Rapid Micro Biosystems Inc.
03/12/2026 | Press release | Distributed by Public on 03/12/2026 14:53
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are an innovative life sciences technology company that enables the safe and efficient manufacture of pharmaceutical products through our rapid automated microbial quality control ("MQC"), detection platform. We develop, manufacture, market and sell the Growth Direct system and related proprietary consumables, and value-added services to enable rapid MQC testing in the manufacture of biologics and cell and gene therapies, vaccines, sterile injectables, and other healthcare products. Our system delivers the power of industrial automation to bioprocessing and pharmaceutical manufacturing firms by modernizing and digitizing their MQC operations. Our Growth Direct platform, developed with over 15 years of active feedback from our customers, was purpose-built to meet the growing demands posed by the increasing scale, complexity, and regulatory scrutiny confronting global pharmaceutical manufacturing. Our Growth Direct platform comprises the Growth Direct system, optional laboratory information management system ("LIMS"), connection software (which the majority of our customers purchase), proprietary consumables, and comprehensive field service, validation services and post-warranty service contracts. Once embedded and validated in our customers' facilities, our Growth Direct platform provides for recurring revenues through ongoing sales of consumables and service contracts.
Our technology fully automates and digitizes the process of pharmaceutical MQC and is designed to enable our customers to perform this critical testing process more efficiently, accurately, and securely. Our Growth Direct platform accelerates time to results by 50% or more compared to the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers. We seek to establish the Growth Direct as the trusted global standard in automated MQC by delivering the speed, accuracy, security, and data integrity compliance that our customers depend on to ensure patient safety and consistent drug supply.
Since our inception, we have devoted a majority of our resources to designing, developing, and building our proprietary Growth Direct platform and associated products, launching our Growth Direct platform commercially, expanding our sales and marketing infrastructure to grow our sales, building global customer service and support teams to deliver our value-added services, investing in robust manufacturing and supply chain operations to serve our customers globally, and providing general and administrative support for these operations. Prior to our initial public offering ("IPO"), we funded our operations primarily with proceeds from sales of preferred stock, borrowings under loan agreements and product and service sales, as well as our cost-reimbursement contract with the U.S. Department of Health and Human Services Biomedical Advanced Research & Development Authority.
In February 2025, we entered into a Distribution and Collaboration Agreement (the "Distribution Agreement") with Millipore S.A.S., a subsidiary of the Life Science business of Merck KGaA, Darmstadt, Germany, which operates in the U.S. as MilliporeSigma ("MilliporeSigma"). Pursuant to the Distribution Agreement, we granted MilliporeSigma a global, co-exclusive right to sell our products, initially consisting of our Growth Direct systems and related consumables, into all fields related to industrial quality control applications in the pharmaceutical, medical device, personal care, cosmetics and food and beverage spaces in all regions of the world. During the term of the Distribution Agreement, MilliporeSigma will receive tier-based transfer pricing on such products. We will continue to directly market, sell, manufacture and distribute our products and provide all services to customers, including in respect of system installation, validation, maintenance and support.
Over the first two years of the Distribution Agreement, MilliporeSigma has committed to purchase a minimum number of Growth Direct systems. Thereafter, we and MilliporeSigma will evaluate and mutually agree on additional purchase commitments, if any. Pursuant to the Distribution Agreement, we are permitted to continue to sell our products independently and through our existing distributors, but we may not grant the right to sell the products covered by the Distribution Agreement to other third parties so long as a purchase commitment by MilliporeSigma is in place. The initial
term of the Distribution Agreement is five years, unless earlier terminated by us or MilliporeSigma in accordance with its terms.
The Distribution Agreement also contemplates future collaboration by the parties, including with respect to sourcing materials and service delivery. In that regard, the parties are negotiating towards a supply agreement, pursuant to which the parties are exploring cost-saving measures within our supply chain focused on accelerating gross margin improvement, particularly with respect to consumables. The focus of such supply agreement may include raw materials and components as well as manufacturing and supply chain services. The parties intend to share in any cost savings achieved in the supply of the products through this supply agreement. Additionally, the parties are negotiating towards a services agreement to permit us and MilliporeSigma to provide certain services to each other's customers. The parties also intend to explore additional opportunities for collaboration, such as joint development efforts for the enhancement of our products or introducing new products to be covered by the distribution arrangement. We expect to make incremental investments in our manufacturing and service organizations as our sales volumes increase over time, including as a result of increased sales volumes related to the Distribution Agreement.
