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

Thank you. Good day and thank you for standing by. Welcome to the Rapid Microbiosystems Second Quarter 2026 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. and made a message advising your hand is raised. To withdraw your question, please press star one one again. be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike Bollier with Investor Relations. Please go ahead, sir.

Good morning, and thank you for joining the Rapid Microbiosystems second quarter earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer, and Shawn Wurchis, Chief Financial Officer. This morning we issued a press release announcing our second quarter 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 including but not limited to statements relating to Rapid Micro's financial condition, assumptions regarding future financial performance, anticipated future cash usage, statements relating to the company's term loan facility, guidance for 2026, including revenue expenses, gross margins, system placements, and validation activities, activities, expectations for and planned activities related to Rapid Micro's business development and growth, including the expected benefits from our distribution and collaboration agreement with Millipore Sigma, customer interest in 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 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, the impact of our existing and any future indebtedness on our ability to operate our business, our ability to achieve the milestones necessary to access any future tranches under our existing debt facility and to comply with all of its obligations thereunder. our ability to access additional capital such as through the exercise of our recently issued warrants, 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's business, Please refer to the risk factor 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 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. Please note that today's remarks include certain non-GAAP financial measures. These non-GAAP measures should not be considered in isolation or as a substitute for or superior to financial information presented in accordance with GAAP. They are provided as supplemental information to enhance investors' understanding of our operating performance and may differ from similarly titled measures used by other companies. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures are available in our earnings release issued this morning. I encourage you to review these reconciliations carefully. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 7, 2026. 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 turn the call over to Rob. Thank you, Mike. Good morning, everyone. I will begin my discussion this morning with a review of our second quarter performance and highlights. I will then discuss our execution against our 2026 full-year objectives some tips from my interactions with customers across North America, Europe, and Asia. I will then turn the call over to Sean, who will provide a more detailed review of our second quarter results and second half outlook. Today, we reported second quarter total revenue of $8.1M, representing 11% year-over-year growth and exceeding the guidance we provided in May. During the quarter, we placed four growth direct systems and completed nine system validations. I'm also pleased to announce that we achieved a significant milestone during the quarter, with the placement of our 200th growth direct system. Product revenue increased 10 percent, driven by more than 20 percent growth in consumables. Recurring revenue increased 14 percent, reflecting continued expansion of both our installed base and strong system utilization. Consumable revenue and units reached new quarterly records, and in the third quarter, we expected ship our 10 millionth consumable, another significant milestone that highlights the growing adoption and routine use of the GrowthDirect platform across our customer base. Service revenue increased 13%, driven by higher validation activity year over year. We ended the quarter with 169 fully validated systems globally and have a strong validation pipeline entering the second half of the year. This growing validation pipeline provides increasing visibility into future consumable revenue growth and further strengthens the recurring revenue profile of the business. Based on this momentum and our outlook, we are increasing our full-year validation guidance to at least 27 systems. Turning to margins, we delivered a record 15% gross margin in the second quarter, reflecting strong execution against our margin expansion strategy. Our first half performance reinforces our confidence in achieving our full-year margin targets, and we currently anticipate fourth quarter gross margin in the mid to high 20% range. Now turning to our commercial activities and customer engagement. In June, Amgen hosted our first North America Growth Direct Day, bringing together a strong mix of existing users and prospective customers. As with our prior events, the program featured high-value peer-to-peer discussions focused on the operational, financial, and regulatory benefits of automating and standardizing microbial QC. A key theme was how leading biopharma companies approach global growth direct deployments from internal decision making and cross-functional alignment to implementation, validation, and successful operation across multiple sites and geographies. We are grateful to Amgen for hosting the event and sharing their experience as a leading global biopharmaceutical company, including their approach to deploying the Growth Direct across their global manufacturing network. This marked the second of three regional growth direct day events planned for 2026. We will conclude this year's series in October with a European event hosted by Merck Millipore Sigma at its Innovation Center in Darmstadt, Germany. By making these events reasonably accessible, we are enabling a broader group of prospective customers to engage directly with experienced Growth Direct users. In biopharma, peer-to-peer validation remains one of the most effective ways to build confidence, accelerate adoption, and advance purchasing decisions. Effectively, these events continue to strengthen both our direct commercial pipeline and the opportunities generated through our collaboration with Millipore Sigma. Following Growth Direct Day, I spent time meeting with customers across North America, Europe, and Asia. I remain highly encouraged by the value proposition of the Growth Direct platform and how it addresses customers' needs. Initially, what stands out is how these conversations and emerging industry trends continue to evolve. customers are spending more time discussing how to integrate the GrowthDirect platform into broader automation, digital, and data enablement strategies and workflows across their manufacturing and quality operations. A consistent message is emerging from these discussions. Manufacturers that can improve speed, consistency, accuracy, data integrity, and productivity will create meaningful, competitive advantages. Full workflow automation is at the core of these strategies, and in some cases, the growth directives view as a critical enabling technology to activate these transformations. Accordingly, we're increasingly seeing customers focus on broader deployment strategies and more integrated and automated quality and manufacturing systems. We also continue to see encouraging activity related to U.S. reshoring and biomanufacturing capacity expansion, which we believe will become an increasingly meaningful contributor to growth beginning in 2027. Our commercial pipeline continues to expand across all regions, but is especially robust in North America, where strong customer demand and engagement are contributing to the growth of our enterprise deployment and multi-system opportunity funnel. Turning to Millipore Sigma, we remain encouraged by the progress of the partnership. Their commercial organization is active globally and their opportunity funnel continues to meaningfully expand as they leverage their broad reach and deep customer relationships. In June, the Rapid Micro and Millipore Slegma leadership teams met in Europe to advance several strategic initiatives supporting the collaboration. In addition to progress on our joint commercial activity, discussions included plans to leverage Millipore Sigma's manufacturing, supply chain, and technical expertise to support and accelerate gross margin expansion goals, as well as current and future product innovation opportunities. While we remain in the earlier stages of the partnership, Millipore Sigma contributed to system placements during the first half of 2026, and we expect their contribution to increase meaningfully during the second half of the year and continue into 2027. So, looking ahead, we remain confident in the outlook for growth direct placements and revenue growth. We believe a combination of compelling customer value proposition, growing system utilization, increasing validation activity, expanding enterprise deployment opportunities, strong demand globally, and a growing contribution from Millipore Sigma provide a strong foundation for continued growth. More broadly, we believe the fundamentals of our business are stronger today than at any other point in our history. Growing installed base and higher system utilization are driving record consumable revenue, increasing recurring revenue, and improving visibility into future growth. At the same time, our margin expansion initiatives are gaining traction, resulting in a clear positive inflection in gross margins and contributing to a larger and increasingly profitable business. Importantly, the business today has fundamentally improved from just a few years ago with a larger install base, higher incurring revenue, greater margin visibility, and broader commercial reach. Additionally, the drivers of our future growth remain firmly in place. Customer engagement remains high. Enterprise deployment discussions continue to expand. Our collaboration with Millipore Sigma is gaining traction. The industry tailwinds around automation, AI, data integrity, U.S. restoring and biomanufacturing capacity expansion are accelerating. As we pursue these opportunities, we remain disciplined in our approach to investment, profitability, and capital allocation, balancing growth and profitability in a manner that we believe supports long-term shareholder value creation. Based on our second quarter performance and outlook, we are reaffirming our full year 2026 revenue, placement, and gross margin guidance, while increasing our full year validation guidance to at least 27 systems. With that, I'll turn the call over to Sean to discuss our second quarter performance and 2026 outlook in more detail.

