Good morning. My name is Yuko Oku, and I'm on the life science team, life science tools and diagnostic team at Morgan Stanley. Before we begin, I would like to remind our listeners that important disclosure information can be found at morganstanley.com/researchdisclosures. It's my pleasure to host Rapid Micro Biosystems, and speaking on behalf of the company, CEO, Robert Spignesi, and CFO, Sean Wosranko. Thank you for joining us today. Thank you. Thanks for having us, Yuko. To start, maybe you could provide a brief overview of the company and your Growth Direct platform. You've been on a path to improve business performance in various areas for some time now. Tell us the progress you made over the last year and highlight the ones you're most proud of. Sure, sure. First, a bit about Rapid Micro, and before we get going, thank those folks who are joining us early this morning, in the room here. So at Rapid Micro, we're focused on a critical part of the global pharmaceutical quality control infrastructure, called microbial quality control, and this is a regulated process performed on any pharmaceutical manufacturing site globally to ensure that the finished product, you know, the drugs and medications going to patients, are actually safe. The challenge is, the fundamental methods that are used to perform this process have not changed in about a hundred years since Louis Pasteur invented them. So they're out of date, you know, from our perspective, and the industry perspective, it's causing risk and cost to the industry. So we've developed a platform, a technology-based platform, called the Growth Direct platform, which consists of a, of a system called the Growth Direct, proprietary consumables, services, and software, that is focused on automating and replacing this legacy process, and bringing this critical process into the twenty-first century. I imagine we'll get into what the Growth Direct does, and how it does it later. So with regard to our progress, we just announced a milestone of 150 placements, globally. The majority of our customers are the global top 20 premier customers, again, and we've got installations and placements, across North America, Europe, and Asia, and we just, this past quarter, announced record revenue and over 30% revenue growth. So we're quite pleased with the performance in the business currently. Great. So to set the stage, could you outline the key benefits of the platform as compared to the other microbial testing methods available today, namely the compendial method? Yep. And then- Sure. What do you think are the key factors, holding back the customers from implementing Growth Direct, and how have you been executing on your comprehensive action plan to increase adoption? Okay, there's three, I think, that's three questions here. So you might need to remind me of them as we go through. First, the Growth Direct compared to the legacy method. So it's important to note the legacy method. Think, you know, think Petri dishes, paper, incubators, a lot of people, a very slow, manual-based process, where samples are being taken in a culture media format. There, it could be a handful or hundreds of quality control technicians, based on the size of the organization, fanning out and collecting all these samples across the various elements of the manufacturing environment. Putting these samples into large incubators and then waiting, it could be a week or more, for results, and then manually and visually counting each organism, or each what's called a colony-forming unit or CFU, writing that down on a piece of paper, and then ultimately plugging that into and typing that into some kind of system of record. So as you may realize, it's a very labor-intensive, error-prone, slow process that is subject to challenges, what's called data integrity, so errors or even falsifications of data. So that's the fundamental way it's done today. So the Growth Direct is installed, and what customers get is, from a data integrity standpoint, the system is computer-driven, robotic-driven, vision-driven, so the accuracy, well, the human error is effectively eliminated. The data integrity is typically we have a two-way connection with the customer's information management system, so we have secure, two-way, paperless data transfer. And then it's also a rapid system, so we're able to provide effectively the results to customers much, much more quickly, so they can half the time or even less. So you know, typically a seven or eight-day standard test, what we can do in you know, kind of a two or three days, for example, and we can talk about sterility you know, later in the discussion today. So customers can ship to market faster, find challenges faster, turn their inventory a lot faster. CDMOs can turn their lines over faster. So it's a huge value proposition for customers, and that's what's really powered our growth, our growth to date. So your second question, that was... Remind me? So what, you know, because of all the value propositions, why, you know, what's holding customers back? Yeah, I don't think there's anything specifically holding customers back. As I mentioned, the majority of our customers are within the premier. We have 70% of the top 20 global pharmaceutical companies as our customers. So it is a capital equipment purchase upfront, so there is there is competition for capital in large companies. Large companies also, you know, can. They have a process that we navigate through globally, which which can take time. And then also, a feature of pharmaceutical these companies is sometimes they can operate with regional priorities or even site priorities. So we navigate those at kind of the regional or site level, too. So that's part of our sales process, and that's how we execute through it. But I don't think there's anything thematically, necessarily holding customers back. Okay. There was a third one, too, I think? How have you been executing on your comprehensive action plan to continue to increase adoption? Yeah, we've been pleased with the execution broadly to you know increase adoption, and we'll go through our pillars. Our first priority in our pillars is you know increasing adoption. So we have a fully formed