Since our inception, we have incurred net losses in each year. We generated revenue of $33.6 million and $28.1 million for the years ended December 31, 2025 and 2024, respectively, and incurred net losses of $47.1 million and $46.9 million for those same years. As of December 31, 2025, we had an accumulated deficit of $522.4 million. We expect to continue to incur net losses in connection with our ongoing activities, including:
•growing sales of our products in both the United States and international markets by further expanding our sales and marketing capabilities;
•scaling our manufacturing and supply chain processes and infrastructure to meet growing demand for our products;
•investing in research and development to develop new products and further enhance our existing products;
•protecting and building on our intellectual property portfolio; and
•attracting, hiring and retaining qualified personnel.
We believe that our cash, cash equivalents and investments as of December 31, 2025 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months following the date these consolidated financial statements were issued. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "Liquidity and Capital Resources."
Effects of inflation and interest rates
The current inflationary and interest rate environment could have a negative impact on our results of operations, cash flows and overall financial condition. The widespread use of tariffs may have an inflationary effect on the prices of goods and services, including those that we utilize in the production of our products and delivery of our services. As a result, due to tariffs and other macroeconomic factors, we have and may continue to experience inflationary pressures on significant cost categories including labor, materials and freight.We continue to monitor the impact of inflation on these costs in order to minimize its effects through productivity improvements and cost reductions. There can be no assurance, however, that our operating results will not be affected by inflation in the future. In addition, inflation and increased interest rates (or the impact on the broader macroeconomic environment resulting from the foregoing) may decrease demand for our Growth Direct systems, as our customers may face economic uncertainty as a result. A decrease in demand for our products or increases in our costs, as well as any steps we may take to mitigate changes, could impact our overall growth. However, the related financial impact cannot be reasonably estimated at this time.
Factors affecting our performance
We believe that our financial performance has been, and in the foreseeable future will continue to be, primarily driven by multiple factors as described below, each of which presents growth opportunities and challenges for our business. Our ability to successfully address these opportunities and challenges is subject to various risks and uncertainties, including those described under the heading "Risk Factors."
New customer adoption of the Growth Direct platform
Our financial performance has largely been driven by, and a key factor to our future success will be, our ability to increase the global adoption of our Growth Direct platform in our key markets. We plan to drive global customer adoption through both direct and indirect sales and marketing organizations in North America, Europe, and the Asia-Pacific region.
We are focused on enhancing customer engagement and experience and improving the efficiency and effectiveness of our sales team. We are making targeted investments in these organizations and expect to continue to do so in the future. Examples of these investments include new tools and training for the sales organization, targeted marketing initiatives, expanding lead generation capabilities and hosting Growth Direct demonstrations and other customer-focused events.
Expansion within our existing customer base
There is an opportunity to broaden adoption and increase utilization of our Growth Direct platform throughout our existing customers' organizations as our existing customers purchase more systems. These additional systems will allow our existing customers to convert more of their test volume at existing locations, to support multiple locations, to meet redundancy requirements, or to increase capacity. As of December 31, 2025, 41% of our customers have purchased Growth Direct systems for multiple sites, and 59% of our customers have purchased multiple Growth Direct systems. Increased utilization amongst existing customers can also occur as customers advance through the Growth Direct platform adoption cycle, from early validation of initial applications to validation and conversion of multiple applications on the Growth Direct platform, or as the result of new product approvals or increases in their manufacturing volumes for existing products.
Innovating and launching new products on the Growth Direct platform
We believe the depth, scalability and robust capabilities of our Growth Direct platform allow us to address key opportunities and challenges facing MQC testing in the pharmaceutical industry. As an innovative leader in automated MQC testing, we intend to invest in further enhancements in our existing Growth Direct platform as well as end-to-end workflow solutions in our core market. We plan to further invest in research and development to support the expansion of our Growth Direct platform through development and launch of new applications, to capture greater share of customer testing volume, new product formats to broaden our ability to serve different market segments and launch of new products and technologies to address adjacent segments of the overall MQC workflow. We plan to continue to hire employees with the necessary scientific and technical backgrounds to enhance our existing products and help us introduce new products to market. We expect to incur additional research and development expenses as a result. By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing clients as well as broaden the appeal of our solutions to potential new customers.