Sean? Thanks, Rob, and good morning, everyone. I'll begin with an overview of our second quarter 2026 results, followed by our outlook for the third quarter and full year. We'll then open the call for questions. Total revenue for the second quarter increased 11% to $8.1 million, compared to $7.3 million in the prior year period. We placed four growth direct systems in the quarter. Product revenue, which includes systems and consumables, increased 10% to $5.3 million, compared to $4.8 million in Q2 2025. was driven by continued strong consumable growth of more than 20% as new customers move into routine use and existing customers increase the consumable pull through across their systems. Service revenue increased 13% to $2.8 million compared to $2.5 million in Q2 2025. We completed nine validations in the second quarter compared to two in the prior year period. Validation activity exceeded our expectations and contributed to stronger than expected service revenue growth. Recurring revenue increased 14% to $5 million compared to $4.4 million in Q2 2025. Non-recurring revenue, which is primarily comprised of systems and validation revenue, was $3 million compared to $2.8 million in the prior year period. Turning to margins, total second quarter gross margin and gross margin percentage were $1.2 million and 15% compared to $0.3 million and 4% respectively in Q2 last year. This was in line with our guidance. Within this, Q2 product margin, which includes systems, software, and consumables, improved by 8 percentage points to negative 3% compared to negative 3%. negative 11% in Q2 last year. This was slightly below our expectations due to the timing of some softer revenue that we now expect in the second half. Consumable margins improved by 17 percentage points year-over-year, reflecting continued progress on our margin expansion initiatives. Q2 service margin was 49% in the second quarter compared to 32% in Q2 last year, also representing a 17 percentage point improvement and record quarterly margin for our service business. These results were driven by ongoing cost reduction initiatives, manufacturing efficiencies, and service productivity improvements across the business, as well as operating leverage from higher volumes. Moving down the P&L, total operating expenses were $13.5 million in the second quarter compared to $12.4 million in Q2 2025. Within OPEX, R&D expenses were $3.3 million, sales and marketing expenses were $3.4 million, and G&A expenses were $6.8 million. Increase in OPEX was mainly due to non-recurring corporate expenses in the period. With respect to non-cash expenses and capital expenditures, depreciation and amortization expense was $0.7 million and stock-based compensation expense was $1.3 million. Capital expenditures were de minimis in the second quarter. Interest income was $0.1 million, and interest expense was $0.6 million in the second quarter. Q2 net loss was $12.9 million compared to a net loss of $11.9 million in the same period last year. Net loss per share was 27 cents in both periods. Starting this quarter, we are reporting adjusted EBITDA loss, a non-GAAP metric that adjusts our GAAP net loss to exclude interest, taxes, and non-cash items such as depreciation, amortization, and stock-based compensation. We believe adjusted EBITDA loss provides investors with a clearer view of the actual cash used by our core operations and the underlying performance of the business. Adjusted EBITDA loss for the second quarter was $10.3 million compared to a loss of $10.1 million in Q2 last year. with the positive impact of higher gross margins offset by higher OPEX in the period. In Q3, we expect adjusted EBITDA loss to improve meaningfully from Q2 as gross margins continue to expand and OPEX returns to lower levels similar to those in Q3 last year. We then expect further sequential improvement in Q4. Now, I'll turn to our outlook for the third quarter and full year. For the full year 2026, we are reaffirming our total revenue guidance of $37 to $41 million, which assumes 30 to 38 system placements. For Q3, we expect revenue of at least $9.5 million, including at least seven system placements. We continue to expect revenue and system placements to peak in Q4 in line with typical seasonality. Turning to consumables, we expect Q3 revenue to be relatively consistent with Q2 and then increase sequentially in Q4 subject to the timing of customer orders and shipments. Looking at service, we expect service revenue to step up sequentially in Q3 and then again in Q4 based on our current expectations with respect to the timing of installation and validation activities. We now expect to complete at least 27 validations in 2026 with at least 10 in the third quarter. Turning to margin, we expect our Q3 gross margin percentage to be at least 20%. This assumes product margin in the high single to low double digits, including slightly positive consumable margin. and service margin approaching 50%. We then expect Q4 margin in the mid to high 20% range with sequential expansion compared to Q3 across product and service. These expected improvements reflect the continued realization of material cost reductions, manufacturing and service productivity improvements, and operating leverage from