contribution that a system placement will make service is positive as you look at our business, so validation work, things like that, but that does contribute positive gross contribution margin for us. And consumables are a bit negative right now. So we've talked about that in the past. We've invested a significant amount in being able to support these global demanding customers, including an automated and very substantial automated manufacturing line. As we continue to ramp that up, get more efficient with it, increase productivity as well as work down the path on a number of different internal initiatives we have to take cost out of the product. That contribution margin over the short to midterm will look positive and start to contribute along with the other product lines. And as we look out, we think about gross margins, we've gotten the question quite a bit. With the guidance that we put out, what should we think about gross margins. At the midpoint of the guidance range, we'd expect the gross margin still breakeven by the end of next year. So Q4, to the extent we exceed that midpoint, that should happen a little bit sooner. So -- and with the flex point on the guidance being system placements with the contribution margin they contribute, that's going to be the lever in terms of how we look at gross margins for '22.

Got it. I had a few more come in. You guys are very popular this morning. What's the system's life cycle, so lifetime per system? And then as a follow-up, do you sell service for single-use supplies for the system as additional sources of revenue?

Yes. So we don't have a stated life cycle of the system. Customers will typically look at it as a 7-year type of life cycle, but our maintenance -- our annual maintenance service plan we will maintain the system. We will charge for extraordinary part replacement and things of that nature. But we don't have a stated life cycle of the system. But 7 years from a replacement standpoint, that's the underlying driver of the question is probably a good way to think about it. And then part B of the question was, do we -- Was it a service? Are we providing services or charging for services.

So we charge for a single-use supplies, was the question?

Yes. So well, our single use -- our single-use supply is our proprietary consumable. So each consumable is used to deliver a single test result, -- and it is clearly single use, is consumed in the process of the actual assay. We have 2 general sets of services. One is our validation services. We talked a bit about validation. This is a onetime service fee, if you will, where we will put our teams on site with the customers to validate the system and bring it into routine use. That's 1 part of our revenue model and service portfolio. Another part is our recurring maintenance services after the 1-year warranty, where we will charge an annual recurring maintenance fee. And I won't get into great depth now, but we're -- but our product development teams are looking at other enhanced services as well as we touched on in our -- in the prepared remarks, but validations and recurring maintenance services are the 2 primary services we charge for now and drive revenue on.

Got you. What level of revenue would make the business self-sustaining? And then what's driving OUS growth, particularly in Asia?

Sean, if you want part A and I can take Part B?

Sure. Let me come at that from the angle of cash and cash runway. We have over $200 million of cash on the balance sheet today. We have no debt. We did our debt off back in September. When we look out kind of base case scenario, that cash has the potential, depending on what we decide to invest in to get us to cash flow breakeven several years out, probably more than several years out. So we feel like we have very long runway on that cash as we manage the business. So I think as we look out, we're looking at it as those decisions around investments and whether this balance gets us to self-sustaining or not, will depend on that. But I think as we look at things right now, we think that we get there or get very close to what we have on the balance sheet right now.

Great. And part B of that, it was OUS commercial traction. So we've always been strong in Europe. If you think about our customer base, we have -- in the early part of our commercial development have focused on large, multi-international top 20, top 30 companies, and they tend to be centered a lot in the U.S. and in particular, parts of Europe. That's why our customer network is pretty well balanced between North America and Europe. And we're serving a global customer base. So early in our development, we realized we needed to be not only commercially -- selling commercially, but also being able to serve these customers globally, but serving these customers globally with operations and other services to including [indiscernible] in the Asia. So still we feel strong in North America and Europe for those reasons. And focusing more now in Asia, because, a, customers are large customers that are based in North America and Europe are pulling us into Asia. They want those sites there automated. And 1/3, as I mentioned, of the test volume of the actual market is also located in that region. And we have announced publicly that we are investing in that region. We've hired a commercial leader from Thermo Fisher. We're building a team around him there to develop that market. So we see both demand from existing large customers who are expanding as well as regional players in Asia as well.

That's helpful. I have one just -- we've heard from a few other companies that have large automated systems this week that have talked about labor shortages, driving demand. Have you had any conversations with customers around this dynamic?

It's always part of it, right? So it's -- some customers estimate that they take and redeploy upwards of 70% of labor with the adoption of our system. Given there's a couple of different dynamics, I think, that are relevant. So that's kind of universally part of it. With the onset of COVID over the past 2 years, it hasn't been a great idea, but a lot of people in a small lab side-by-side counting, petri dishes and our system is fully remote enabled so it can generate data and push data out across the network. So it activates a remote environment. The customer chooses to use it that way. And clearly, in the current environment where it's a bit more difficult to recruit, train, retain employees, and there's a high cost in that turnover and automated system like ours does create a nice hedge against that and a nice way to derisk the business going forward. So all those are relevant in our value proposition and our customer conversations.

Okay. Maybe 1 last 1 before we have to wrap here. Just going back to the gross margin guidance. Is there anything in terms of supply chain that maybe would push that positive gross margin to flip to 2023? Is there anything you can -- are seeing that would cause for caution on that then?

Yes. I think what we're assuming in that guidance is that some of the pressures we've seen. So we've seen a bit of labor pressure just in terms of cost of labor, some material pressure and then freight has been, I think, something that's been talked about a lot publicly across markets. And we are assuming in that margin guidance that we continue to see the same type of pressure that we've been seeing. So if that gets worse for some reason, that could have an impact. We're not seeing that right now, but we're obviously keeping our eye closely on that, and we'll continue to reassess that.

Got it. Well, it looks like we're out of time. Rob, Sean, thank you for joining us today. This was a great overview and enjoy the rest of the conference.

Thanks, Casey. Thank you all.