We made the Growth Direct rapid sterility application available for commercial sale and placed the first rapid sterility system at one of our existing customers in the second quarter of 2024. We are continuing our efforts to scale our manufacturing capabilities for the rapid sterility application.
Revenue mix
Our revenue is derived from sales of our Growth Direct systems, our LIMS connection and other software, proprietary consumables, and services. Growth Direct system revenue involves a capital selling process and tends to be somewhat concentrated within a relatively small (but varied) group of customers each year, so it is subject to variability from quarter to quarter.
Gross margin improvement
We have made significant investments to build infrastructure and develop capabilities in areas such as procurement, manufacturing, distribution, quality and after-sales service. Given our current business scale, our revenues are not yet sufficient to fully cover these costs, impacting our current gross margin profile. For additional information, see Item 1. Business- Gross margin improvementincluded in this Annual Report on Form 10-K.
We have experienced positive trends in gross margin, improving from (24.4)% to (0.4)% to 3.1% for the years ended December 31, 2023, 2024 and 2025, respectively. While we expect gross margins to continue to trend positively in the
future, expansion in gross margins in future periods may not be linear and may be subject to variability from period to period.
Key business metrics
We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe that the following metrics are representative of our current business; however, we anticipate these may change or be substituted for additional or different metrics as our business grows and evolves.
|
Year Ended December 31, |
Change Amount |
% | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Systems placed: | |||||||||||||||||||||||
| Systems placed in period | 28 | 21 | 7 | 33.3 | % | ||||||||||||||||||
| Cumulative systems placed | 190 | 162 | 28 | 17.3 | % | ||||||||||||||||||
| Systems validated: | |||||||||||||||||||||||
| Systems validated in period | 18 | 16 | 2 | 12.5 | % | ||||||||||||||||||
| Cumulative systems validated | 155 | 137 | 18 | 13.1 | % | ||||||||||||||||||
| Product and service revenue - total | $ | 33,587 | $ | 28,051 | $ | 5,536 | 19.7 | % | |||||||||||||||
| Product and service revenue - recurring | $ | 17,841 | $ | 15,451 | $ | 2,390 | 15.5 | % | |||||||||||||||
Growth Direct system placements
We consider a Growth Direct system to be "placed" upon transfer of control of the system to the customer, at which point the revenue for that system is recognized. We regularly review the number of Growth Direct systems placed and cumulative Growth Direct system placements in each period as a leading indicator of our business performance. Our revenue has historically been driven by, and in the future will continue to be impacted by, the rate of Growth Direct system placements as a reflection of our success selling and delivering our products. We expect our Growth Direct system placements to continue to grow over time as we increase penetration in our existing markets and expand into new markets.
The number of Growth Direct system placements and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing as well as, access to customer sites (including the timing of customer site construction activities). As a result, we expect to experience continued variability in our period-to-period number of Growth Direct system placements due to the aforementioned factors.
Validated systems
We regularly review the number of Growth Direct systems validated and cumulative Growth Direct systems validated in each period as indicators of our business performance. Management focuses on validated Growth Direct systems as a leading indicator of likely future recurring revenue as well as a reflection of our success supporting our customers in validating placed systems. We expect our validated Growth Direct systems to continue to grow over time as we increase our base of cumulative systems placed and then install and validate those systems. After a Growth Direct system is placed with a customer and installed, we work with the customer to validate the system, which typically has taken anywhere from three to nine months. Once a validation has been completed, we generally expect our customers to transition from their legacy manual method to our automated method and begin regular utilization of consumables over a period of up to three months after the validation is completed. However, the timeline for such transition may be longer depending on the specific circumstances of each individual customer. In addition, in exceptional cases, we have reacquired Growth Direct systems from customers that were previously placed and, in some cases, previously validated. Our metrics showing cumulative systems placed and cumulative systems validated are not reduced to reflect these reacquired systems.