higher volumes. For the full year, we expect total gross margin of approximately 20%, product margin in the mid to high single digits, and service margin between 45 and 50%. Importantly, this margin expansion is a key driver of our expectation for significantly lower cash usage in the second half of the year. Continuing down the P&L, for the full year, we now expect operating expenses of between $51 and $53 million, and $8 million in non-cash expenses, including depreciation and amortization expense of $3 million, and stock compensation expense of $5 million. Of the $8 million in non-cash expenses, approximately $7 million is expected to be recorded in OPEX, and approximately $1 million in cost of revenue. We also expect CapEx of $1 million, interest income of $1 million, and interest expense of $2 million for the full year. With our 2026 guidance as a starting point, I'd now like to discuss the operating assumptions that support our objective of achieving positive cash flow by the end of 2028. From a revenue perspective, we see multiple growth drivers that should position us to deliver average annual revenue growth of greater than 20% over the next several years. These include continued expansion with our existing top 20 pharma customers, new customer adoption across both top tier and core pharma accounts, growing recurring revenue driven by higher system utilization and an expanding install base, increasing contributions from our collaboration with Millipore Sigma across both core and adjacent markets, favorable industry trends, including accelerating use of full automation, U.S. reshoring, and biomanufacturing capacity expansion. Turning to gross margin, we continue to target gross margin of 50% or more exiting 2028, driven by ongoing material cost reductions, manufacturing efficiencies, service productivity improvements, and operating leverage from higher volumes. While we expect normal quarterly variability and seasonality to continue, we believe our execution to date, visibility into the business, and progress we are making against our growth and margin initiatives support these long-term objectives. Turning to our balance sheet and liquidity, we ended the second quarter with approximately $20 million in cash, cash equivalents, and short-term investments. As we discussed in May, we expect cash usage in the second half of the year to decline meaningfully, assuming revenue increases as anticipated, margin continues to expand, and working capital trends improve. As a reminder, cash usage is typically higher in the first half of each year due to normal revenue seasonality and margin improvement trends, as well as the increase in revenue. well as inventory stocking to support increasing production. In the first half of this year, these factors were exacerbated by two temporary working capital headwinds related to the record 16 system placements we made in Q4 2025. First, we collected 100% of the cash from those placements within the fourth quarter last year rather than in Q1 this year as we normally expect. And second, the We use more cash than usual to replenish systems inventory in the first half of this year to support our 2026 manufacturing plan. We don't expect these factors to have a meaningful impact on cash usage in the second half of 2026. Separately, this week we executed a focused efficiency program designed to streamline certain functions and processes that will reduce employee and other expenses as well as cash usage. We expect these actions to reduce expenses and cash usage by around $1 million over the remainder of this year and approximately $3 million annually beginning in 2027. These actions do not impact our plans to continue to invest in key initiatives that are expected to drive future revenue growth and gross margin expansion, including customer sales and support, product development, and product cost reduction programs. Combined with our revenue growth and margin expansion initiatives, these actions further support our expectation for meaningfully lower cash usage in the second half of 2026 and beyond. Looking forward, we believe we are on track to achieve the milestones necessary to access the next $10 million tranche under our debt facility with Trinity Capital later this year, with another $10 million tranche potentially available to us in mid-2027, subject to achievement of the applicable milestones. In addition, the warrants issued in connection with our May financial year are available to us in mid-2027. financing, would provide incremental capital if exercised. Based on our outlook for continued revenue growth, margin expansion, and meaningfully declining cash usage, we believe our existing liquidity and access to additional capital sources supports a pathway to positive cash flow. Looking ahead, we plan to maintain our proactive approach to balance sheet management and disciplined capital allocation, while also evaluating opportunities to enhance financial flexibility and maximize long-term shareholder value. Back to you. That concludes my remarks, so at this point we'll open the call up for questions. Operator?.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Thomas Flatton with Lake Street Capital Markets. Your line is open. Please go ahead.

