Rapid Micro Biosystems, Inc.

Hello, my name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Rapid MicrobioSystems third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Mr. Mike Boyer.

Please go ahead, sir.

Good morning, and thank you for joining the Rapid Microbiosystems Third Quarter 2022 Earnings Call. Joining me on the call are Rob Spignesi, Chief Executive Officer, and Sean Werches, Chief Financial Officer. Earlier today, we issued a press release announcing our third quarter financial results. A copy of the release is available on the company's website at rapidmicrobio.com under investors in the news and events section. Before we begin, I'd like to remind you that many statements made during this call may be considered forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events Results or performance are forward-looking statements, including, but not limited to, statements relating to Rapid Micro's financial condition, anticipated year-end cash balance, cash runway, and future revenue and system placement, expectations for our projected cost savings resulting from the organizational restructuring actions, expectations for business development and growth, the Board of Directors review of potential strategic alternatives, customer interest and adoption of the growth direct system, expectations for our new RMB nucleus mold alarm, and the potential impact of macroeconomic uncertainty and COVID-19 on Rapid Micro's business. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. For a list and description of the risks and uncertainties associated with Rapid Micro's business, please refer to the risk factors section of our annual report on Form 10-K filed with the Securities and Exchange Commission on March 24, 2022, as such risk factors are updated in our subsequent filings with the SEC. We urge you to consider these factors, and you should be aware that these statements should be considered estimates only and are not a guarantee of future performance. Also, the company's contract with the U.S. Biomedical Advanced Research and Development Authority, or BARDA, was completed in the fourth quarter of 2021, Throughout our quarterly performance discussions, we will be excluding the non-commercial revenue impact from BARDA by comparing total 2022 revenue to commercial revenue in 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 10, 2022. Rapid Micro disclaims any intention or obligation except as required by law to update or revise any financial projections,