The number of validated Growth Direct systems and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system placement volume and timing, whether customers have previously validated Growth Direct systems within their site or global network, access to customer sites, customer site readiness, availability of required customer personnel and the time to install and validate each individual system. As a result, we
expect to experience continued fluctuations in our period-to-period number of Growth Direct systems validated due to the aforementioned factors.
Recurring revenue
We regularly assess trends relating to our recurring revenue, which is the revenue from consumables and service contracts, based on our product offerings, our customer base and our understanding of how our customers use our products. Recurring revenue was 53.1% and 55.1% of our total revenue for the years ended December 31, 2025 and 2024, respectively. Our recurring revenue as a percentage of the total product and service revenue will generally vary based upon the cumulative number of validated Growth Direct systems in the period as well as other variables such as the volume of tests being conducted and the test application(s) being used on customers' Growth Direct systems.
Components of results of operations
Revenue
We generate revenue from sales of our Growth Direct system (including our LIMS connection and other software), consumables, validation services, service contracts and field service. We have historically primarily sold our products and services through direct sales representatives. Our sales arrangements are noncancellable and nonrefundable after ownership passes to the customer.
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Year Ended
December 31, 2025
|
Percentage of total revenue |
Year Ended
December 31, 2024
|
Percentage of total revenue |
||||||||||||||||||||
| (in thousands) | (in thousands) | ||||||||||||||||||||||
| Product revenue | $ | 23,426 | 69.7 | % | $ | 18,728 | 66.8 | % | |||||||||||||||
| Service revenue | 10,161 | 30.3 | % | 9,323 | 33.2 | % | |||||||||||||||||
| Total revenue | $ | 33,587 | 100.0 | % | $ | 28,051 | 100.0 | % | |||||||||||||||
Product revenue
We derive product revenue primarily from the sale of our Growth Direct systems and related consumables as well as our LIMS connection software, which the majority of our customers purchase. As of December 31, 2025, we had placed 190 Growth Direct systems with 49 customers globally, including 75% of the top 20 largest pharmaceutical companies as measured by revenue and the manufacturers of a number of globally approved cell and gene therapies, including manufacturers of 86% of approved gene-modified autologous CAR-T cell therapies.
Growth Direct systems
Growth Direct system revenue is a non-recurring product revenue stream that we recognize as revenue upon transfer of control of the system to the customer. The Growth Direct system is fully functional for use by the customer upon delivery. Although we do not require our customers to use our installation and validation services, our customers typically elect to purchase those services from us. As such, transfer of control occurs at shipment or delivery depending on contractual terms.
We expect our Growth Direct system revenue to continue to grow over time as we increase system placements into our existing customers and markets and expand into new customers, markets and products. For instance, in November 2025, we announced the receipt of a large, multi-system customer order that contributed to our results for the quarter and the year ended December 31, 2025.
Consumables
Our consumable revenue is a recurring product revenue stream composed of three proprietary consumables to capture test samples for analysis on the Growth Direct system, an Environmental Monitoring ("EM") consumable, consumables for use in Water or Bioburden ("W/BB") applications, and a Sterility ("ST") consumable. Our proprietary consumables support the growth-based compendial method for MQC testing mandated by global regulators and provide results that are comparable to traditional consumables. Our consumables are designed with features that enable automation on the Growth
Direct system, with bar coding for tracking and data integrity, and physical characteristics for robotic handling, to support vision detection, and to prevent counterfeiting.
We expect consumable revenue to increase in future periods as our base of cumulative validated Growth Direct systems grows and those systems enter routine use and utilize our consumables on a recurring, ongoing basis.
LIMS connection and other software
Our LIMS connection software is a non-recurring product revenue stream. Although optional, the majority of our customers elect to purchase this software, which allows Growth Direct systems to export result reports and securely link to a customer's two-way LIMS connection software to completely eliminate manual data entry and drive productivity.
We also offer other software to our customers for use with our Growth Direct platform that adds features or expands capabilities, such as our Mold Alarm software.
To the extent our sales of Growth Direct systems increase in future periods, we would also expect LIMS connection and other software revenue to increase.
Service revenue
We derive service revenue from validation services, field service including installations, and service contracts sold to our customers. Revenue from validation services and field service are non-recurring service revenue streams, while revenue from service contracts is a recurring service revenue stream.
