Good day, and thank you for standing by. Welcome to the Rapid Micro Biosystems First Quarter 2022 Earnings Conference Call. . Please be advised today's conference may be recorded. I'd now like to hand the conference over to your host today, Mike Beaulieu with Investor Relations.

Good morning, and thank you for joining the Rapid Micro Biosystems First Quarter 2022 Earnings Call. Joining me on the call are Rob Spignesi, Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our first quarter financial results. A copy of the release is available on the company's website at rapidmicrobiome.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's financial condition, expectations for business development and growth, customer interest and adoption of the growth direct system and the potential impact of COVID-19 on Rapid Micro's business. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the risk factor section of our Form 10-K filed with the Securities and Exchange Commission on March 24th, 2022. 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. Also, the company's contract with the U.S. Biomedical Advanced Research and Development Authority, or BARDA, was completed in the fourth quarter of 2021. Throughout our quarterly performance discussions, we'll be excluding the non-commercial revenue impact from BARDA by comparing total 2022 revenue to commercial revenue in 2021. This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 10, 2022. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements because of new information, future events or otherwise. And with that, I will turn the call over to Rob.

Thank you, Mike. Good morning, everyone, and thank you for joining us to review our first quarter 2022 business performance and financial results. While we were very pleased with most elements of our business performance in Q1, system placements were weaker. Access to customer sites continued to be limited, which resulted in the placement of 2 Growth Direct Systems, which was consistent with the guidance we provided in March, but nonetheless still disappointing. Both systems were placed in March as trends with customer access and in-person meetings began to improve marginally later in the quarter. While interest in our Growth System remains high, we are not satisfied with these results and are focused on improving system placements enterprise wide at Rapid Micro. Excluding system placements, our performance in the first quarter met or exceeded our expectations. Recurring revenue grew more than 65%, led by Consumables growth of nearly 100%. And we completed 9 system validations in the quarter. Additionally, Systems and Consumables gross margins both improved significantly compared to Q1 last year, reflecting the progress our Operations team is making in advancing our manufacturing efficiency initiatives. Finally, I'm also pleased with the performance of our Product Development team, which is achieving key milestones as we progress our pipeline of innovative new product offerings. Over the last few months, we began to see a gradual improvement in customer site access. As we have discussed in the past, site access and in-person selling is important to our system sales process because it allows us to work more closely with our customers to understand their manufacturing and quality control challenges and opportunities. We are also able to better showcase the differentiated capabilities of the growth direct, which allows our team to demonstrate how we can improve existing workflows and deliver the value customers…

Thanks, Rob, and good morning, everyone. This morning, we reported first quarter 2022 revenue of $4.2 million. This compares to the $4.8 million of commercial revenue that we reported in Q1 2021. Product revenue, which consists of Systems and Consumables, was $2.6 million in Q1 compared to $3.7 million in the first quarter last year. The decline was due to fewer placements of Growth Direct Systems, but was partially offset by continued strong growth in Consumables. As we discussed on our Q4 earnings call, pandemic-related customer site access limitations and customer specific timing issues continued to impact our ability to sell and ship systems in the first quarter. As a result of these headwinds, Q1 placements were limited to 2 systems, which was consistent with the guidance we provided in March, but still disappointing. From a comparison standpoint, we placed 8 systems in the first quarter last year, including 3 systems that were originally scheduled for placement in Q4 2020, but were pushed into Q1 2021 as a result of extended holiday shutdowns due to the pandemic. Revenue from Consumables exceeded our expectations, increasing nearly 100% in the first quarter compared to Q1 last year, as we continue to benefit from our growing base of validated systems and increased utilization at existing customers. Over the past 4 quarters, the cumulative number of validated systems in the field grew from 52 to 93, an increase of 79%. And Consumables revenue per average validated system increased 15%. As a reminder recently, validated systems go through a transition period that typically last several months before they move into full commercial routine use. Looking only at those systems we considered to be in routine use, Consumables revenue per average system increased both year-over-year and sequentially in Q1 and was well over $100,000 on an…

We have a question from a line of Tejas Savant with Morgan Stanley.

This is Yuko on the call for Tejas. By our quick math, you will have -- we're seeing like single-digit placements in first half and 4 to 5x that amount in second half. First of all, is that math about right? And second, what gives you confidence that placement cadence will pick up materially in the second half?

Yuko, it's Sean here. Yes, so your math is right. I mean, we're basically guiding the 4. We think there's upside in the second quarter to that we're working on, but we don't have clear visibility into that at this point. So we're being a little conservative on the quarter, but 15% of the year is represented by those 4. So I think that's the starting point for the math, which is consistent with your comment.