focused global sales team executing across the regions. Recently, we've announced that you know we've received placements or had placements you know globally across. We're getting repeat orders from our existing customers. We're attracting new customers. As I mentioned before, we have milestone placements and growth in the last quarter. So I think the results speak for themselves with regard to the progress we're making and the execution. Okay. And that's all in light of a, of, you know, an environment that's, you know, undergone some increased budget constraints, and we're happy with our ability to execute through, you know, the macro. One of the strategies you talked about in the past to drive placement is land and expand. Mm-hmm. Could you walk us through the typical customer journey and length of that sales cycle? What are the driving factors that sway the decision for a global customer to implement Growth Direct? And, and what is the likelihood that once Growth Direct is placed at one site, that it rolls across to multiple sites? Yeah, maybe in reverse order. So, again, the majority of our customers are our large top 20, and the vast majority of those customers have multiple systems in multiple sites. So it's, I think it's clear that the larger customers don't plan on just one system. They have a broader contemplation, which makes sense, right? One of the benefits of the Growth Direct is to standardize a workflow, right? Standardize a microbial quality control workflow to bring data integrity and speed to bear. So you'd want to propagate that across your manufacturing network. So customers will do that, sometimes across a therapy, like automate a therapy globally, or even automate an application within a therapy. So you might want to automate cell and gene therapy globally using the environmental monitoring and using the Growth Direct. Other customers may want to automate a region or a collection of sites. So how they choose to propagate that really depends on what problems they're trying to solve and what time how fast they want to solve them. And the journey typically is, a customer will be attracted to us at this point, based on the market dynamics and our very strong value proposition, and the fact that, you know, many customers already have it. There's word-of-mouth benefits, so we in our sales efforts, attract the customers in the first place. A newer customer will typically place, you know, one to four systems initially, go through a validation process, prove that out, and then go on to their second and third, et cetera, tranches of systems. Now, with the majority of... the sales cycle for a new customer is, you know, roughly, you know, standard capital equipment budget cycle. It can be nine, twelve months in that range. But again, we have the majority of the larger customers. Follow-on systems can be much, much faster than that from a sales cycle standpoint. You touched on this a little bit, but you currently have the capabilities to run environmental bioburden- Mm-hmm ... water, and then sterility, which we'll get into later. Yep. Help us think about consumable usage between these different applications, and do you see your customers using more than one application per system? Or do customers tend to use a system specifically for a particular application? Yeah, so it's. I'll answer that a couple different ways. So, you know, some customers will validate multiple applications to have the optionality to run multiple applications on our systems. In practice, especially the larger companies, their volumes are so high, they typically will dedicate Growth Direct systems to an application. That's because, A, the volume is high, B, that workflow might be done in a certain area for environmental monitoring and a different area of the manufacturing environment, for water or bioburden. And it's really important to note that, the Growth Direct unlocks efficiencies with regard to workflow, so you can bring the micro QC lab to the work versus the work to the lab. And some of these large campuses that are multiple buildings, that is a huge advantage. So we're able to bring the workflow to where the work is actually done, which can tend to focus Growth Direct on certain applications. So at the end of the day, most of our systems have a dedicated, you know, set of applications on them. That being said, as we get more and more into the small and mid-sized market, we anticipate having systems that have a variety of applications running at the same time, so water and bioburden, for example, or water and environmental monitoring, for example. And sterility, and we'll get into that, as you mentioned, that is a dedicated system. That's usually done in a fundamentally different part of the facility anyway, so it just makes sense to separate that. Okay. We're increasingly hearing of biopharma and biotech funding headwinds from peers. Mm-hmm. and customers continue to be budget conscious due to the challenging macro. Right. ... Could you elaborate on what you're hearing from customers, and how have you been navigating these budget constraints? Yeah, so, it's important to note at the outset here that we are not subject to. We don't sell into early-stage biotech. So some of those macro headwinds that you hear quite a bit about, it's not. It has effectively zero impact on us. We're more in the or completely into the commercial pharma and biotech folks that have already gone commercial and are in production for the vast majority of our placements. So, we have seen and are seeing, I would say, increased budget scrutiny. A couple factors there. So, it's our belief that our value proposition is enabling us to execute through that. I think our performance is clear, and we are seeing in some cases a bit of elongated cycles as capital projects could go through effectively another layer of scrutiny. But again, we are executing through that. Another important fact is that the Growth Direct, in some cases, is a strategic project at some of these companies. So it, it's... While it's not impervious to what's going on, it is somewhat insulated in some cases with regard to securing budget on a year-over-year basis. And we're seeing that as well as some