We offer our customers validation services (including related documentation) that enable them to replace their existing manual testing method and utilize their Growth Direct systems in compliance with relevant MQC regulations. Validation services are recognized as revenue over time as these services are provided to the customer.
We offer our customers service contracts that can be purchased after the expiration of the one-year assurance warranty that all of our customers receive with the purchase of a Growth Direct system. Under these contracts, they are entitled to receive phone support, emergency on-site maintenance support and preventative maintenance visits. These service contracts generally have fixed fees and a term of one year. We recognize revenue from the sale of service contracts over time as these services are provided over the respective contract term.
We also offer our customers field service which primarily consists of services provided by our field service engineers to install Growth Direct systems at customer sites. We recognize revenue from field service over time as these services are provided to the customer.
We expect service revenue to increase in future periods as the number of placed and validated Growth Direct systems grows and we are able to generate increasing non-recurring revenue from validation services and field service for newly placed systems and increasing recurring revenue from service contracts for validated systems.
Costs and operating expenses
Costs of revenue
Cost of product revenue primarily consists of costs for raw material parts and associated freight, shipping and handling costs, salaries and other personnel costs including non-cash stock-based compensation expense, contract manufacturer costs, scrap, warranty cost, inventory reserves, non-cash depreciation and amortization expense, allocated information technology and facility-related costs, overhead and other costs related to those sales recognized as product revenue in the period.
Cost of service revenue primarily consists of salaries and other personnel costs including non-cash stock-based compensation expense, travel costs, materials consumed when performing installations, validations and other services, allocated information technology and facility-related costs, costs associated with training, and other expenses related to service revenue recognized in the period.
For future periods, we expect our costs of revenue to increase or decrease commensurate with product and service volumes. Such costs may be further impacted by our ongoing efforts to reduce product costs and increase manufacturing productivity and efficiencies as well as service productivity. In addition, our product costs may be adversely impacted by recently enacted and potential future tariffs by the U.S. and other jurisdictions in which we conduct business. While we do not expect such impacts on our product costs to rise to levels that are material to our results of operations in the near-term, future changes in policies and other macroeconomic conditions could materially and adversely affect our operating expenses and results of operations.
Research and development
Research and development expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant services and other costs associated with our technology Growth Direct platform and products, which include:
•employee-related expenses, including costs for salaries, bonuses and other personnel costs including non-cash stock-based compensation expense, for employees engaged in research and development functions;
•the cost of developing, maintaining and improving new and existing product designs;
•the cost of hardware and software engineering;
•research materials and supplies;
•external costs of outside consultants engaged to conduct research and development associated with our technology and products; and
•allocated information technology and facility-related costs, which include headcount-related costs for those functions as well as expenses for information technology systems and services, software, rent, facilities maintenance, and insurance as well as related non-cash depreciation and amortization.
Our research and development costs are expensed as incurred. We believe that our continued investment in research and development is essential to our long-term competitive position. For future periods, we expect our research and development expenses to increase or decrease commensurate with the size, scope and complexity of our research and development activities.
Sales and marketing
Sales and marketing expenses consist primarily of salaries, commissions, benefits and other personnel costs including non-cash stock-based compensation expense as well as costs relating to travel, consulting, trade shows, customer events and demonstrations, information services, advertising and allocated information technology and facility-related costs for our employees engaged in sales and marketing activities. For future periods, we expect sales and marketing expenses to increase or decrease commensurate with the number of sales and marketing personnel, our geographic sales and marketing footprint, and the size of our customer base.
General and administrative
General and administrative expenses consist primarily of salaries, bonuses and other personnel costs including non-cash stock-based compensation expense for our executive, finance, legal, human resources and general management employees, as well as director and officer insurance costs and professional fees for legal, patent, accounting, audit, investor relations, recruiting, consulting, regulatory, compliance, board of directors' fees and other services. General and administrative expenses also include direct and allocated information technology and facility-related costs. For future periods, we expect these expenses to increase or decrease commensurate with the size, scope and complexity of our general and administrative functions.
Other income (expense)
Interest income
Interest income is comprised primarily of interest income from cash equivalents and investments.
Interest expense
Interest expense is comprised primarily of expense incurred from long-term debt and leases.
Other expense, net
Other expense, net, primarily consists of other miscellaneous income and expense unrelated to our core operations.
