Rapid Micro Biosystems(RPID) - 2023 Q1 - Quarterly Report

Table of Contents Forward-Looking Statements This section outlines forward-looking statements, subject to risks and uncertainties, covering business strategy, financial results, and market conditions - This Quarterly Report on Form 10-Q contains forward-looking statements, intended to be covered by safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934[9] - Forward-looking statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to differ materially from expectations, as discussed in the 'Risk Factors' section of the Company's Annual Report on Form 10-K for the year ended December 31, 2022[10] - Key areas of forward-looking statements include business strategy for the Growth Direct platform, future financial results (revenue, gross margin, operating expenses, cash flow), funding requirements, customer base expansion, strategic alternatives, sales process enhancements, impact of restructuring, market trends, R&D activities, ability to meet market needs, employee retention, and potential impacts of the coronavirus pandemic, inflation, interest rates, and banking system conditions[11] Trademarks This section clarifies that the report's use of trademarks and trade names does not waive the Company's rights to them - The report refers to trademarks and trade names without ® and ™ symbols, but this should not be construed as a waiver of the Company's rights to them[14] Internet Posting of Information The Company routinely posts investor information on its website, but the website content is not incorporated by reference into this 10-Q - The Company routinely posts important investor information in the 'Investors' section of its website at www.rapidmicrobio.com, but the website content is not incorporated by reference into this 10-Q[16] Part I — Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Rapid Micro Biosystems, Inc. for the three months ended March 31, 2023 and 2022, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $24,410 | $27,064 | | Short-term investments | 75,276 | 81,584 | | Accounts receivable | 5,510 | 5,369 | | Inventory | 20,944 | 21,187 | | Prepaid expenses and other current assets | 3,005 | 3,372 | | Total current assets | 129,145 | 138,576 | | Property and equipment, net | 13,509 | 13,818 | | Right-of-use assets, net | 6,825 | 7,063 | | Long-term investments | 22,462 | 29,790 | | Other long-term assets | 1,056 | 1,119 | | Restricted cash | 284 | 284 | | Total assets | $173,281 | $190,650 | | Liabilities | | | | Accounts payable | $1,287 | $5,428 | | Accrued expenses and other current liabilities | 6,104 | 8,150 | | Deferred revenue | 5,496 | 4,706 | | Lease liabilities, short-term | 773 | 766 | | Total current liabilities | 13,660 | 19,050 | | Lease liabilities, long-term | 6,940 | 7,202 | | Other long-term liabilities | 238 | 229 | | Total liabilities | 20,838 | 26,481 | | Stockholders' Equity | | | | Total stockholders' equity | 152,443 | 164,169 | | Total liabilities and stockholders' equity | $173,281 | $190,650 | - Total assets decreased by $17.369 million from $190.650 million at December 31, 2022, to $173.281 million at March 31, 2023[18] - Total liabilities decreased by $5.643 million from $26.481 million at December 31, 2022, to $20.838 million at March 31, 2023[18] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Product revenue | $3,324 | $2,563 | | Service revenue | 1,711 | 1,597 | | Total revenue | $5,035 | $4,160 | | Cost of product revenue | 4,981 | 4,358 | | Cost of service revenue | 1,844 | 1,726 | | Research and development | 3,153 | 3,525 | | Sales and marketing | 3,462 | 3,456 | | General and administrative | 6,467 | 6,094 | | Total costs and operating expenses | 19,907 | 19,159 | | Loss from operations | ($14,872) | ($14,999) | | Interest income, net | 1,003 | 108 | | Other expense, net | (11) | (16) | | Total other income (expense), net | 992 | 92 | | Loss before income taxes | ($13,880) | ($14,907) | | Income tax expense | 7 | 23 | | Net loss | ($13,887) | ($14,930) | | Net loss per share — basic and diluted | ($0.32) | ($0.35) | | Weighted average common shares outstanding | 42,812,580 | 42,197,887 | - Total revenue increased by $0.875 million (21.0%) from $4.160 million in Q1 2022 to $5.035 million in Q1 2023[19] - Net loss decreased by $1.043 million (7.0%) from $14.930 million in Q1 2022 to $13.887 million in Q1 2023, resulting in a lower net loss per share of ($0.32) compared to ($0.35)[19] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | ($13,887) | ($14,930) | | Other comprehensive income: | | | | Unrealized gain (loss) on investments, net of tax | 