forward-looking statements whether because of new information future events or otherwise and with that i'll turn the call over to rob thank you mike good morning everyone and thank you for joining us today before i begin i would like to remind everyone that as we announce on august 12 2022 the company's board of directors initiate a review of strategic alternatives to determine the best path to maximize shareholder value the board is progressing through its review and we will not have any further comments or updates on today's call. As a reminder, there can be no assurance that the strategic alternative process will result in a particular transaction or any other strategic outcome. I will begin my discussion with a few highlights from the third quarter, followed by a review of the progress we are making with respect to customer engagement. Next, I will discuss the actions being taken and enhancements we are making to improve commercial execution. And finally, Sean will provide details of our third quarter performance and fourth quarter outlook. As an organization, our top priority remains accelerating growth direct system placements. My focus, since assuming commercial leadership responsibility, has been on enhancing customer engagement and experience and improving the efficiency and effectiveness of our sales team. We are pleased with our performance in the third quarter, which in most areas was ahead of the cadence we expected when we updated our guidance in August. Total commercial revenue in Q3 was $4.7 million. We placed three growth direct systems during the quarter. One system went to a U.S.-based biopharma customer in the gene therapy field, and the other two systems were placed with a European customer focused on mRNA therapies. As a result of our Q3 performance, we are reaffirming our full year 2022 commercial revenue guidance of at least $17 million. In-person access to customer sites continued to improve in the quarter, and I personally traveled to both Europe and Asia to meet with existing and prospective customers. Across my visits, it was clear that our value proposition is resonating, our commercial teams are connecting with new and existing customers, and I'm excited about the sales pipeline building for 2023. We have also participated in a number of in-person industry conferences for the first time in over two years. We are on track to attend over 20 events and conferences around the globe this calendar year, and we have been hosting an increasing number of customer tours and hands-on growth direct sessions in the U.S. at our Lowell facility and in Europe at our Munich facility. In September, I was invited to participate in the PDA-FDA Joint Regulatory Conference in Washington, D.C. on the topic of the Microbiology Lab of the 21st Century. I gave a presentation on how RapidMicro thinks about and is shaping the lab of the future. Along with a RapidMicro colleague, I took part in a panel discussion covering the MicroQC lab of the future and Industry 4.0 and how technologies such as the growth threat can deliver required automation, data integrity, speed, and patient safety and move MicroQC into the 21st century. The panel also included a senior regulator who provided great insights into the regulatory landscape and strongly encouraged market participants to consider adopting new technologies that modernize a micro QC lab, such as the Go Direct. Additionally, representatives from global pharma companies were in attendance and interacted with the panel during the Q&A session. It was an inspiring exchange among the regulators, industry, and Rapid Micro, And as we discussed, the benefits of technology such as a growth direct that bring cost, efficiency, and patient safety benefits to pharmaceutical manufacturing. Also, in early October, we were a platinum sponsor of the 2022 PDA Pharmaceutical Microbiology Conference. Historically, this is one of the largest microbiology conferences of the year and is one of the most important annual events for Rapid Micro. The conference is attended by global industry professionals academia, and regulatory authorities. This year at PDA, we featured an operational growth direct system and hosted several tech talks and poster presentations. RMB's thought leadership and automated quality control was on full display, and the customer attention we received was significant. Importantly, our executive leadership and commercial teams hosted a dinner that was attended by several dozen customers. The special event enabled deep engagement between rapid micro executives and key users and decision makers and existing and prospective customers. As we have been discussing since the onset of COVID, our sales process is highly competitive. When we are in person and onsite with customers, we gain a better understanding of their workflows and challenges in their micro QC operations. Being in person also allows us a better environment to educate, and in the case of the PDA conference, in meetings at our facilities to demonstrate the capabilities of the Growth Direct system. The in-person demonstrations show how Growth Direct can meet the speed, data integrity, and regulatory demands of the future of pharmaceutical manufacturing. In cases where customers have visited our facilities, we have been able to present our manufacturing capabilities, provide hands-on Growth Direct demonstrations, and showcase our state-of-the-art, fully automated consumables manufacturing process. As we discussed last quarter, improving customer access is one element of driving system sales. Our other top priority is to enhance the consistency and effectiveness of our global sales team. In August, we continued to build on our marketing and lead generation capabilities by hiring a director of global marketing who is experienced in building brand awareness and lead generation capabilities for multinational life sciences companies. The combination of increased infield prospecting by our sales team and expanded marketing capabilities is significantly increasing the number of quality leads we are generating. We have also tasked our commercial leadership team with implementing new strategies targeted at global key accounts. A meaningful portion of our funnel includes multi-system opportunities from existing customers looking to expand and build direct rollouts across our global manufacturing networks. We are also developing exciting opportunities with a number of new large and mid-sized customers. Looking forward, we expect to produce and publish an increasing number of science-based white papers and technical webinars that will continue to position Rapid Micro as the thought leader in the market. These efforts are expected to generate new sales leads and expand awareness of our innovative solutions. Now, I would like to shift gears and provide an update on our product development efforts. We were extremely pleased to announce our innovative mold detection product during the recent PDA conference, where there was a high level of customer interest and excitement. We are officially branding this new product R&B Nucleus Mold Alarm, and it will be available on the Growth Direct system through a software update. MoldAlarm is designed to rapidly and accurately detect and differentiate environmental molds from other organisms in the pharmaceutical manufacturing process. It incorporates enhanced data integrity and generates automated alerts as soon as a mold is detected in as little as one day. This capability allows for early intervention, mitigation, and reduced risk of further contamination. Turning to rapid sterility, our beta process with our customer partner is ongoing. We are gaining and addressing value of feedback on the product and confirming the core value prop of accuracy and speed to results. Sterility testing is often the final test before product release and can take 14 or more days to complete using the traditional method. We and our customers are excited about a growth direct enabled rapid sterility offering that will significantly accelerate time to detection and final results. We will provide updates as we continue to move through the beta process. To wrap up, we are pleased with the progress we are making to improve customer engagement, tracking commercial execution, and advanced product development. Interest in the growth direct remains high, and the introduction of mold alarm provides even more differentiation in value that we can bring to customers. And importantly, The actions we have taken to right-size our cost structure provide us with flexibility as we continue to advance our commercial execution and invest in expanding our growth direct platform. We remain confident that we have the right strategy in place and will continue to take appropriate actions to improve system sales in future quarters. That concludes my prepared remarks. I will now turn the call over to Sean to discuss our third quarter performance in more detail and provide some comments around our fourth quarter outlook. Sean?