Income tax expense
We generated significant taxable losses during the years ended December 31, 2025 and 2024, and, therefore, have not recorded any U.S. federal or state income tax expense during those periods. However, we did record an immaterial amount of foreign income tax expense during each of those periods.
We have not recorded any U.S. federal or state income tax benefits for the net operating losses ("NOLs"), we have incurred in each year or for the research and development tax credits we have generated in the United States. As of December 31, 2025, we had U.S. federal and state NOL carryforwards of $320.9 million and $133.0 million, respectively. These NOLs may be available to offset future taxable income and begin to expire in 2038 and 2032, respectively. Additionally, we had a U.S. federal NOL carryforward of $308.1 million generated since 2018, which do not expire. As of December 31, 2025, we also had U.S. federal and state research and development tax credit carryforwards of $3.2 million and $3.5 million, respectively, which may be available to offset future tax liabilities. The federal credits begin to expire in 2039 and the state tax credits began to expire in 2025. Utilization of the U.S. federal and state NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future.
We completed a Section 382 study through July 31, 2020 to assess whether a change of control has occurred or whether there have been multiple changes of control. The study determined that ownership changes materially limited the NOL carryforwards and research and development tax credits available to offset future tax liabilities and the limitations have been reflected in the amounts of NOL carryforwards, research and development tax credits, and deferred tax assets disclosed above through that date. We have not completed a Section 382 study of transactions subsequent to July 31, 2020 which may have created additional limitations although materially all of the current U.S. federal NOL carryforwards can be carried forward indefinitely. For additional information, see the risk factor entitled "Our ability to use our NOLs and research and development tax credits to offset future taxable income or income tax liabilities are subject to certain limitations" and Note 11-Income taxesto our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date because of uncertainty about future taxable income to permit use of the assets.
Results of operations
Comparison of the years ended December 31, 2025 and 2024
|
Year Ended December 31, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product revenue | $ | 23,426 | $ | 18,728 | $ | 4,698 | 25.1 | % | |||||||||||||||
| Service revenue | 10,161 | 9,323 | 838 | 9.0 | % | ||||||||||||||||||
| Total revenue | $ | 33,587 | $ | 28,051 | $ | 5,536 | 19.7 | % | |||||||||||||||
Revenue
Product revenue increased by $4.7 million, or 25.1%, with the increase primarily attributable to an increase in system placements in 2025 as well as higher consumable shipment volumes due mainly to an increase in cumulative validated systems. Additionally, higher revenue from software sales also contributed to the increase during the year.
Service revenue increased by $0.8 million, or 9.0%. The increase in service revenue was primarily driven by increases in revenue related to validations and installations (including higher one-time services unrelated to new system sales) as well as higher service contract revenue as a result of an increase in the cumulative number of systems validated and under such contracts.
Costs and operating expenses
Costs of revenue
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Year Ended December 31, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Cost of product revenue | $ | 25,979 | $ | 21,041 | $ | 4,938 | 23.5 | % | |||||||||||||||
| Cost of service revenue | $ | 6,561 | $ | 7,119 | $ | (558) | (7.8) | % | |||||||||||||||
Cost of product revenue increased by $4.9 million, or 23.5%. The increase was driven by costs related to higher volumes of both system placements and consumable shipments as well as higher inventory-related charges and warranty expense. This increase was partially offset by a favorable mix impact of product sold, namely a higher rate of growth in systems as compared to consumables.
Cost of service revenue decreased by $0.6 million, or 7.8%. This decrease was primarily attributable to lower headcount and related costs due in part to productivity improvements.
Research and development
|
Year Ended December 31, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Research and development | $ | 13,603 | $ | 14,597 | $ | (994) | (6.8) | % | |||||||||||||||
| Percentage of total revenue | 40.5 | % | 52.0 | % | |||||||||||||||||||
Research and development expenses decreased by $1.0 million, or 6.8%. The decrease was primarily driven by lower headcount and headcount-related costs as well as the timing of spending related to new product development activities.
Sales and marketing
|
Year Ended December 31, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Sales and marketing | $ | 12,082 | $ | 13,266 | $ | (1,184) | (8.9) | % | |||||||||||||||
| Percentage of total revenue | 36.0 | % | 47.3 | % | |||||||||||||||||||
Sales and marketing expenses decreased by $1.2 million, or 8.9%. The decrease was primarily due to lower headcount-related costs and third-party consulting costs.