And Yuko, it's Rob. With regard to the confidence on the second half, multiple elements here to give us confidence. The first, as you heard a few times during the prepared remarks, site access opening. We're starting to see -- we're not out of the woods yet, but certainly turning in the corner. And the recent trip to Europe, as I discussed, was very enlightening. The U.S. is improving as well, and then even Asia has started to open up quite a bit. And as you've heard us mentioned in the past, site access is a very strong contributor to our sales process. Another important element is our value prop is resonating with customers. Again, the in-person meetings in Europe was a very strong reminder, but other evidence, as you can see in our business, our systems are being used. Our Consumables are being pulled through at or above our expectations. As customers do that, they'll purchase follow-on systems more than likely. And as Sean mentioned, our funnel, the shape of our funnel, which is a third element that gives us confidence, is well balanced between new and existing customers across our geographies. And our funnel does include some sizeable multi-system deals with existing customers and a nice balance with new customers as well. And the fourth element I would tell you that gives us confidence is a ramping, high quality commercial team. As discussed previously, we onboarded a new Chief Commercial Officer last year. Our hiring's been good in Q1 and the tail end of last year for new direct selling and direct marketing people and we expect increased productivity as they mature in role to deliver against this -- the sales plan.

Great. Thank you so much for that color. And then just a quick follow-up. With inflation on top of minds right now, could you comment on your ability to increase prices on instrument services or Consumables?

Sure. Yes. So I think we talked in a recent call about the fact that we were planning to take across many of our products this year. We're seeing some benefits from that. I'd say it's not completely uniform, but in general, we are seeing some benefit from price this year in terms of the ASPs that we're charging out in the market.

We have a question from the line of Rachel Vatnsdal with JPMorgan.

This is Noah on for Rachel. Just digging in a little bit to the sort of end market applications of the system, can you provide any sort of additional color on like how the mix shift might be changing, either in placements or any sort of funnel between larger and smaller customers? Yes, that would be my first point. And then I have a follow-up.

Yes. So with regard to -- this is Rob, with regard to customer end market -- and I can talk about applications as well with regard to our actual test applications. I think -- but I think you're more interested in the customer complexion. Okay, both. Yes, so the bulk of our current customer base and, and our -- and for the most part of our funnel, tends to be the larger enterprises out there, top 20, top 30 principle manufacturing biopharma customers, as well as large CDMOs as well. Now, that being said, we do address all modalities in all sizes. So we do have small and particular mid-size companies, not only in our -- as a current customer, but also in our customer funnel. But we're generally weighted more towards large customer, both principal manufacturing and CDMO and market modality mostly towards biologics and cell and gene therapy. But we also address other modalities such as sterile injectables. With regard to part B of your question, our end market funnel applications, in any -- in most manufacturing environments, environmental monitoring can be 70% or more of the routine test volume, at least across the waterfront that we cover. And our funnel reflects that. The majority of our funnel across those types of customers environmental monitoring, but we of course also have current customers using water application and bioburden application. And our funnel also consists of those applications as well. So we feel like we're balanced across the end markets, as well as our applications -- at least relative to the relative volume in the market. And just -- you didn't ask this but I'll add a little bit of color from a geography standpoint. We've historically been North America and Europe, pretty well balanced. But as our Asia team grows, our funnel is starting to show some health and progress there. Early days with that team being in place for a very short time. But we have an optimistic outlook generally with regard to what that market could yield and a good team just getting started out there.

Awesome. And maybe digging a little bit more into the cell and gene therapy side. How has your confidence in the cell and gene therapy market like sort of evolved since the IPO? And do you sort of see the funding being still consistent with how you felt when you IPO'd?

Yes, I think we are, generally speaking, as excited as ever about cell and gene therapy. We've got more customers up and running in that segment. We have an incredibly strong value proposition. We speak to those customers frequently. They have an unbelievable patient-centric and patient-passion approach to their business and are making a real difference. And our technology and our business is helping them do that. The pipelines of cell and gene therapies, with regard to how we look at, are still quite healthy. Certainly sizeable enough for us to continue to attract new customers and build our cell and gene therapy market, again, where our value prop is especially strong.

Awesome. And then finally, do you have any potential sort of threats about medium throughput competition or anything sort of related?

Well, we -- as we've said, historically, we believe the competitive intensity is quite low in this market. Our largest competitor by far is the manual method, if you will, is converting the 100-year-old method to the 21st century is how we view the competitive landscape right now, the top competitor anyway.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Robert Spignesi for closing remarks.

Well, great. Well, thank you for joining us today. We appreciate your interest in our company and look forward to speaking with many of you in the coming weeks.

This concludes today's conference call. Thank you for participating. You may now disconnect.