Thanks, Rob. Good morning, everyone. This morning, we reported third quarter 2022 commercial revenue of $4.7 million, which compares to $6.3 million of commercial revenue reported in Q3 2021. Product revenue, which is comprised of systems and consumables, was $3.2 million in Q3 compared to $4.8 million last year. The difference was due to fewer placements of growth direct systems, partially offset by continued growth in consumables. We placed three growth direct systems in the third quarter, which was ahead of our guidance due to the timing of a two-system order that was placed with the customer in late Q3 versus our expectation that those systems would be placed in Q4. Revenue from consumables increased approximately 30% in the third quarter compared to the prior year and over 20% sequentially. As we discussed last quarter, Third-party logistics delays in the final days of Q2 pushed approximately $200,000 in consumables revenue into the third quarter. Service revenue was $1.5 million in Q3, which was relatively flat compared to the third quarter of 2021. We completed the validation of four systems in the third quarter. While the validations we completed were in line with our expectations, service revenue was below our expectations due to slower than expected progress on some ongoing validations due to customer timing. Recurring revenue increased 34% to $2.9 million in the third quarter compared to the third quarter of 2021, driven once again by both consumables and service contracts. Non-recurring revenue was $1.8 million in Q3 compared to $4.1 million last year as a result of fewer system placements and lower validation activity. Turning to gross margins, Product margins were negative $2.4 million in Q3 compared to negative $1.5 million in the third quarter last year. System margins were negative in the quarter due mainly to lower system revenue and reduced production volumes, the latter of which drove a sequential decline versus Q2. While consumable margins improved on a year-over-year basis due to the continued progress we're making on our manufacturing efficiency initiatives, They declined on a sequential basis due to unfavorable mix and the write-off of expired materials used in our old manual manufacturing process that we previously purchased for business continuity purposes. Service margins were negative $376,000 in Q3 compared to negative $37,000 last year. The decline was due to lower validation revenue as well as higher spending on personnel, travel, and materials associated with field service activity. On a combined basis, our third quarter gross margin percentage was negative 59% versus negative 24% in Q3 last year. While we continue to see some inflationary headwinds in certain material, freight, and labor costs, it did not have a meaningful impact during the quarter. Moving down the P&L, total operating expenses were $14.1 million in the third quarter, consisting of $3.9 million in sales and marketing, $3.0 million in R&D, and $7.2 million in G&A. This compares to total operating expenses of $10.8 million in the third quarter of 2021. The increase was mainly due to $1.1 million in severance and other costs associated with the restructuring action we announced in August, as well as $1.2 million in expenses related to the unsolicited offer received by the company in late June and the strategic review process announced in August. Net loss was $16.3 million in Q3. This compares to a net loss of $25.0 million in the third quarter last year. The higher net loss in Q3 last year was primarily due to the impact of an $8.2 million charge to adjust the fair value of our outstanding preferred stock warrants prior to their conversion into Class A common stock warrants in connection with our IPO, and a $3.1 million charge related to the repayment of our term debt in the prior year period and higher net interest income in the current year period partially offset by higher operating expenses in the current year period. Net loss per share attributable to common shareholders was 38 cents in Q3 2022 as compared to a net loss of 71 cents in the prior year quarter. With respect to non-cash expenses in CapEx, depreciation and amortization was $0.7 million. Stock comp expense was $0.7 million. and capital expenditures were $1.6 million in the third quarter of 2022. As of September 30th, we had $150.1 million in cash, cash equivalents, and investments. We expect to finish the year with a cash and investments balance of approximately $140 million and remain confident this balance provides a cash runway at least into 2026. Turning to our outlook, my comments will be focused on the fourth quarter and full year 2022. We are reaffirming our full year 2022 commercial revenue guidance of at least $17.0 million. This guidance assumes the company will place at least two systems in the fourth quarter, which is in line with the high end of the second half outlook we provided in August. This guidance continues to reflect a similar level of macroeconomic uncertainty and variability in some customer purchase decisions, including longer than expected lead times for multi-system orders, which were discussed on our last earnings call. Moving to validations, we expect to complete three validations in the fourth quarter, which is also in line with our prior guidance. We expect revenue from consumables to step down sequentially in the fourth quarter before returning to sequential growth in the first quarter of 2023. This is based on our current forecast for the cadence of customer deliveries, as well as the impact of the $200,000 in consumables revenue that shifted from the second quarter into Q3. In service, we expect single-digit sequential revenue growth in Q4, with higher service contract revenue largely offset by lower revenue from validations due to reduced system placements over recent quarters. Based on this revenue outlook, we expect sequential improvement in our fourth quarter gross margin versus Q3, driven by continued benefits from cost reduction activity and lower one-time charges, partially offset by the impact of lower system placements. Fourth quarter gap operating expenses are expected to be relatively consistent with the third quarter. To summarize, we believe the company is well positioned heading into 2023 and that the actions we are taking to improve our commercial execution will drive future system sales growth and enhance shareholder value. We look forward to providing you more details on our 2023 outlook on our fourth quarter earnings call. That concludes my comments on our Q3 performance and our Q4 and full year 2022 outlook. Now we'll open the call up for questions. Operator?