General and administrative
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Year Ended December 31, |
Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| General and administrative | $ | 22,754 | $ | 21,947 | $ | 807 | 3.7 | % | |||||||||||||||
| Percentage of total revenue | 67.7 | % | 78.2 | % | |||||||||||||||||||
General and administrative expenses increased by $0.8 million, or 3.7%. The increase was primarily attributable to higher non-cash stock compensation expense and legal fees, partially offset by a reduction in consulting fees and business insurance premiums.
Other income (expense)
Interest income
Interest income for the years ended December 31, 2025 and 2024 was $1.5 million and $3.2 million, respectively. The decrease of $1.7 million, or 52.9%, was due to lower interest rates earned on our cash equivalents and investments balances, as well as lower cash equivalents and investment balances during the year.
Interest expense
Interest expense for the years ended December 31, 2025 and 2024 was $1.1 million and less than $0.1 million, respectively. The increase of $1.1 million, or 2625.0% was due to interest incurred with our long-term debt.
Other expense, net
Other expense, net, which is comprised of miscellaneous expenses unrelated to our core business, was $0.1 million in both of the years ended December 31, 2025 and 2024.
Income tax expense
Income tax expense was less than $0.1 million for each of the years ended December 31, 2025 and 2024. The expense recorded related to our German and Swiss subsidiaries.
Liquidity and capital resources
Since our inception, we have incurred operating losses. To date, we have funded our operations primarily through proceeds from sales of redeemable convertible preferred stock, borrowings under loan agreements, revenue from sales of our products and services, proceeds from our IPO, and proceeds from our "at-the-market" ("ATM") facility.
We believe that our cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months following the date the consolidated financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2025 were issued. However, if our expectations and underlying assumptions of business performance, including revenue growth, gross margin improvements, and/or control of operating costs are not realized, we may need to raise additional funding, which could be through equity offerings, debt financings or a combination thereof. If we are unable to raise capital as, if and when, needed, we may have to significantly delay, scale back or discontinue our expansion plans including further development and commercialization efforts of one or more of our products.
As of December 31, 2025, we had the following cash and investment-related assets on our consolidated balance sheet (in thousands):
| December 31, 2025 | |||||
| Cash and cash equivalents | $ | 20,030 | |||
| Short-term investments | 18,266 | ||||
| Restricted cash | 284 | ||||
| Total | $ | 38,580 | |||
ATM facility
On December 15, 2023, we entered into a sales agreement to establish an ATM facility with Cowen and Company, LLC, pursuant to which we may sell and issue shares of our Class A common stock. During the quarter and year ended December 31, 2025, we sold 113,217 shares of Class A common stock under this facility resulting in net proceeds of $0.4 million. During the quarter and year ended December 31, 2024, we did not issue or sell any shares of our Class A common stock under this facility.
Contractual obligations and commitments
In October 2013, we entered into an operating lease for office and manufacturing space in Lowell, Massachusetts. In March 2022, we amended the lease to increase the amount of facility space subject to the lease and extend the expiration of the lease from July 2026 to July 2029. The terms of the amendment include options for a one-time, five-year extension of the lease and early termination of the lease in July 2026 (subject to an early termination fee). Monthly rent payments are fixed and future minimum lease payments under the lease (as amended) are $2.4 million as of December 31, 2025, including $0.6 million in short-term obligations.
In June 2021, we entered into a sublease agreement for our Lexington, Massachusetts headquarters, which expires in June 2029 (the "sublease agreement"). The sublease agreement includes an option to terminate the sublease in July 2026, subject to an early termination fee. Monthly rent payments are fixed and future minimum lease payments over the term of the sublease are $2.7 million as of December 31, 2025, including $0.8 million in short-term obligations. Concurrent with entering into the sublease agreement, we executed an option agreement with the property owner which provides us the option to enter into a new direct lease for our Lexington, Massachusetts facility for an additional five years following expiration of the sublease.
For additional information on our contractual obligation and commitments please see Note 15 - Commitments and Contingenciesto our consolidated financial statements.
