Rapid Micro Biosystems, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The company develops and sells Growth Direct microbial quality-control systems, consumables, software and related services for pharmaceutical and other regulated manufacturers. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3.86 | $6.13 | $8.02 | $11.13 |
| Operating loss | $(14.07) | $(10.86) | $(29.07) | $(20.55) |
| Net loss | $(13.09) | $(11.83) | $(28.02) | $(33.93) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(31.79) | $(22.77) |
- Q2 revenue fell 37.0% year over year; first-half revenue fell 27.9%. Product revenue declined 40.3% in Q2 and 35.9% for the half, mainly due to fewer Growth Direct system placements. Service revenue was down 11.6% in Q2 but up 12.9% for the half.
- Recurring product and service revenue increased 31.3% in Q2 to $2.50 million and 53.1% in the first half to $5.16 million. It represented 64.8% of Q2 revenue and 64.3% of first-half revenue, versus 31.1% and 30.3%, respectively, a year earlier.
- Gross loss, calculated as revenue less reported revenue costs, was approximately $1.22 million in Q2 (negative gross margin of 31.6%) and $3.15 million for the first half (negative gross margin of 39.2%).
- Q2 operating expenses increased 5.5% to $17.93 million, including higher R&D, sales and marketing, and general and administrative costs. First-half operating expenses increased 17.1% to $37.09 million.
- At June 30, cash and cash equivalents were $49.72 million; short- and long-term investments totaled $117.19 million; restricted cash was $0.28 million. Total cash and investments including restricted cash were $167.19 million. The company reported no long-term borrowings; lease liabilities were $8.46 million, including operating and finance leases.
- Cash, cash equivalents and restricted cash decreased $128.67 million in the first half. The largest driver was $93.0 million of net investment purchases; operating activities used $31.79 million, and property and equipment purchases were $4.34 million. The decrease in cash therefore substantially reflects transferring cash into investments.
- Total assets were $216.14 million and stockholders’ equity was $194.97 million at June 30, compared with $241.17 million and $220.98 million, respectively, at year-end 2021.
Material changes and unusual items
- Systems placed were 2 in Q2 versus 8 a year earlier; first-half placements were 4 versus 16. Cumulative placements reached 120. Systems validated were 3 in Q2 versus 11; first-half validations were 12 in both periods, bringing cumulative validated systems to 96.
- Q2 net loss widened despite lower revenue. For the first half, net loss improved year over year largely because 2021 included an $11.48 million noncash loss from remeasurement of preferred-stock warrant liabilities; those warrants converted to equity at the 2021 IPO.
- A $0.6 million income tax benefit in 2022 followed a favorable resolution of a German tax examination. The company maintained a full valuation allowance against deferred tax assets.
- General and administrative expense growth included public-company costs, higher headcount, insurance and director compensation, facility costs and software costs. First-half stock-based compensation was $2.24 million, compared with $0.58 million.
- The company adopted lease accounting standard ASC 842 in 2022. At June 30, operating lease liabilities were $8.10 million and finance lease liabilities were $0.36 million. It amended its Lowell facility lease, extending the term to July 2029 and adding space.
- Revenue was concentrated: three customers each exceeded 10% of Q2 revenue, together accounting for 57.3%. The largest represented 28.3%.
Outlook, commentary and risks
- Management said cash and investments were expected to fund operating expenses and capital expenditures for at least 12 months from issuance of the statements. The company continues to expect significant operating losses and may need additional financing if revenue and capital resources are insufficient.
- The filing reports a downward revision to 2022 commercial revenue guidance but does not provide a clear revised revenue range in the supplied filing text. Management cited weaker-than-expected commercial performance and challenges improving sales execution. It expects no BARDA non-commercial revenue in 2022; potential contract closeout true-ups may be recognized after 2022, over as long as several years.
- After quarter-end, the board approved a restructuring involving an approximately 20% workforce reduction. The company expected a $1.5 million Q3 2022 charge and $8–$9 million in annualized savings by Q1 2023. Management said it would continue investing in commercial execution and product development.
- After quarter-end, the company rejected an unsolicited, nonbinding $5-per-share acquisition proposal from Kennedy Lewis Investment Management and began reviewing strategic alternatives. No transaction is assured. The company also adopted a stockholder rights agreement; the filing says it could deter or delay an acquisition.
- Key risks include slower system placements and customer purchasing decisions, lengthy validation cycles, customer-site access constraints, COVID-19 and supply-chain disruption, inflation and interest rates, and the ability to build an effective sales organization. The company cautioned that results and guidance are difficult to predict. No material litigation was reported.
Most important facts for investors to verify
- The exact revised 2022 commercial revenue guidance and assumptions: the supplied filing text does not provide a clear revised range.
- Whether system placements and validations recover, and whether recurring consumables and service growth can offset weak system sales.
- Cash burn, investment maturities and liquidity runway after the lower outlook, restructuring costs and lease commitments.
- Progress, costs and expected savings from the workforce reduction, including potential effects on sales, product development and customer support.
- Any developments in the strategic-alternatives process, including effects of the rights agreement and the rejected proposal.
- Timing and amount of BARDA contract true-ups, which remain subject to reconciliation, approval and available funding.
Comparability note: 2021 per-share losses and weighted-average shares reflect pre-IPO capital structure and are not directly comparable with 2022. The filing’s reported basic and diluted net loss per share was $(0.31) for Q2 2022 and $(0.66) for the first half.