Ladies and gentlemen, thank you for standing by. My name is Desiree [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid Micro Biosystems' Fourth Quarter and Full-Year 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Michael Beaulieu, Investor Relations. Please go ahead.

Good morning, and thank you for joining the Rapid Micro Biosystems' fourth quarter and full year 2023 earnings call. Joining me on the call are Rob Spignesi, President and Chief Executive Officer; and Sean Wirtjes, Chief Financial Officer. Earlier today, we issued a press release announcing our fourth quarter and full-year 2023 financial results. A copy of the release is available on the company's website at rapidmicrobio.com under Investors in the News & Events section. Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of Federal Securities Laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro Bio's financial condition; anticipated future cash usage and cash runway; guidance for 2024 including revenues, expenses, gross margin, system placements and validation activities; expectations for and planned activities related to the company's business development and growth; customer interest and adoption of the Growth Direct system; statements regarding the planned launch and commercialization of Rapid Sterility; and the potential impact of macroeconomic uncertainty on Rapid Micro's business. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission, as updated from time-to-time in our subsequent filings with the SEC. We urge you to consider these factors and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. This conference call contains time sensitive information and is accurate only as of the live broadcast today, March 1, 2024. Rapid Micro disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. And with that, I'll turn the call over to Rob.

Thank you, Mike. Good morning, everyone, and thank you for joining us. I will begin this morning's call with an overview of our fourth quarter 2023 performance and highlights, followed by a review of our growth strategy for 2024. I'll then turn the call over to Sean for a more detailed review of our financial results and outlook. Total revenue was $6.3 million in the fourth quarter, representing growth of 45%; and $22.5 million for the full-year 2023, representing growth of 31% compared to the prior quarter and year, respectively. We placed six Growth Direct systems in Q4 for a total of 16 for the year. These results exceeded our guidance for both the quarter and the year and reflect strong, consistent commercial execution and the robustness of our growth strategy. Also, in our fourth quarter results, we were pleased to report that we made significant progress and achieved near breakeven gross margins, which we believe represents a positive inflection in our financial profile. This performance is a result of the efforts of our manufacturing, operations and service teams who have been aggressively focused on reducing costs, enhancing efficiency and productivity. On a cumulative basis, through the end of 2023, we have placed 141 Growth Direct systems globally, including 121 fully validated systems, and have shipped nearly 5 million consumables. Our customer base now includes 70% of the global top 20 pharmaceutical manufacturers and many of the largest global CDMOs, including Samsung Biologics, who recently selected the Growth Direct system to automate their critical microbial quality control testing. We have also placed Growth Direct systems with 100% of the manufacturers of commercially approved CAR-T therapies. Manufacturing of these life-saving therapies requires accuracy, full automation and fast turnaround, which are hallmarks of the Growth Direct. We are very proud to be…

Thanks, Rob. Good morning, everyone. I'll start my comments today with a review of our fourth quarter 2023 results, and then discuss our 2024 outlook. Q4 revenue increased 45% to $6.3 million compared to $4.4 million in Q4 2022. During the fourth quarter, we placed six Growth Direct systems compared to two in the fourth quarter last year. The six systems this quarter represent the most we placed since Q3 2021. We also completed nine validations in the quarter. Product revenue, which is comprised of systems and consumables, increased 45% to $4.1 million in the quarter compared to $2.8 million in Q4 last year. The growth in product revenue was primarily driven by the higher number of systems placed in the quarter. Consumable revenue in Q4 increased on a year-over-year basis, but was down slightly on a sequential basis due mainly to the timing of customer shipments. Service revenue also increased 45% to $2.2 million in the fourth quarter compared to $1.5 million in Q4 last year. The increase was driven by a higher level of validation activity and higher recurring service contract revenue. Fourth quarter recurring revenue, which consists of consumables and annual service contracts, increased 13% to $3.3 million compared to $2.9 million in Q4 last year, driven by growth in both consumables and service contract revenue. Non-recurring revenue was $3.0 million in Q4 compared to $1.5 million in the prior year quarter. Turning to gross margins. Product margins were negative $0.6 million in Q4 compared to negative $2.4 million in the fourth quarter last year. The improvement was attributable to higher product revenue, higher production volumes in both systems and consumables, and benefits from actions taken by the company to lower product costs and increase manufacturing efficiency, including enhancements made to our automated consumables manufacturing line earlier…

The floor is now open for your questions. [Operator Instructions] Your first question comes from the line of Dan Arias with Stifel. Your line is open.

Hi, good morning guys. Thanks for the questions. Sean, maybe just to start on the gross margin improvement. How much of what would get you crossed over into positivity this year is, so to speak, in the bank, à la the efficiency improvements that you made last year, the cost work that did, versus things that have yet to be done or that depend on volumes for the year? And just as a follow-up to that, I think you said down first half of the year and then single-digit up in the back half of the year. Does that get you up for the first year? And if you made that comment, I apologize, but just my rough glance that the model doesn't necessarily suggest that, that could be the case.