Cash flows
The following table summarizes our sources and uses of cash for each of the periods presented:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash used in operating activities | $ | (31,062) | $ | (44,153) | |||||||
| Net cash provided by investing activities | 14,329 | 36,657 | |||||||||
| Net cash provided by financing activities | 19,771 | 203 | |||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 3,038 | $ | (7,293) | |||||||
Operating activities
During the year ended December 31, 2025, net cash used in operating activities was $31.1 million, a decrease of $13.1 million compared to the year ended December 31, 2024. The lower use of net cash was primarily a result of lower personnel-related costs due to reduced headcount as well as the volume and timing of payments to vendors and increased customer cash receipts. This decrease was partially offset by increased inventory purchases.
Investing activities
During the year ended December 31, 2025, net cash provided by investing activities was $14.3 million, a decrease of $22.3 million compared to the year ended December 31, 2024. Higher investment maturities in the year ended December 31, 2024 contributed to the reduction in cash provided by investing activities. This decrease was partially offset by lower investment purchases and lower cash expenditures for property and equipment during the year ended December 31, 2025.
Financing activities
During the year ended December 31, 2025, net cash provided by financing activities was $19.8 million, an increase of $19.6 million compared to the year ended December 31, 2024. This increase was primarily attributable to the issuance of $20.0 million in long-term debt during the year, as well as proceeds from sales of our Class A common stock through our ATM facility and stock option exercises. This increase was partially offset by tax withholdings for restricted stock units.
Seasonality
Our revenues vary from quarter to quarter as a result of factors such as our customers' budgetary cycles and extended summer vacation periods that can impact our ability to progress system sale processes, deliver products and provide onsite services to our customers during those periods. We expect this variability to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics.
Critical accounting policies and significant judgments and estimates
Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. Our estimates are based on our historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 - Summary of Significant Accounting Policies- to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are those most important to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue recognition
Product revenue
We derive product revenue primarily from the sale of Growth Direct systems and related consumables. Product revenue is recognized when control of the promised systems and consumables is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or consumables (the transaction price). For Growth Direct systems and consumables sold by us, control transfers to the customer at a point in time.
Service revenue
We derive service revenue primarily from the sale of validation services, service contracts and field service (including installation). Revenue is recognized when services are provided to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services (the transaction price). Service revenue is recognized over time using an input method based on time lapsed for service contracts and using an output method based on milestones achieved for validation services and field service.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct product or service to a customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available, and are distinct in the context of the contract, whereby the transfer of the product or service is separately identifiable from other promises in the contract. Our main performance obligations in customer arrangements are Growth Direct systems, LIMS connection software, proprietary consumables, validation services, field service (including installation services) and services due under service contracts.
Multiple performance obligations
Our contracts may include multiple performance obligations when customers purchase a combination of products and services such as Growth Direct system sold together with the LIMS connection and other software, proprietary consumables or services. For these arrangements, we allocate the contract's transaction price to each performance obligation on a relative standalone selling price basis using our best estimate of the standalone selling price of each distinct product or service in the contract. The primary methods used to estimate standalone selling prices are based on the prices observed in standalone sales to customers or cost-plus margin depending on the nature of the obligation and available evidence of fair value. Allocation of the transaction price is determined at contract's inception.
Stock-based compensation
We measure stock-based option awards granted to employees, officers and directors based on their fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur. The straight-line method of expense recognition is applied to all awards with service-only conditions.
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model, which uses inputs such as the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.
We measure all restricted common stock and restricted stock granted to employees based on the common stock value on the date of grant. The purchase price of the restricted common stock was the common stock value on the date of grant.
Valuation of inventory
We value inventory at the lower of cost or net realizable value. Cost is computed using the first-in, first-out method. We regularly review inventory quantities on-hand for excess and obsolescence and, when circumstances indicate, we record charges to write down inventories to their estimated net realizable value after evaluating future demand, expected product life cycles and current inventory levels. Such charges are classified as cost of product revenue in the statements of operations. Any write-down of inventory to net realizable value creates a new cost basis.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 - Summary of Significant Accounting Policiesto our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Emerging growth company status
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, and our financial statements may not be comparable to other public companies that comply with new or revised accounting
pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
We will cease to be an emerging growth company on December 31, 2026, at the latest. Even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
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