At this time, I would like to remind everyone, if you would like to ask a question, please press star and the number one on your telephone keypad. Your first question comes from the line of Tejas Avant with Morgan Stanley.

Hi, this is Neil on for Tejas. Thanks for taking my questions. So I wanted to start with site access. Are you seeing any divergent trends as far as geography? And could you speak to, you know, maybe the trends or momentum you're seeing in Asia and Europe versus North America?

Yeah, so this is Rob. The trends are generally encouraging region independent. A little bit of a caveat I'll talk about in Asia, but I've been personally in sites across North America with with very good access. I would say Europe, good access, maybe a tick below the U.S., but still improving. And then Asia, specifically I was in South Korea with good access. In China, it's a little more challenging, but broadly in Asia, we have good access with our teams on-site.

Okay, that's really helpful. And then, you know, recently one of your peers indicated that some of their large cap pharma customers have begun to freeze CapEx spend for the remainder of the year. Have you seen anything similar among any of your customers or any challenges you can speak to as far as customer hesitancy or budgetary constraints?

We haven't seen a freeze per se, I would say, nor are we seeing a a year-end budget flush. So I would say there's kind of no remarkable movement in either direction. Clearly, the macroeconomic environment is what it is, but we haven't specifically seen or been told about a budget freeze per se.

Got it. And then last one for me. Congrats on the announcement on the mold detection offerings. With that now expected by year-end, how are you thinking about initial contributions in the fourth quarter? Would that present any upside to current top-line guidance? And then what levels of adoption do you anticipate among your current install base?

Hey, this is Sean here. So on mold detection, I think our focus in the near term is really in saturating the market as much as we can with that offering, getting customers to use it. get used to it, and ultimately get to a point where they're willing to sign up for a recurring annual subscription. So I think as we look at Q4, it'll launch pretty close to within a month, probably the end of the quarter, based on current timing. Don't expect any meaningful contribution in revenue in Q4. I think we do expect some contribution in 23, but again, we'll be much more focused on getting customers onto that product, happy with it. And then, you know, I would think I would expect to see much more of a contribution from it as we move into 2024 and beyond and get into that recurring annual model with that product.

This is Rob to jump on John's comments. Yeah, we don't have any specific, you know, penetration rates that we'll chat about today. But we do, the sentiment is quite strong around the product. It's really differentiated. and to provide a steer to our customers whether or not mold is present in their operations on a significantly accelerated basis is a very strong value prop. So we're excited about it, our customers are as well, and we will continue to update you all on future calls.

Great, appreciate it, and congrats on a strong quarter. Thank you.

Question comes from the line of Stan Arias with Stifel.

Morning, guys. Thanks for the questions. Sean, on the sequential margin progression, how much of the step down there was due to the write-down that you mentioned? And then can you remind me of the other factor that you highlighted? I missed what you said that was.