Yes. I'll start with your second question, Dan. So yes, the guidance is margins -- we think margins will be a little bit lower in Q1 compared to Q4. Get better, but still be negative in Q2, but then flip positive in Q3 and Q4. And for the full-year, we expect it to be positive. So hopefully, that cadence makes sense. Volume is a player in that, but there's a lot of other things that play within that cadence as well. So I think that kind of segues to your first question. So I think we view -- there are some things like the automation improvements we made that are baked in. Volume is important. And then we -- there's ongoing work going on around the other things that we talked about, service productivity, cost down in products, other things we're doing around efficiency and increased throughput in terms of manufacturing. So it's a mix, but there definitely are some components of that, that are things that we've now got baked in that are going to help support better performance on margins and move us positive in 2024.

Okay. Helpful. And then maybe just on the revenue side, annualized pull-through per systems, two questions there. Obviously, the new systems that are getting installed alter the calculation a bit. But if you looked at sort of same-store sales, what you had installed at the end of last year, are you confident that the average pull-through level will be up this year? And then on the consumables growth rate that we should be thinking here, 23% recurring revenue growth in 2023, how doable is a number like that this year? Obviously, you're growing the installed base, so that should help.

Yes, I think the implied growth rate on recurring is going to be a little bit lower, and I'll talk about that a little bit. I mean if we focus on Q4 performance first, we've guided that we would be down sequentially mainly due to timing of shipments, and that's what we saw. I think we -- in consumables, you're right. We have new systems coming online. The number we track, as we've talked about in the past is validated systems. And really, we still have a little bit of work to do typically once we get there to get people in routine use. So we've got to manage that well. I think there's another important factor here, which we view as transient, but it's important to understanding kind of where we're going to be. Because I'd say -- maybe to answer one of your questions there, I would look at this year as being -- in terms of pull-through per average validated system or consumables revenue per average validated system being relatively flat with last year. And it's really -- there's one primary factor that's driving that. We had -- one of our most significant customers let us know in mid-'23 that they were actually selling a site that had multiple high-volume systems in it. So as we made our way through the second half of '23, we started to feel the impact of that as those systems came offline. That is a contributor to what we're seeing in most recent quarters. That is still the case today. Now the good news for us, and I think a reason for optimism and something we view as upside, is the new owner of that site is communicating that they do plan to bring some of those systems -- not all of them, but some of them back online later in 2024. So that actually -- having some of the -- some of our highest volume systems in the world go from kind of full pull-through to offline is something that's important to think about as you think about the guidance that I just talked about.

Okay. Maybe just last quick one since it feels like we may be up the time here. Just on the validation time lines, do you think as an average 2024 validation time lines will be shorter than they were in 2023? Thanks.

Yes. I think we've talked about Project Rapid in the past and the work we're doing to shorten that process up. I think we saw good progress on that in '23, and I would expect we'll see incremental progress on that in '24. So, yes.

Okay, appreciate it.

Next question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.

Hi, this is Jason on for Tejas. Congratulations on the quarter. And thank you for taking my questions. So just some questions related to Sterility. Could you elaborate on the competitive landscape of Sterility versus other competitors in the space? And with the launch, do you anticipate the new offering opening up opportunities with new customers or expanding placements with existing customers? And I guess on a related note, do you anticipate that you'll be building out a sales force to support Sterility sales? Or would you leverage your existing sales force? Thank you.

Okay, thanks for the question. It's Rob. So I think there's three in there. The first one is the competitive landscape. So as with our other applications, the top competitor is the legacy method in Sterility. That being said, there is what I would call increased competitive activity from other suppliers of Rapid Sterility applications in the market versus our other applications. So it is a market where there are some incumbents offering, I'll call it, technology-enabled rapid solutions. Now that being said, we do that coming into this market, and we specifically developed and designed this system to offer compelling differentiation, clearly against the legacy and traditional method, but also against the current, I'll call it, technology-enabled methods. And we like how we compare against the, I'll call it the other offerings in the market, as I mentioned in my prepared remarks. The second question with regard to new and existing customers. I think the answer is both. I think the exciting thing about Sterility is that customers are excited about it, first and foremost, in our existing customer base. So the majority of our current customers are small molecules -- I mean, I'm sorry, large molecules to include biologics and cell and gene. But Sterility will also get us more deeply into small molecule injectable manufacturing as well. So it'll expand effectively our opportunity in a lot of ways and move our sales team more squarely into those segments. And then with regard to sales team specifically, we primarily are planning on leveraging our current sales team, which we now have up and running in all three regions. That being said, we will have a dedicated Sterility, I'll call it group TBD on the actual head count on that, but specialists focused on assisting and enabling our sales team with some of the technical elements and application elements of the Sterility-specific activities.