447 | (588) | | Comprehensive loss | ($13,440) | ($15,518) | - Comprehensive loss improved from ($15.518) million in Q1 2022 to ($13.440) million in Q1 2023, primarily due to a shift from unrealized losses to gains on investments[21] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands, except share amounts) | Item | Balances at Dec 31, 2022 | Issuance of Class A common stock under ESPP | Vesting of restricted stock units | Restricted stock award liability accretion | Issuance of Class A common stock upon exercise of common stock options | Stock-based compensation expense | Net loss | Other comprehensive income | Balances at Mar 31, 2023 | | :-------------------------------- | :----------------------- | :--------------------------------------- | :------------------------------ | :--------------------------------------- | :---------------------------------------------------------- | :-------------------------------- | :------- | :------------------------- | :----------------------- | | Class A Common Stock (Shares) | 36,538,805 | 125,536 | 96,303 | — | 7,896 | — | — | — | 36,768,540 | | Class A Common Stock (Amount) | $366 | $1 | $1 | — | — | — | — | — | $368 | | Class B Common Stock (Shares) | 5,553,379 | 0 | — | — | — | — | — | — | 5,553,379 | | Class B Common Stock (Amount) | $55 | — | — | — | — | — | — | — | $55 | | Additional Paid-in Capital | $540,775 | $123 | ($1) | $341 | $6 | $1,243 | — | — | $542,487 | | Accumulated Deficit | ($375,918) | — | — | — | — | — | ($13,887) | — | ($389,805) | | Accumulated Other Comprehensive Loss | ($1,109) | — | — | — | — | — | — | $447 | ($662) | | Total Stockholders' Equity | $164,169 | $124 | — | $341 | $6 | $1,243 | ($13,887) | $447 | $152,443 | - Total stockholders' equity decreased by $11.726 million from $164.169 million at December 31, 2022, to $152.443 million at March 31, 2023, primarily due to a net loss of $13.887 million, partially offset by stock-based compensation and other comprehensive income[23] - Accumulated deficit increased from ($375.918) million to ($389.805) million due to the net loss incurred during the period[23] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | ($16,686) | ($16,801) | | Net cash provided by (used in) investing activities | 13,910 | ($99,548) | | Net cash provided by financing activities | 122 | 463 | | Net decrease in cash, cash equivalents and restricted cash | ($2,654) | ($115,886) | | Cash, cash equivalents and restricted cash at beginning of period | 27,348 | 178,671 | | Cash, cash equivalents and restricted cash at end of period | $24,694 | $62,785 | - Net cash used in operating activities remained relatively stable at ($16.686) million in Q1 2023 compared to ($16.801) million in Q1 2022[27] - Investing activities shifted from using ($99.548) million in Q1 2022 to providing $13.910 million in Q1 2023, primarily due to maturities of investments[27] Notes to Condensed Consolidated Financial Statements 1. Nature of the business and basis of presentation - Rapid Micro Biosystems, Inc. develops, manufactures, markets, and sells Growth Direct systems, proprietary consumables, LIMS connection software, and services for rapid microbial analysis in quality control for pharmaceuticals, medical devices, and personal care products[31] - The company's technology uses a highly sensitive camera and natural auto fluorescence of living cells for faster and more accurate microbial growth identification and quantification[31] - The company has incurred recurring losses and net cash outflows from operations since inception and expects this to continue, but believes existing cash and investments will fund operations for at least twelve months[35] 2. Summary of significant accounting policies - The financial statements are prepared in accordance with GAAP, with certain information condensed or omitted, and should be read with the audited consolidated financial statements for December 31, 2022[32] - Significant estimates include revenue recognition (standalone selling price), inventory valuation, and stock-based award valuation[36] Significant Customer Revenue Concentration | Customer | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------- | :-------------------------------- | :-------------------------------- | | Customer A | 27.0 % | <10% | | Customer B | 20.1 % | 15.6 % | | Customer C | <10% | 12.9 % | | Customer D | <10% | 10.1 % | | Total | 47.1 % | 38.6 % | Significant Customer Accounts Receivable Concentration | Customer | March 31, 2023 | December 31, 2022 | | :--------- | :------------- | :---------------- | | Customer A | 35.5 % | 11.8 % | | Customer B | 20.2 % | 21.4 % | | Customer