of our- And we touched on multisystem orders in our last earnings call. You know, some of these are baked into effectively strategic projects for customers that have a kind of a longer-term outlook, which can tend to, again, be a bit insulated to the annual, if you will, budget challenges that some companies have and the scrutiny. Great. Given that your initial purchase order value for Growth Direct, including the system, LIMS software, and validation services, was roughly $500,000-$600,000- Mm-hmm. Have you heard any pushbacks around pricing, and have you had to resort to significant discounting to close the deal in light of that challenging macro? Pricing is a discussion, but I think what's more important is the ROI. So price, you know, is basically the I side of it, and then the R comes, if you will, from our value proposition, which is quite strong. So our sales team does a fantastic job working with customers on an ROI. The majority of our systems for the first time, follow-on orders can have a different trajectory, but initial engagement with the customer, typically, there is a capital approval request, which is an ROI. So while the pricing is part of it, the return analysis is clearly part of it as well. And again, our growth and our traction, I think, is proof that the value proposition and the ROI, you know, pencils quite well. There was a part B to that as well? No, I think you got it right here. Okay. Okay. Okay. Okay. Oh, the pricing. Oh, the pricing. Yeah. Well, yeah, so pricing is. You know, I think the takeaway on pricing for folks listening is like, you know, as is practice in the industry, with volume, we do work with customers on pricing. So I would say that is where we have a, you know, kind of a differential approach. If volume is very, very high with regards to systems or consumables, as you may imagine, we work with customers on pricing as well. Great. Over the past year, we've seen, well, pharma pipeline shifting to emerging modalities like cell and gene therapy. Hmm? with higher testing intensity. Yep. Which you've been benefiting from, particularly cell and gene customers. What are the key advantages in adopting a Growth Direct system? Yeah, so the cell and gene manufacturing modality, cell therapy in particular, where we're quite strong, has a few, I would say, differential features to it, above and beyond, you know, the biologics and other modalities. You know, the first is incredibly quick turnaround time, right? Some of these therapies work on a two-week-ish vein-to-vein turnaround time to the patient, and then this is usually a critical time-sensitive therapy for a patient, so that speed is incredibly important. If you recall the earlier part of our discussion, the length of time the manual methods take to perform this is just, in many cases, just far too long, so that's one, the speed. The second is the test volume, as you mentioned. It's a huge crush of test volume, so you have a situation where you have fast turnaround requirements and a lot of test volumes. You're starting to create a pretty obvious business case, and the last element is accuracy. We also spoke earlier about, you know, the human-based sort of method can be error-prone, it can be a challenge with regard to data integrity. And mistakes can be a challenge because a mistake could lead to a delay in the therapy, and this is. These are time-critical therapies, so the sum total of those features makes the Growth Direct a fantastic fit for cell therapy in particular, and that's why the Growth Direct is installed in 100% of the approved CAR T therapies out there. That is the fundamental business case behind it, if that makes sense. On your last earnings call, you announced your annual Growth Direct Day in partnership with Lonza. Are you scheduled for November? Yep. Can you just give us a little preview of what you expect to showcase during the event? What are you most excited to demonstrate to customers? Yeah, so the Growth Direct Day, personally, I love it. It's the history of it briefly, for the folks listening, you know, this started years ago as a partnership between one of our large customers and Rapid Micro Biosystems. It started with a handful of people. Fast-forward to today, we expect it to be upwards of a hundred participants, two days long, and while you mentioned what we're gonna showcase, and I can talk about that, but what's, I think, more important is a major feature of Growth Direct Day is customers presenting to customers, so the fundamental elements of Growth Direct Day are all things Growth Direct, best practices, sometimes penciling, you know, how does ROI work? How does the installation work, validation, regulatory environment? Most of these or many of these discussions are customers speaking to other customers and prospective customers. So this ecosystem that we've built is, and the customer intimacy around the Growth Direct in our company that as exemplified in Growth Direct Day, is absolutely, you know, in my opinion, fantastic. And I think the growth kind of shows that. You know, that being said, we will also discuss new, you know, products, for example, like sterility will be showcased here. We'll discuss new capabilities that we have in the company with regard to supplies. Things of that nature that better interest in the customers. The big takeaway is this is really customers speaking to customers about how to implement, grow, and propagate Growth Directs across their networks. Great. And turning to Rapid Sterility, which is your most recent application that you launched here. Following the placement of your first Rapid Sterility system last quarter, can you share any feedback you've received from customer on the product as we progress through the quarter? And then, do you expect Sterility system to take longer to be validated? And if so, how does it affect the current average lag between placements and validation? Yeah. So, we were proud to announce our first placement of Sterility, you know, quite quickly after the launch to an existing customer. I would tell you that it's early innings in the installation and turn-up process, so far, so good, I guess, is the takeaway. So I think more to follow, kind of, as