Rapid Micro Biosystems, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited figures below are in U.S. dollars; financial amounts are shown in millions unless stated otherwise.
Business context
The company develops and sells the Growth Direct automated microbial quality-control testing platform, related consumables and software, and validation and service offerings for pharmaceutical and other regulated manufacturers. It also earns cost-reimbursement revenue under a BARDA contract. Growth Direct system placements generate sales upfront, while recurring consumables and service revenue generally depend on subsequent installation, validation and customer adoption.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $6.13 | $2.59 | $11.13 | $5.59 |
| Operating loss | $(10.86) | $(6.01) | $(20.55) | $(13.25) |
| Net loss | $(11.83) | $(9.27) | $(33.93) | $(17.27) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(22.77) | $(17.01) |
- Q2 revenue grew 136% year over year; first-half revenue grew 99%. Q2 product revenue was $4.09 million and service revenue was $1.61 million. Non-commercial revenue was $0.44 million.
- Recurring product and service revenue was $1.90 million in Q2 and $3.37 million for the first half, up 91% and 81%, respectively. It represented 31% of Q2 total revenue and 30% for the first half.
- Cost of product, service and non-commercial revenue totaled $7.91 million in Q2 and $14.97 million in the first half, exceeding revenue in both periods. Approximate gross margins were negative 29% and negative 35%, respectively.
- Operating expenses rose with investment in sales and marketing, research and development, and general and administrative functions. Q2 sales and marketing expense was $3.12 million; R&D was $2.34 million; G&A was $3.63 million.
- First-half net loss included an $11.48 million noncash loss from remeasuring preferred-stock warrant liabilities, versus a $0.55 million gain in the comparable 2020 period. This was a major contributor to the increase in reported net loss.
- At June 30, cash and cash equivalents were $100.05 million, with no short-term investments. Current assets were $118.05 million and current liabilities $16.01 million. Net cash used in operations was $22.77 million; cash and restricted cash ended the period at $100.33 million.
- Debt was $25.0 million principal, reported at $24.98 million net of discount. The term loan matures in May 2025 and bears interest at the company’s election of 12% (up to 7% payable in kind) or 13% payable in kind. The company reported covenant compliance.
- Redeemable convertible preferred stock had a $235.84 million carrying value and a $286.18 million liquidation preference at June 30. Stockholders’ deficit was $164.53 million.
Material changes and subsequent events
- Growth Direct systems placed increased to 8 in Q2 from 3, and to 16 in the first half from 5. Systems validated were 11 in Q2 versus 2 and 12 in the first half versus 6. Cumulative placements reached 103 and cumulative validations 63.
- Product and service growth reflected more system placements, higher consumables shipments and increased validation and service-contract revenue. Management said COVID-19-related travel restrictions continued to impede shipping, installation, validation and customer training in some locations.
- BARDA non-commercial revenue fell 59% in the first half, primarily because of lower reimbursable activity, although it rose in Q2 due to a higher cost-sharing reimbursement percentage.
- In March 2021, the company raised approximately $79.5 million gross through Series D preferred stock issuances. First-half preferred-stock financing provided $79.74 million net.
- After quarter-end, the company completed its IPO on July 19, selling 7.92 million Class A shares at $20 per share for approximately $143.6 million net proceeds. The underwriters’ partial overallotment exercise on August 4 added approximately $20.2 million net, bringing reported total net proceeds to approximately $163.8 million. The IPO triggered payment of a previously unaccrued $0.8 million loan exit fee.
- A one-for-five reverse stock split took effect July 9, 2021; presented share and per-share data were retrospectively adjusted. The IPO also resulted in conversion of preferred stock under its qualifying-offering provisions.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expects significant operating losses to continue as it expands sales and marketing, manufacturing capacity, R&D and public-company infrastructure.
- Management stated that cash and cash equivalents, together with IPO proceeds, were expected to fund operating expenses and capital requirements for at least 12 months from the August 27, 2021 financial-statement issuance date. A risk-factor discussion separately estimated funding through at least 2023; both estimates depend on assumptions that may prove inaccurate.
- Key business risks include continued losses and possible future capital needs; dependence on system sales and a lengthy validation-to-recurring-revenue cycle; customer and quarterly revenue concentration; COVID-19 disruption; execution of growth and commercialization plans; and competition and regulatory requirements affecting customer workflows.
- Manufacturing and supply risks include reliance on third parties and certain single-source components. The filing specifically notes that the camera supplier intended to discontinue production; the company believed its inventory would allow time to qualify a replacement, but the timing and adequacy of that inventory were uncertain.
- Other commitments include a Lexington facility sublease with $5.6 million of future minimum rent, $0.6 million of furniture and equipment payments, $0.8 million of minimum supplier payments through 2022, and $1.1 million of software-subscription commitments through January 2026. The company reported no material legal proceedings.
- Management reported effective disclosure controls at June 30, 2021 and no material change in internal control over financial reporting during the quarter. The company was an emerging growth company and smaller reporting company.
Important facts for investors to verify
- Whether placements translate into timely installations, validations and sustained recurring consumables and service revenue.
- Revenue concentration and the timing and variability of large system orders; confirm the customer-concentration disclosures and the mix of recurring versus non-recurring sales.
- Operating cash burn and post-IPO liquidity against the company’s stated runway assumptions, including debt service, covenant terms and the May 2025 maturity.
- The effect of warrant-liability remeasurement and preferred-stock conversion on reported results, capital structure and fully diluted share count.
- Progress in qualifying a replacement camera supplier and mitigating other single-source, COVID-19 and manufacturing-capacity risks.