C | <10% | 16.7 % | | Total | 55.7 % | 49.9 % | - The Company adopted ASU No. 2016-13 (Credit Losses) effective January 1, 2023, with no material impact on financial statements, and maintains a zero allowance for doubtful accounts due to immaterial historical credit losses[62] 3. Fair value of financial assets and liabilities Fair Value Measurements as of March 31, 2023 (in thousands) | Assets | Level 1 | Level 2 | Level 3 | Total | | :------------------- | :------ | :------ | :------ | :------ | | Cash equivalents | $20,175 | $— | $— | $20,175 | | Short-term investments | 73,793 | 1,483 | — | 75,276 | | Long-term investments | 18,853 | 3,609 | — | 22,462 | | Total | $112,821 | $5,092 | $— | $117,913 | Fair Value Measurements as of December 31, 2022 (in thousands) | Assets | Level 1 | Level 2 | Level 3 | Total | | :------------------- | :------ | :------ | :------ | :------ | | Cash equivalents | $22,072 | $— | $— | $22,072 | | Short-term investments | 81,093 | 491 | — | 81,584 | | Long-term investments | 26,431 | 3,359 | — | 29,790 | | Total | $129,596 | $3,850 | $— | $133,446 | - U.S. Treasury bills and notes are valued using Level 1 inputs (quoted prices in active markets), while certificates of deposit are valued using Level 2 inputs (quoted prices for similar assets in active markets)[66] 4. Investments Short-term and Long-term Investments by Type (March 31, 2023, in thousands) | Investment Type | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | | :-------------------------------- | :------------- | :--------------------- | :---------------------- | :--------- | | Short-term investments | | | | | | Certificates of Deposit | $1,488 | $— | ($5) | $1,483 | | U.S. Government Treasury Bills | 27,121 | 9 | (13) | 27,117 | | U.S. Government Treasury Notes | 47,114 | 3 | (441) | 46,676 | | Total Short-term | $75,723 | $12 | ($459) | $75,276 | | Long-term Investments | | | | | | Certificates of Deposit | $3,655 | $— | ($46) | $3,609 | | U.S. Government Treasury Notes | 19,021 | 24 | (192) | 18,853 | | Total Long-term | $22,676 | $24 | ($238) | $22,462 | - As of March 31, 2023, the Company held $75.276 million in short-term investments and $22.462 million in long-term investments, primarily in U.S. Government Treasury Bills and Notes, and Certificates of Deposit[67] 5. Inventory Inventory Breakdown (in thousands) | Inventory Type | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | Raw materials | $15,173 | $15,014 | | Work in process | 1,505 | 1,599 | | Finished goods | 4,266 | 4,574 | | Total | $20,944 | $21,187 | - Total inventory decreased slightly from $21.187 million at December 31, 2022, to $20.944 million at March 31, 2023[68] - Inventory was net of adjustments to net realizable value of $0.7 million at March 31, 2023, down from $1.1 million at December 31, 2022[68] 6. Prepaid expenses and other current assets Prepaid Expenses and Other Current Assets (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Prepaid insurance | $971 | $1,500 | | Contract asset | 112 | 112 | | Deposits | 835 | 1,055 | | Other | 1,087 | 705 | | Total | $3,005 | $3,372 | - Prepaid expenses and other current assets decreased by $0.367 million from $3.372 million at December 31, 2022, to $3.005 million at March 31, 2023, primarily due to a decrease in prepaid insurance and deposits[69] 7. Property and equipment, net Property and Equipment, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Manufacturing and laboratory equipment | $13,464 | $13,408 | | Computer hardware and software | 1,791 | 1,651 | | Office furniture and fixtures | 589 | 589 | | Leasehold improvements | 8,512 | 8,260 | | Construction-in-process | 1,616 | 1,712 | | Total gross property and equipment | 25,972 | 25,620 | | Less: Accumulated depreciation | (12,463) | (11,802) | | Total property and equipment, net | $13,509 | $13,818 | - Net property and equipment decreased by $0.309 million from $13.818 million at December 31, 2022, to $13.509 million at March 31, 2023[70] - Depreciation and amortization expense for property and equipment was $0.7 million for Q1 2023, up from $0.5 million for Q1 2022[70] 8. Accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Accrued employee compensation and benefits expense | $2,776 | $3,217 | | Accrued vendor expenses | 1,972 | 3,212 | | Accrued warranty expense | 526 | 872 | | Accrued taxes | 266 | 329 | | Other | 564 | 520 | | Total | $6,104 | $8,150 | - Total accrued expenses and other current liabilities decreased by $2.046 million from $8.150 million at December 31, 2022, to $6.104 million at March 31, 2023, mainly due to decreases in accrued employee compensation, vendor