the system and the feedback comes in. And on validations, yes, we do expect initially a longer validation process. Sterility is an end-of-line, last-check, critical test that customers are gonna wanna be, you know, comfortable with. As the validations, you know, spin up, we'll be involved with customers, obviously, and working with them through that. But we do expect over time, like our other applications, for that timeline to come back down. But yes, initially, it'll be a bit longer than our current. The sterility application is just a rapidly growing segment like sterile injectables, including GLP-1, for example. Right. Have you seen an uptake in customer interest from those who are benefiting from GLP-1 acceleration? And do you expect to target GLP-1 manufacturers at all as you continue to expand placements to the system? The quick answer is yes and yes. So, yes, we do see interest from the GLP-1 segment, and they are an active target as well with regard to our sales and marketing activities. And we believe that the Growth Direct is a very strong fit to the GLP-1 modality and space. Can you elaborate a little bit more on, like, what do you think would be the greatest, like, features of Rapid, the Growth Direct platform to these types of customers? Yeah. So I think it's consistent with other larger segments. You have a lot of volume- Mm-hmm. Valuable product, speed to market, spinning up new capacity in both biologic manufacturing and CDMO manufacturing. So as new capacity comes online, Growth Direct tends to be even more of a logical fit. And people wanna move quickly in that space. So, you know, the sum total of all that, again, we believe makes the Growth Direct a really strong fit to address the modality. I also wanna touch on the operational efficiency program. Last quarter, you announced the launch of your operational efficiency program. Can you provide a brief overview and highlight the major levers you intend to pull to achieve these cost savings? Sure. I'll take that one. Yeah. So, one of our strategic pillars is prudent cash management. And, you know, as we look at the business, we are building great momentum, but at the same time, we wanna make sure that we maintain control over the business and on our own destiny, ultimately. So given kind of where the financing markets are these days and looking at where we are, we made the decision to undertake this to basically get ourselves to a point where we believe we can reach cash flow break-even without additional financing, and that was really the driver behind it. We expect $7 million in annualized savings from that program by Q2 of next year. It will be a key driver of our ability to get to that target of cash flow break even by the end of twenty twenty-seven. About 80% of that is headcount related, 20% of it is other expenses across the business. We really stepped back and looked at where we were as a business, what we need to be effective, and it was a really broad-based program, very targeted at things that we think we can do better as a business, and that we took those actions to make that happen. Despite those cost reduction, you still plan to execute on average annual revenue growth between mid-twenties and thirties over the next few years. How are you expecting to balance the intended growth while optimizing organization size? Lay out for us why you're confident in your ability to do more with less. Yeah, so we activated this program. It's important to note, with the future in mind and a position of strength. You know, and part of that was clearly maintaining our short-term and longer term growth goals. A combination of visibility in our business, with regard to our sales funnel, our customers. We talked a bit about multisystem orders and how, in some cases, our Growth Direct opportunities are being considered longer term projects for customers, helps us, you know, with that confidence. You know, the shape and composition of our sales funnel, you know, general market feedback, business momentum, and a very talented team in all of our functions. All that gave us the confidence to move forward with this program. You heard in our last earnings call some of the forward-looking growth that we expect in the business. So that was our logic in it, and we're quite confident in our ability to execute against it. Another area of focus has been margins. During last call, you noted expectations over the midterm to achieve meaningful margin improvement year over year and reach double digit gross margin by end of 2027. Can you speak to the cadence of margin improvements that we should be expecting over the balance of the next few years? And then, given volume represents a key driver of gross margin improvement, should we expect that improvement to be more back-end loaded? Yeah, I'd start there. I would expect gradual improvements. I wouldn't look at it as being particularly back-end loaded. I mean, if you look at the areas that we're focused on, volume clearly plays a part, and we expect that to contribute each year. But we have a portfolio, kind of, short-term, midterm, long-term portfolio of activities that we have within the business that we're executing against, that have been driving the improvement that we've seen to date, that we expect to continue to drive that going forward. So, things like, strategic procurement. So product cost reduction, we've got strategic procurement. We've got activities in various areas where we're looking at the cost of our products, the material costs in particular, and looking at ways through smarter, better procurement practices, looking at new regions, lower cost regions, things like that, that we're going after. Things like product redesign, where we can make it a simpler, cheaper product to make. We're also looking at manufacturing efficiency. Last year, we talked about the fact that we were investing in our automated consumables manufacturing line. Those investments are paying off now, but there's still plenty of room to go in terms of increased efficiency and reduced waste on that manufacturing line, so we'll continue to make progress on that. And then in our service business, so we can continue to make improvements and expect