Yeah, I'll walk through. There's a couple different factors, man, so I'm happy to walk through that. So on systems, I mentioned lower production volumes. Given where we've been on system placements this year versus where we came into the air with expectations, We hit a point where we decided we needed to right-size some of our inventory, finished goods systems in particular. So we did temporarily ramp down production in the quarter, and that has an impact on our ability to absorb some of our overhead costs. So costs that we would have expected to go into the actual inventory cost of those products, more of that went into expense in the quarter than we had earlier expected. So that's factor number one. I think as we move forward and volumes pick up again will obviously increase that production volume and we'd expect to see that go the other direction with time. On consumables, the write-off that we had, as you know, in 2020 we went live on our automated consumable line. We have had some material that we maintained From a business continuity standpoint, just to ensure that if we needed to go back to a manual process, we had the right material. And this particular one is different than what we used in the automated process. So that material, and that was particularly important to us as we were in COVID. So we had that on hand. It's reached a point now where it's becoming obsolete. It actually has an expiry associated with it. So we reserved that in the quarter. That was a couple hundred thousand dollars within margins. And that's obviously a one-time thing. We won't expect that kind of thing to recur. And then on service, just, you know, we came in lighter than we expected, mainly due to validation activity timing with customers. And that cost base is a little more fixed. So being a little bit light on revenue, there's a little bit more drop-through. It creates a little bit of negative pressure on the margins in that space. So those are the three main factors.

Yeah, okay. That's a helpful breakdown there. And then maybe, Rob, on the access environment and sort of thawing there a bit out of COVID, can you just talk to the appetite for new instrumentation when you look at new versus existing customers, what you're hearing out there and where you think incremental placements might be skewed towards in 2023?

Yeah, so thanks, Dan. I think it's a generally encouraging environment for both. I've been in the field quite a bit and meeting with both new and existing customers. Our forward pipeline has got a good balance between them. As I mentioned, we do have multi-system opportunities in our pipeline for existing customers, but I'm also quite encouraged and excited about new customers in our pipeline as well. It's a good balance, and we, of course, manage that balance. We want to land and continue to expand with our current customers, but then land new large and mid-sized customers as well to stack up and keeping the land and expand, uh, process moving.

Yeah. To that point, it's a good mix of top twenties and, and more mid-sized businesses. So I think the diversity is encouraging within what Rob's just described.

Yeah. Further, uh, further diversity, uh, geographically, uh, as, as, as well as our, our team in Asia is, is, is pulling up. And I think, as you know, we've been historically strong in North America and Europe. Uh, uh, and we are just, uh, to kind of complete the view of kind of the high-level pipeline, remains focused largely but not completely on, I would call it the advanced modalities of biologics and cell and gene therapy to include CDMOs, which is a sizable segment of our current base as well as our forward pipeline.

Yeah, okay. Okay, if I could just sneak one more in here on the restructuring plan. I mean, obviously that's going to leave you in a better position mid and longer term, but I'm just curious if there are areas that you might flag, you know, in the next quarter or two when it comes to just sort of taking a step back in efficiency or momentum as you've just pared back the numbers of bodies and minds that are devoted to a task or to a function. Thanks.

Yeah. Yes. Happy to answer that, Dan. So I think we're I think as you talked about last quarter, we focused that on areas where not commercial. Number one, I think we were trying to protect commercial given the investments we've made and the importance to what's happening in the business. We were pretty specific in terms of where we targeted things. I may have mentioned last call, but if I didn't, I will now. Part of that was taking out some resources that we had brought in on a contract basis as well. We had mixed some staffing hiring between full-time hires and contractors, knowing that there were some risks to the year. And as some of that started to manifest itself, we were able to more easily adjust the organization and take some of those resources out. It wasn't all those kinds of resources, to be fair. But I think we were structured in a way that there was less disruption in taking those kinds of resources out as a part of the risk. So I think we're not seeing Anything I'd say material in terms of, you know, taking that step back that you mentioned in terms of the organization, our ability to get things done. And we also did some things through the RIF that, you know, did a few promotions, did some things relative to the structure of certain organizations that I think are actually providing more horsepower or more focus in those organizations that's actually helping, as we announced it as well. Rob, you may have some comments.

Yeah, I would agree with Sean. As part of it, we're able to promote some of our top performers and the leadership impact, and certainly we're starting to see that in commercial broadly and other functions as well has been a strong benefit.

Okay, that's great. Early days. Yep, I got you. Thanks.

Question comes from the line of Rachel Badstall with J.P. Morgan.

Hey, thanks for taking the questions. So first off here, just some on the validation. So you had four validations this quarter and you're pointing to three for next quarter. That's in line with the prior guidance of seven validations in the back half of the year. But can you just walk us through why would validations really take that step down sequentially? And then as a follow-up, you called out service revenue being lighter than your expectations due to validations, but it sounds like those were roughly in line for the quarter. So can you walk us through the puts and takes there as well?