expenses, and warranty expense[71] - The Company made $0.3 million in payments related to its August 2022 restructuring plan during Q1 2023, with $0.2 million remaining accrued[71] 9. Common stock and common stock warrants - As of March 31, 2023, the Company had 36,768,540 shares of Class A common stock and 5,553,379 shares of Class B common stock issued and outstanding[73] - Class A common stock holders have one vote per share, while Class B common stock is non-voting; both classes have identical rights to earnings and dividends, though no cash dividends have been declared or paid as of March 31, 2023[74] Outstanding Warrants to Purchase Common Stock (March 31, 2023) | Issuance date | Contractual term (in years) | Balance sheet classification | Shares of common stock issuable upon exercise of warrant | Weighted average exercise price | | :-------------- | :-------------------------- | :--------------------------- | :------------------------------------------------------- | :------------------------------ | | July 24, 2017 | 10 | Equity | 17,194 | $292.81 | | April 12, 2018 | 10 | Equity | 30,000 | $1.00 | | July 14, 2021 | 10 | Equity | 975,109 | $1.46 | | Total | | | 1,022,303 | | 10. Stock-based compensation - The 2021 Incentive Award Plan authorized 4,200,000 shares of Class A common stock for issuance, plus annual increases, with 4,155,355 shares available as of March 31, 2023[79] Stock Option Activity (December 31, 2022 to March 31, 2023) | Item | Number of shares | Weighted average exercise price | | :-------------------------------- | :--------------- | :------------------------------ | | Outstanding as of December 31, 2022 | 5,041,308 | $5.05 | | Granted | 1,109,000 | $1.24 | | Exercised | (7,896) | $0.83 | | Expired | (31,249) | $10.91 | | Forfeited | (46,798) | $5.53 | | Outstanding as of March 31, 2023 | 6,064,365 | $2.87 | | Options exercisable as of March 31, 2023 | 2,950,908 | $2.52 | - On March 9, 2023, the board approved a one-time repricing of certain outstanding stock options for non-executive employees, adjusting exercise prices to fair market value, which was immaterial to financial results[83] Stock-based Compensation Expense (in thousands) | Classification | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenue | $174 | $99 | | General and administrative | 781 | 674 | | Sales and marketing | 131 | 132 | | Research and development | 157 | 78 | | Total stock-based compensation expense | $1,243 | $983 | 11. Income taxes - The Company incurred pretax losses and generated research and development tax credits but recorded no corresponding tax benefit due to a full valuation allowance against net deferred tax assets, concluding it is more likely than not that the Company will not realize the benefits[93][96] - Income tax expense was immaterial, at $7 thousand for Q1 2023 and $23 thousand for Q1 2022, primarily due to foreign income taxes[19][156] 12. Net loss per share Net Loss Per Share Calculation (in thousands, except share and per share amounts) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | ($13,887) | ($14,930) | | Weighted average Class A common shares outstanding | 37,259,201 | 35,941,754 | | Weighted average Class B common shares outstanding | 5,553,379 | 6,256,133 | | Total shares for EPS—basic and diluted | 42,812,580 | 42,197,887 | | Net loss per share—basic and diluted | ($0.32) | ($0.35) | - Basic and diluted net loss per share were the same due to the Company reporting a net loss, making potentially dilutive securities anti-dilutive[100] Anti-Dilutive Potential Common Shares Excluded from EPS | Item | March 31, 2023 | March 31, 2022 | | :-------------------------------- | :------------- | :------------- | | Options to purchase common stock | 6,064,365 | 5,639,683 | | Unvested restricted common stock | 286,324 | 749,205 | | Warrants to purchase common stock | 874,714 | 286,324 | | Options to purchase common stock under ESPP | 5,244 | 3,830 | | Total | 7,230,647 | 6,679,042 | 13. Leases - The Company leases office and manufacturing space under operating lease agreements (8-10 years) and furniture under a financing lease (8 years), with options to renew or terminate[102] Supplemental Cash Flow Information Related to Leases (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating cash outflows - payments on operating leases | $316 | $283 | | Operating cash outflows - payments on financing leases | $10 | $11 | | Financing cash outflows - payments on financing leases | $9 | $8 | | Right-of-use assets obtained - Operating leases | $— | $6,932 | | Right-of-use assets obtained - Financing leases | $— | $366 | Lease Liabilities