Good morning, guys. Congrats on the quarter and all the progress. Just a couple quick questions. Rob, you mentioned you had some pretty positive commentary coming out of your meeting with the Merck, Millipore, Sigma folks, including having them, you know, contribute more meaningfully in the second half. If I remember, though, from the past commentary, one of the reasons that you you had the low end of guidance was because, you know, that was kind of assumed that they weren't going to be contributing. So can you walk us through the positive commentary and then not raising the bottom of the guidance range? Just kind of fill us in there if there's other caveats that at least I'm missing.

Yes, so first for context, we met with the Merck Miller Four Sigma team to do a strategic review of where we are across all our initiatives, not only commercial but supply chain slash gross margin improvement and technology. And we have another one follow-up in the U.S. coming up. So just in general, I'm incredibly encouraged with the... where the relationship is between the companies and how it's tracking. The low end of our guide did not include the full allocation of the Merck commitment for the year. That being said, what we do expect is a meaningfully increased contribution from Merck Millipore in the second half. They will not fulfill their full obligation in the calendar year, as we previously said, just given how the contract falls. It's possible they will. is a meaningfully strong increase from where they were in the first half. And as I mentioned, they did contribute in the first half, but we expect that to accelerate meaningfully in the second half. And that's one of the – elements that underpins our confidence in the second half and the reaffirmation of our guide.

