Rapid Micro Biosystems, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The company develops and sells Growth Direct automated microbial quality-control systems, consumables, software and related services for pharmaceutical and other regulated manufacturing customers.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4.7 million | $6.9 million | $12.8 million | $18.0 million |
| Operating loss | $16.9 million | $12.1 million | $46.0 million | $32.7 million |
| Net loss | $16.3 million | $25.0 million | $44.4 million | $58.9 million |
| Net loss per share | $0.38 | $0.71 | $1.05 | $5.14 |
- Revenue declined 31% in Q3 and 29% year to date. Product revenue fell 34% and 35%, respectively, primarily because fewer Growth Direct systems were placed. Service revenue rose 3% and 10%; recurring product and service revenue increased 34% in Q3 and 46% year to date.
- System placements were 3 in Q3 versus 10 a year earlier and 7 year to date versus 26. Cumulative placements reached 123; cumulative validated systems reached 100.
- Cost of revenue exceeded revenue, producing an approximate gross loss of $2.8 million in Q3 and $5.9 million year to date. Operating expenses increased 14% in Q3 and 16% year to date, including higher R&D, sales and marketing, and G&A expenses.
- Cash and cash equivalents were $25.8 million; short- and long-term investments were $124.3 million. Including $0.3 million of restricted cash, these assets totaled $150.4 million at September 30, 2022. Operating cash use was $46.9 million for the nine months. Investing cash use was $106.3 million, mainly reflecting purchases of investments.
- No term debt was outstanding. Lease liabilities totaled approximately $8.2 million, including $7.9 million operating and $0.3 million financing lease liabilities. Current assets were $144.6 million and current liabilities $15.2 million.
Changes, outlook and material developments
- Net loss improved versus 2021, principally because the prior-year period included large non-cash preferred-stock warrant remeasurement losses and a debt extinguishment loss. Operating loss worsened as revenue contracted and operating expenses rose.
- BARDA funding had been fully earned by Q4 2021; no non-commercial revenue was recorded in the first nine months of 2022. Management did not expect BARDA revenue in 2022, while anticipating possible cost-reimbursement true-up revenue after 2022 over several years. Timing and amount depend on BARDA approval and available funds.
- In August 2022, the company approved a restructuring involving an approximately 20% workforce reduction, largely in non-commercial functions. It recorded $1.1 million of restructuring charges and estimated annualized savings of $8–$9 million by Q1 2023. The savings are expectations, not assured results.
- The board rejected an unsolicited, non-binding $5-per-share cash acquisition proposal from Kennedy Lewis and began reviewing strategic alternatives. No timetable or transaction commitment was disclosed; management anticipated additional costs to conduct the review.
- Management said cash, cash equivalents and investments were expected to fund operating and capital needs for at least 12 months after the financial statements were issued. The company expects significant losses to continue and may need future equity or debt financing to fund operations. The filing refers to a downward revision in 2022 commercial revenue guidance but does not provide a clear revised numerical target.
Risks and other notable items
- Quarterly results are volatile and depend on system order timing, sales-cycle length, customer site readiness, installation and validation schedules, and customer budget cycles. COVID-related access restrictions, inflation, higher interest rates and supply disruptions may also affect demand, costs and execution.
- Sales execution is a key risk: management reported that prior sales-process changes did not generate expected placements and said revised processes were being implemented. The workforce restructuring and strategic review could also disrupt sales, customer service, development or retention of personnel.
- Customer concentration is significant: two customers represented a combined 42.6% of Q3 revenue. The filing also identifies customer concentration in receivables.
- The company adopted a stockholder rights agreement in August 2022. It may deter or delay a change of control and is scheduled to expire after the 2023 annual meeting unless approved by stockholders.
- The company reported no material litigation and no material changes to internal control over financial reporting; management assessed disclosure controls as effective at the reasonable assurance level.
Investor verification checklist
- Verify actual system placements, validation progress and recurring consumable/service revenue against management’s expectations.
- Track the cash burn rate, investment maturities and management’s stated 12-month liquidity runway, including the effect of capital spending and lease obligations.
- Assess whether the restructuring delivers the projected savings without impairing commercial execution, customer support or product development.
- Follow the strategic-alternatives review, related expenses and any updates to the rights agreement; no transaction is assured.
- Confirm whether BARDA true-ups are approved and collectible, and whether the company provides a clear updated revenue outlook.