Yeah, so in the first question, Rachel, I think, you know, validation, this is a KPI and metric. This is an indicator where we've actually finished the work on a system. It doesn't, it's not necessarily directly correlated to the amount of activity which tends to drive the revenue. So, you know, we have a situation where we were able to get, you know, four systems over the finish line. But the level of activity kind of more broadly within our validation team and the work that they were doing was a little bit slower than we expected it to be, which is what drove the downside on the quarter. It wasn't a major downside, but it was a little bit lighter than we expected it to be in Q3. Your question in Q4, sorry, could you repeat that? I'm not sure I caught that whole question.

Yeah, that part just around the service revenue related to the validations, it sounds like you called out service revenue being lighter this quarter due to some of those validations. But then it looks like on a second half basis, validations are coming in line. So just can you walk us through the dynamics there?

Yeah, it's really the same set of dynamics. I mean, the one other thing that I think it's important to note there, and I mentioned it in my script, was that with the lower placements early in the year, placements effectively create kind of a pipeline of validation work for our team to do. With placements being below expectations, and we now are kind of managing very closely that validation pipeline because the amount of new work to do is a little bit lower than we expected. So that is one of the factors that's driving Q4 being a little lower than we expected, just less new activity to do than we expected earlier in the year.

Great. And then can you just give us some high-level framework on how we should think about 2023? So, for example, what's your target pull-through per instrument next year? And then do you have any visibility on that margin cadence and when those could put positive things?

Yep. Yep. So, I think consumables pull-through, we'd expect that to continue to gradually increase as we move into and through 2023. I think we've talked about you know, somewhere in the 10% annual range in terms of what we'd expect that to look like, um, over time. So not specifically going to that for 23, but that's generally how we've talked about that over, over time. Um, yeah, I think, uh, in terms of margins, we, we still have a goal of getting margins positive in 2023. That's not guidance at this point. And it's kind of an internal goal that we're working toward as we think about 2023. At this point, given where we are and just until we get to a point where we have more specific numbers to talk to you all about in 2023, I think about that at the latter part of the year as a target that we're aiming for.

Great. And then last one for me, just on the strategic review, can you give us the latest timing expectations on when you expect that to finish?

Thanks. Yeah, as Rob said in his comments, we don't have any updates at this point. We're not going to put any timing out there.

We'll be sure to update everyone as soon as we have news on that topic.

Got it. Thank you.

Next question comes from the line of Max Masucci with Cowan.

Hi, this is Stephanie on for Max. Thanks for taking my questions. Just a quick one from me. So super encouraging to hear the efforts that you've put in to improve the sales process and Salesforce training, especially around building awareness. Are there any specific metrics you can provide around the impact that it's had on Salesforce productivity and the ability to generate leads?

Yeah, so we, of course, track those KPIs internally. It's not something that we release publicly, but from a high level, we do track KPIs lead generation and the rate of increased lead generation. We also look at in-person connectivity. We've talked quite a bit about the criticality of that, so that is something that we do look at, as well as Salesforce team productivity specifically, and we look at that a couple different ways, and also funnel composition and velocity. So I won't get into the actual numbers, but those are some of the areas that

that we look at to make sure that our execution is progressing at the rate and quality that we expect.

Got it. That's helpful.

And then just one last one from me. What are you seeing on the supply chain front? Are you seeing any impact to your operations on that?

Yeah, I think supply chain, if anything, is a little better. I think we've said historically it hasn't really impacted us. We were very conservative. If you think about it from an inventory standpoint, at least, we were very conservative in terms of maintaining high levels of safety stock. So we've been pretty isolated from impacts from supply chain. I think, as I said, the environment looks a little better as time has gone on, this year especially. You know, inflation, you didn't specifically ask that, but that's typically the other question that comes along with that. And I think, you know, we are seeing inflation in different places within the business. I think a little bit in labor, some materials. I wouldn't say that it's widespread, and I wouldn't say that it's having a material impact on the business at this point.

Got it. Thanks for taking my questions.

Sure.

At this time, there are no further questions. I would like to turn the call back over to Rob Signese for closing remarks.

Thank you for joining us today. We appreciate your interest in our company and look forward to speaking with many of you in the coming weeks.

This concludes today's conference. You may now disconnect.