Got it. And then I don't know if you can characterize this yet, perhaps only qualitatively, as you look at the placements that you have made this year and the ones that you're projecting for the second half of the year, could you help us understand, you know, of those placements, what's breadth versus depth within your customers? How many new customers versus deepening your relationships with existing customers?.

Yes, so usually it's not the exact detail in front of me, but we always have a bias towards existing customers, as you may imagine. So just for a reminder, our land and expand strategy continues to be quite effective where we land with a customer and then those customers expand. And that expansion can take multiple different forms. As I mentioned before, it could be within existing sites, it could be new sites, it could be new applications. So there's no real hard rule there which we find is attractive because it doesn't limit us to to kind of a single threaded expansion. So the majority come from our existing customer base. But there are new customers, most periods as well. And as we watch the Millipore Sigma funnel increase, we're also seeing an increase, as you may imagine, in new customers. So the portfolio, as it's coming together, as we look into the second half and into 2027, we see with regard to not only the trends I touched on in my remarks, but also how the actual funnels are building, new and existing multi-systems, and also geographically. So we've got good geographic representation. And then, of course, the Merck-Millipore-Sigma collaboration is starting to open up new geographies for us within pharmaceutical manufacturing, quality control, and even some adjacent markets, although the bias is currently pharma globally. And I think one of the exciting things, Thomas, on pharmaceuticals.

you look at over the next several quarters on our funnel, there are a number of potential new customers with multi-system deals right out of the gate.

So those are things we're looking for and we're seeing some of that potential in that funnel. And that's the evolution of the business. We could go a little long here, but I think it's important. To Sean's point, we're seeing new customers kind of jump out with new products. with more than one system. And that's telling us in the conversations that we're having with customers reinforces that the technology is becoming more of a standard in a lot of ways, and customers are seeing the benefit, and we're moving into what we expect to be a new phase of market development, which is very exciting.

That's great. Thanks, guys. Congrats again on all the progress. Thank you. Thanks, Thomas.

Thank you and one moment for our next question. Our next question is going to come from the line of Dan Arias with Stiefel. Your line is open please go ahead.

Good morning guys. Thanks for the questions. John, can you just maybe talk a little bit about consumables growth and how you're seeing that for the back half of the year? It was, I believe 30% last quarter, 20% this quarter. In my model, you step up a little bit from 2Q to 3Q in terms of dollars. So I'm just curious how you would have us think about growth levels in the back half of the year there.

Yes, sure, Dan. Now, comps are a little tougher in the second half. I talked in my remarks about we expect to be relatively flat from Q2 to Q3 sequentially, but still this quarter was a record quarter. So it's maintaining that, and we'll work to drive some upside to that. But the guide is to be relatively flat and then stepping up sequentially in Q4. So I think we expect to see, you know, good growth in the second half too. You know, we have historically talked from time to time about pull-through. I think if you look at Q2 pull-through, the, the year over year is high single digit growth. If you look at it per validated system, So that is going well for us, and that can vary from quarter to quarter. I think overall, if you look at what we expect for the year, it would look something like that. So we're... We feel pretty good about where consumables and consumables growth are right now, and customers are continuing to both come online in terms of new customers that are getting validated and into routine use, and existing customers continuing to put their systems to higher use.

Okay, helpful. And then just on the gross margin line, you know, I know that the model will benefit from just some of the mechanical things that you have going for you, but can you just maybe sort of crystallize the things that on your end you need to do most in order to have this trajectory land where it needs to be by the end of the year? And then obviously, you know, we'll talk, I'm sure, about next year and a quarter or two. But just given that you're finishing the year so much higher than you were the beginning of the year, can you maybe talk about upside scenarios for gross margins next year? Is it at least fair to model gross margins up a little bit next year?.