Maturities as of March 31, 2023 (in thousands) | Year | Operating Lease Maturities | Financing Lease Maturities | | :-------------------------------- | :------------------------- | :------------------------- | | 2023 (excluding Q1) | $957 | $56 | | 2024 | 1,306 | 75 | | 2025 | 1,339 | 75 | | 2026 | 1,371 | 75 | | 2027 | 1,404 | 75 | | Thereafter | 2,223 | 113 | | Total lease payments | $8,600 | $469 | | Less imputed interest | (948) | (137) | | Total present value of lease liabilities | $7,652 | $332 | 14. Commitments and contingencies - The Company has committed to minimum payments of $0.7 million through January 31, 2026, for a non-cancelable software as a service and cloud hosting agreement[107][108] - The Company provides indemnification to customers, vendors, lessors, business partners, and executive officers, with maximum potential amounts often unlimited, but has not incurred any material costs to date[109] - The Company is not currently a party to any litigation and has no contingency reserves for legal liabilities[110] 15. Benefit plans - The Company maintains a 401(k) defined contribution savings plan for U.S. employees, with matching contributions made at the board's discretion[111] - Company contributions to the 401(k) plan were $0.2 million for Q1 2023, down from $0.3 million for Q1 2022[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Rapid Micro Biosystems' business, financial condition, and results of operations for the three months ended March 31, 2023, compared to the same period in 2022. It highlights the company's innovative Growth Direct platform, its financial performance, factors influencing its business, key metrics, and liquidity position, while also discussing the impact of inflation and interest rates Overview - Rapid Micro Biosystems is a life sciences technology company providing a rapid automated microbial quality control (MQC) detection platform, Growth Direct, for pharmaceutical manufacturing[114] - The Growth Direct platform automates and digitizes MQC testing, accelerating time to results by several days (up to 50% improvement) and reducing manual steps by up to 85%[115] - The Company incurred net losses of $13.9 million and $14.9 million for the three months ended March 31, 2023 and 2022, respectively, with an accumulated deficit of $389.8 million as of March 31, 2023[117] Effects of inflation and interest rates - The current inflationary environment and rising interest rates could negatively impact the Company's results, cash flows, and financial condition, with potential pressures on labor, materials, and freight costs[120] - Inflation and increased interest rates may decrease demand for Growth Direct systems as customers face economic uncertainty[120] Factors affecting our performance - Key performance drivers include new customer adoption of the Growth Direct platform globally, expansion within the existing customer base (e.g., multiple systems/sites), and innovation and launch of new products/enhancements on the platform[122][124][125] - The Company plans to invest in sales and marketing, lead generation, and R&D to enhance existing products and develop new applications and technologies[123][125] Key business metrics Key Business Metrics (in thousands, except percentages) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (Amount) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------- | :--------- | | Systems placed in period | 3 | 2 | 1 | 50.0 % | | Cumulative systems placed | 118 | 128 | 10 | 8.5 % | | Systems validated in period | 2 | 9 | (7) | (77.8)% | | Cumulative systems validated | 93 | 105 | 12 | 12.9 % | | Product and service revenue — total | $5,035 | $4,160 | $875 | 21.0 % | | Product and service revenue — recurring | $3,253 | $2,658 | $595 | 22.4 % | - Growth Direct system placements increased by 50% (from 2 to 3) in Q1 2023 compared to Q1 2022, while cumulative systems placed grew by 8.5% to 128[128] - Systems validated in the period decreased significantly by 77.8% (from 9 to 2), but cumulative validated systems still grew by 12.9% to 93[128] - Recurring revenue increased by 22.4% to $3.253 million, representing 64.6% of total revenue in Q1 2023, up from 63.9% in Q1 2022[128][135] Components of results of operations Revenue Breakdown by Type (in thousands) | Revenue Type | Three Months Ended March 31, 2023 | Percentage of total revenue (2023) | Three Months Ended March 31, 2022 | Percentage of total revenue (2022) | | :------------- | :-------------------------------- | :--------------------------------- | :-------------------------------- | :--------------------------------- | | Product revenue | $3,324 | 66.0 % | $2,563 | 61.6 % | | Service revenue | 1,711 | 34.0 % | 1,597 | 38.4 % | | Total revenue | $5,035 | 100.0 % | $4,160 | 100.0 % | - Product revenue, primarily from Growth Direct systems, consumables, and LIMS connection software, increased its share of total revenue from 61.6% in Q1 2022 to 66.0% in Q1 2023[137][138] - Service revenue, derived from validation services, field service, and service contracts, decreased its share of total revenue from 38.4% in Q1 2022 to 34.0% in Q1 2023[137][144] - Research and development expenses are expected to increase as the Company continues to invest in product development and enhancements[151] - Sales and marketing expenses are projected to increase with the growth of personnel and expansion of geographic reach and customer base[152] - General and administrative expenses are also expected to rise to support increasing business size and complexity[153] Results of operations Summary of Results of Operations (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (Amount) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------- | :--------- | | Product revenue | $3,324 | $2,563 | $761 | 29.7 % | | Service revenue | 1,711 | 1,597 | 114 | 7.1 % | | Total revenue | $5,035 | $4,160 | $875 | 21.0 % | | Cost of product revenue | 4,981 | 4,358 | 623 | 14.3 % | | Cost of service revenue | 1,844 | 1,726 | 118 | 6.8 % | | Research and development | 3,153 | 3,525 | (372) | (10.6)% | | Sales and marketing | 3,462 | 3,456 | 6 | 0.2 % | | General and administrative | 6,467 | 6,094 | 373 | 6.1 % | | Total costs and operating expenses | 19,907 | 19,159 | 748 | 3.9 % | | Loss from operations | ($14,872) | ($14,999) | $127 | (0.8)% | | Interest income (expense), net | 1,003 | 108 | 895 | 828.7 % | | Other expense, net | (11) | (16) | 5 | (31.3)% | | Total other income (expense), net | 992 | 92 | $900 | 978.3 % | | Loss before income taxes | ($13,880) | ($14,907) | $1,027 | (6.9)% | | Income tax (benefit) expense | 7 | 23 | (16) | (69.6)% | | Net loss | ($13,887) | ($14,930) | $1,043 | (7.0)% | - Product revenue increased by $0.8 million (29.7%) due to one additional Growth Direct system placement and higher consumable shipment volumes, partially offset by a negative product mix impact[159] - Service revenue increased by $0.1 million (7.1%), driven by a $0.4 million increase in service contracts due to more validated systems, partially offset by lower validation revenue ($0.3 million) from fewer system placements in 2022[160] - Research and development expenses decreased by $0.4 million (10.6%) primarily due to lower consulting fees, as more work was brought in-house[164] - Interest income, net, significantly increased by $0.9 million (828.7%) due to higher interest rates on investments[167] Liquidity and capital resources - The Company has funded operations through preferred stock sales, loan agreements, product/service revenue, BARDA contracts, and IPO proceeds, and expects existing cash and investments to fund operations for at least twelve months[169][170] Cash and Investment-Related Assets (in thousands) | Item | March 31, 2023 | | :-------------------------------- | :------------- | | Cash and cash equivalents | $24,410 | | Short-term investments | 75,276 | | Long-term investments | 22,462 | | Restricted cash | 284 | | Total | $122,432 | Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | ($16,686) | ($16,801) | | Net cash provided by (used in) investing activities | 13,910 | ($99,548) | | Net cash provided by financing activities | 122 | 463 | | Net decrease in cash, cash equivalents and restricted cash | ($2,654) | ($115,886) | - Net cash provided by investing activities significantly improved to $13.9 million in Q1 2023 from ($99.5) million in Q1 2022, primarily due to investment maturities[177] Seasonality - Revenues vary quarterly due to customer budgetary cycles and extended summer vacation periods, impacting product delivery and onsite services[180] - This volatility is expected to continue, potentially causing fluctuations in operating results and financial metrics, with future trends possibly shifting as revenue mix moves from non-recurring to recurring[180] Critical accounting estimates - The preparation of financial statements requires management to make estimates and judgments affecting reported amounts, based on historical experience, known trends, and other relevant factors[181] - There have been no significant changes in critical accounting policies and estimates compared to the 2022 Form 10-K, except as disclosed in Note 2[182] Recently issued accounting pronouncements - A description of recently issued accounting