Got it. Thank you. That was helpful. And then if I could squeeze another question in. So with Sterility development in its final stages, what are the next areas of product or workflow development that could enhance the customer experience on Growth Direct? Thank you.

Yes. So from a high level, we view the Growth Direct as a platform technology. And generally, our product strategy is to continue to influence the workflow in and around our platform technology. So we automate the microbial quality control process. We detect the contamination. We enumerate contamination. And we do that now -- it's really being launched or to be launched midyear across the primary microbial quality control test of environmental monitoring, water, bioburden and soon sterility. We also envision, over time, going downstream and providing more information to customers with regard to the organisms that they're picking up and detecting in their workflows. I think the mold technology we released last year is a really good example of that, and there could be extensions around that. And also data. We're generating enormous amounts of digital data for customers. And this is the first time that these labs have had access to this kind of data, and how can we help customers use, manage, look into their data and look into their operations, not only on a site basis, but on a global basis. Our goal is to become the new quality control infrastructure. And as we grow our site network globally, we're basically creating a new microbial quality control infrastructure for our customers. And with that, what kind of services and insights can we provide just given the enormous amount of data that we're generating. I know this is a commitment or guidance per se, but it gives you a little bit of insight into how we're thinking about expanding our influence up and down the quality control workflow within our customers' manufacturing and quality operations.

Thank you. I appreciate the answers guys.

Sure.

Next question comes from the line of Steven Mah with TD Cowen. Your line is open.

Thanks and congrats on the quarter. And thanks for taking the questions. One on Samsung Biologics, them selecting the Growth Direct platform for their microbial QC. Can you remind us if it was a multisystem placement and was that multiple Samsung sites? And then if you could give us some color on the sense of the magnitude of Samsung going forward as you kind of expand across the Samsung global sites? When can you expect more Samsung placements? Obviously, it's a pretty huge entity.

Yes. So thanks, Steve. We're clearly excited about the Samsung partnership and the company selecting us. Samsung is a great company, does their diligence and we think it speaks volumes they selected the Growth Direct. We did place a multisystem order at a single site last year. I won't go into the forward-looking expectation, but I can tell you we're looking forward -- to your point, it's a large organization and we're very much looking forward to growing with Samsung in the coming quarters and the coming years.

Okay. Great. No, I appreciate that. And then maybe a follow-up question on the CRO landscape. Given the current geopolitical sentiment and that proposed bipartisan BIOSECURE Act. Could you give us a sense of your exposure to CROs that were kind of named in that BIOSECURE Act?

Yes. It's very low. I think it's specifically around China. Yes, so our connectivity and exposure is quite low. We have a strong CDMO footprint, I think as you know. Our value prop resonates strongly there, but our current products and our expected customer base would be independent of that BIOSECURE Act and the named parties within.

Okay. I appreciate that color. And last one is a follow-up question on Rapid Sterility. Can you just walk through some of the positive early beta testing feedback and the stress testing that you did during that beta launch that's driving confidence in the expected midyear launch? And has Rapid Sterility helping drive the conversation with new customers? Thank you.

Yes. So in reverse order, we -- it is helping drive conversations with new customers and existing customers. So we've been -- I wouldn't say surprised because we expected a positive response, and we're getting it. And I think it's important to note that there's -- we have not assumed meaningful contribution for Sterility and our 2024 guide, just given the midyear launch and the sales cycle timing. But we're certainly going to preserve the opportunity to have upside with regard to Sterility. And there is quite a bit of excitement around it. Our confidence comes from a combination of customer feedback as well as rigorous development process we have internally. So that process goes through the system readiness, it's basically a new consumable that worked with the system and a lot of testing with regard to some of the data that you've seen published with regard to time-to-detection and time-to-result. And then, of course, that data, we will work with customers to ultimately over time, validate in their environments. But we're -- and where we are today, we're quite confident in what we're seeing and that gave us the confidence to release a press release and all of the above kind of feeds into that. Our internal data feedback from of the market research we've done and our internally generated data, all kind of collude together to give us that outlook and confidence to move forward. And also inbound interest from customers, also is feathering into the mix now, too, which is very exciting. So more to follow. We look forward to update you as we go forward through the quarters here. But I can say, just kind of in summary, we're excited about the product. And so far, the market also seems quite excited about the product as well.

Okay, great. Thanks for that. And congrats again.

Okay. Well, thanks, Steve for the question. And thanks everyone, for joining us today. Again, we enter the year with strong momentum and in a great position to deliver an excellent year in 2024. I look forward to speaking with many of you over the next few weeks at the TD Cowen and KeyBanc Life Sciences Conferences. Thank you all.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.