to do that with respect to how we deploy our service force and how we do the work there, how we deploy resources, how we more efficiently utilize parts when we do service activities, things like that. So we've got a very broad program across all of those areas that we're focused on, that give us confidence. And I think if you look back at, you know, in 2022, I think gross margins were around negative 50%. Last year, they were in the negative mid-20s. This year will be positive. So you could see that kind of trajectory. I think the trajectory going forward over the next several years probably won't be that steep, but we've been able to show that we can make those improvements, and that gives us confidence in being able to do it over the next several years and get to where we need to get to. You noted expectation for just maintenance levels of CapEx over the next few years as well. What is a fair range for this assumption, and how are you managing the disciplined spend while still driving growth across the business? Yep. So I think, you know, I'd expect it to be in the range and average $2 million a year. I think what lets us keep that under tight control is the fact that over the past several years, we have invested in the two areas where we have tended historically to have bigger CapEx expenditure. One is facilities. We brought on and built out our Lexington facility over the past few years. That work is done. And also related to our manufacturing capacity, and we've invested in the automated manufacturing line I mentioned. And in both areas now, in terms of facilities and manufacturing capacity, we're at a point where we believe we have the capacity we need to go through the next several years without adding to that in a meaningful way. Your cash burn expectation for 2024 is currently about $40 million. How do you see this improving into 2025, and what are the main levers for ultimately helping you achieve cash flow breakeven by 2027? Yep. So that's broad-based. I'll get into that in a second. I think, you know, as we look forward, and I think just if you do the simple math and what the outlook that we've given, you know, I'd think about the average reduction in burn going forward in the $10 million plus range. There'll be some variability, but that's how I'd think about it. You know, it's broad-based, as I said. Revenue growth is a key driver. That volume growth that we talked about before, the margin expansion we just covered is critical. We are going to have a step down in 2025, largely driven by the operational efficiency program in OpEx, and then we expect to manage that extremely tightly going forward, as we move forward from 2025. CapEx, we talked about, so that'll be kept under very tight control as well. And I think about working capital, you know, typically, you'd expect working capital to take a little bit of cash every year as you grow the business. I think we're at a point right now where we have programs in inventory reduction, that as we look forward, we ought to be able to drive some benefit from that. So we also think that the impact of working capital overall on the business over the next few years should be pretty small as well. I also wanna touch on your twenty-four guidance, too. Your guidance currently assumes at least twenty placements and sixteen validation, and planning twelve placements and eight validation in the second half. Mm-hmm. What gives you confidence that systems could be in the acceleration of systems placed in second half, especially in light of the challenging environment? Yeah, Yuko, I think it's, well, it's consistent with how I answered one of the previous questions, is, you know, the visibility we have in the business, the shape and composition of our sales funnel, the conversations we're having actively with our customers and our sales team, and how they're executing in the market. That all gives us confidence in our guide. You're also planning to host an investor event in November. Outside of additional details around the medium-term outlook, could you provide a preview of some of the other topics that will be discussed? Yeah. I mean, as we've thought about this investor event, we really haven't had an opportunity since the IPO in 2021 to get out with our shareholders and investors and talk about the business and what makes us excited about it. I think, and gives us confidence in our ability to continue to grow the business and drive to cash flow breakeven. So I think clearly, that midterm outlook is gonna be a feature. Sterility, I think, will be a feature, but a lot of it is really helping to kind of redeliver the message, today's message, and not three years ago's message, and really help the investment community understand why that excitement's there within our leadership team and the company. Great. In the last few minutes here, I wanted to close with a question, a big-picture question. Mm-hmm. Heading into 2025, what about Rapid's story do you think is least well understood and appreciated by investors? And what are your key areas of focus as we look over the next 12 months? Yeah. Well, so perhaps what might not be fully understood by all investors is the value that we believe we're creating. I mean, we are building the next generation quality control infrastructure for global pharma. We have a premier-tier customer base. We're typically installed in some of the most valuable modalities within these customers. We're expanding within these customers, attracting new customers globally. That's really important to note, and once we're installed, we are, you know, deeply embedded as a critical partner in these workflows. We have a high-growth business model, as we spoke about, better than 30% in the last quarter. Very high, sticky recurring revenue base underpinning that. We spoke about the significant improvement in gross margin expansion of the business is undergoing, and then, of course, the operational efficiency program and the discussion around getting to cash flow breakeven without additional financing. You know, we believe the sum total of that is creating, you know, significant, significant value. Okay. Well, that's all for today. Thank you so much. Thank you. Thank you!