pronouncements that may impact financial position, results of operations, or cash flows is disclosed in Note 2[183] Emerging growth company status - The Company qualifies as an 'emerging growth company' under the JOBS Act and has elected to use the extended transition period for complying with new or revised accounting standards, which may make its financial statements not comparable to other public companies[184] - The Company will cease to be an emerging growth company upon meeting certain criteria, including total annual gross revenues of $1.235 billion or more, the fifth anniversary of its IPO, issuing over $1.0 billion in nonconvertible debt, or becoming a large accelerated filer[185] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section addresses the Company's exposure to market risks, primarily from fluctuations in interest rates and inflationary pressures, noting no material change from previous disclosures - The Company's primary market risk exposure stems from fluctuations in interest rates and inflationary pressure[187] - There has been no material change in the Company's exposure to market risks compared to what was discussed in the 2022 Form 10-K[187] Item 4. Controls and Procedures This section details the Company's disclosure controls and procedures, acknowledging their inherent limitations, and confirms their effectiveness as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Management recognizes that controls and procedures provide only reasonable assurance due to resource constraints and the need for judgment in evaluating benefits versus costs[188] - As of March 31, 2023, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level[189] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2023[190] Part II — Other Information Item 1. Legal Proceedings This section states that the Company is not currently involved in any litigation or legal proceedings that are probable to have a material adverse effect on its business - The Company is not currently a party to any litigation or legal proceedings that management believes are probable to have a material adverse effect on its business[193] - Litigation, regardless of outcome, can negatively impact the business due to defense/settlement costs and diversion of management resources[193] Item 1A. Risk Factors This section highlights risks associated with investing in the Company's common stock, specifically addressing new risks related to the financial services industry and the potential impact of banking system instability - Investing in the Company's common stock involves a high degree of risk, with general risk factors detailed in the 2022 Form 10-K[194] - New risks include potential adverse effects on operations and financial results from conditions in the banking system and financial markets, such as bank failures (e.g., Silicon Valley Bank, Signature Bank)[195][196] - While the Company does not have accounts with banks currently in receivership, the failure of other financial institutions could threaten its ability to access existing cash, cash equivalents, and investments[196] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no recent unregistered sales of equity securities and states that there has been no material change in the expected use of net proceeds from the Company's initial public offering (IPO) - There have been no recent unregistered sales of equity securities or purchases of equity securities by the issuer or affiliated purchaser[197] - The expected use of net proceeds from the IPO, which became effective on July 14, 2021, remains materially unchanged from what was described in the final prospectus[198] Item 3. Defaults Upon Senior Securities This section states that there have been no defaults upon senior securities - There are no defaults upon senior securities[199] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[200] Item 5. Other Information This section states that there is no other information to report - There is no other information to report in this section[201] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Certificates of Designations for Series A and B Preferred Stock, Stockholder Rights Agreement, and certifications from the Principal Executive and Financial Officers[202] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase, and Cover Page Interactive Data File are also filed as exhibits[202] Signatures This section contains the signatures of the Company's authorized officers, certifying the filing of the report - The report is signed by Robert Spignesi, President and Chief Executive Officer, and Sean Wirtjes, Chief Financial Officer, on May 9, 2023[207]