Good morning and thank you for standing by. Welcome to the 908 Devices' First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Kelly Gura, Investor Relations. Please, go ahead.

Thank you. This morning, 908 Devices released financial results for the first quarter ended March 31, 2022. If you've not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to ir@908devices.com. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release 908 Devices issued today. For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2021, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, May 10, 2022. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our First Quarter 2022 Earnings Call. We started the year strong with first quarter revenue growing 50% over the prior year period to $8.3 million, and we have placed 83 devices during the quarter, bringing our installed base to over 2,000 devices across our three products. I'm incredibly proud of our team's execution in managing our supply chain, strengthening our customer relationships and expanding into new accounts, all while dealing with the ongoing challenges of the pandemic. Our results are a testament to their hard work and effort as we grow our company. Last quarter, we outlined five focus areas that drive our long-term growth. I would like to highlight some of our progress in each of these areas, starting with our first objective surrounding customer adoption. As noted previously, we are employing a penetrate-and-radiate strategy in which we work to penetrate new accounts, creating a foothold and then radiate across these enterprise accounts driving broader adoption. Looking first at our progress with our desktops, we placed 20 devices during the first quarter with an even-split of new and existing customers, continuing the trend we saw in the second half of 2021. Further, for our REBEL product, nearly a third of our placements were for cell and gene therapy applications for customers ranging from small biotechs to top pharma companies. We are really encouraged by the increasing excitement for REBEL in these applications. As presented previously, we continue to expect our total addressable market to expand significantly over time as the advanced therapies take hold in the market and REBEL's adoption in this segment is a focus as a result. Our ZipChip also continues to gain ground in biopharma for critical quality analysis. One important highlight was a recent order from…

Thanks, Kevin. Revenue for the first quarter of 2022 was $8.3 million compared to $5.5 million in the prior year period, representing growth of 50%. Handheld revenue from our MX908 product was $4.5 million, an increase of $1.2 million compared to the prior year period. This included additional device placements and higher service revenue. Desktop revenue from our REBEL and ZipChip products for the first quarter 2022 was $3.6 million, compared to $2.1 million in the prior year period, representing growth of 68%. This was primarily due to an increase in device placements as well as an increase in recurring revenues. Recurring revenues consisting of consumables, accessories and service revenue for the first quarter 2022 was $2.5 million, compared to $1.4 million in the prior year period, representing growth of 73%. This increase was primarily driven by both service and consumable revenue related to REBEL kit sales. Our install base grew to 2,018 units with 83 devices shipped during the first quarter. This includes 63 MX908 handheld devices, 15 REBEL desktop devices and five ZipChip interface desktop devices. Gross profit was $4.1 million for the first quarter of 2022 compared to $2.9 million for the prior year period. The increased gross profit of $1.2 million was primarily driven by an increase in product and service gross profit resulting from higher sales volume, offset in part by investments in personnel and facility-related costs as we scale our service and operation teams. Gross margin was 50% for the first quarter 2022, as compared to 52% for the prior year period. The decrease in gross margin aligned with internal expectations as we invested in service and operations personnel and infrastructure during 2021 and the first quarter of 2022 to support growth and scale. We expect gross margins to expand through the back half…

Thanks, Joe. It's been an exciting start to the year as we advanced our product capabilities, broaden our bioanalytics platform and deepen our customer relationships. We look forward to updating you on our progress throughout the year. One final comment. I'm excited to announce that we are holding our first Discovery Day for the investor community on June 15 at our Boston headquarters. We will showcase our technology, products and platform. We'll also highlight key applications and recent scientific presentations as well as conduct some hands-on product demos. This is an in-person event, and I look forward to sharing our team's expertise and enthusiasm for our mission to democratize mass spec in critical-to-life applications. With that, we'll now open it up for questions.

Thank you. Our first question comes from Puneet Souda with SVB Securities. Your line is open.

Yes, hi, Kevin, Joe. Thanks for taking the questions. First one is on REBEL. You pointed out the stop placements were strong and you're pointing to 2x the growth for the bioprocessing side in the guide. Just trying to understand. I appreciate the one-thirds of the devices are going into cell and gene therapy accounts, but maybe can you help us understand how are they utilizing the devices today? Which applications you're seeing the most pick up? And should we think about more REBEL boxes placements versus the consumable pull-through? Or should we expect acceleration on both of those fronts as you go and further penetrate these accounts?

Yes. Sure. Happy to expand on that, Puneet. Yes, we're pleased with the progress REBEL's been on. We have, as you know, a good penetration into large top pharma, but also small pharma and CDMOs as we go. I think a common theme -- before we get into some of the momentum -- a common theme is cell culture media, measuring spent culture media with time course data and with the ultimate goal of being able to actually change their feeding schedule and helping to optimize and accelerate the bioprocess. So we're seeing that the placements have been -- we've described before as this penetrated radiate, right? So, now we've got a great foothold in the large accounts and we're working to go across because each of these have quite a bit of capacity and we're well past the early adopters, but we have about 115 total devices out there. Seeing good pickup on those new placements, about 50% coming from new customers and 50% from existing. So, I think you should keep expecting to see those placements. A quick comment on the consumables. So obviously, our product is a point of need product. So people like to have it near. We remain committed to about 1 kit a month of the consumables, which we've been seeing, and then we've got efforts underway to try to drive that higher.

Okay, got it. And then just following up on the commercial organization and REBEL. You've expanded meaningfully there and more further commercial organization expansion, as you pointed out to 80 folks in the organization by year-end. Can you outline for us what changes in the strategy that you're taking to drive both in U.S. and OUS? How should we see the contribution from international growth as well as REBEL continues to expand? And also, it seems like the comments that you made on Australia and UK, MX908 also continues to grow there. So, maybe just help us understand how should we think about the international growth overall.

Yes, absolutely. So international for us, historically, last year as well as in Q1, it's around 20% is outside the Americas from the revenue perspective. It is an area we're investing quite a bit, particularly on the desktop side, the commercial side. So, as you think about our goal of going from 60 employees that we discussed on our last call to 80 by the year-end, those are more weighted to folks on our desktop side. We are having good success though outside the U.S. with our handhelds as well and we've been broadening both direct sales capabilities, but also our international channel. And as we discussed last time, in important areas for biopharma. Sartorius Korea, for instance, has been stood up and is now online representing as one in APAC.

Okay, great. And then just last one, briefly, if I could. Anything that you would point out to on supply chain? Obviously, that's been a key question and inflationary pressures. So, I just wanted to check, it seems like you guys have things under control and if you can maybe help us understand time from order to delivery. Any changes there? And obviously, you have a strong U.S. Army contract that's delivering in the second and third quarter. Any change in expectations there? Thanks, guys. I appreciate the questions.

Sure. No problem. Maybe touching on the U.S. Army contract. Nothing has changed there as far as the remaining units being delivered in Q2 and Q3. On some of the inflationary impacts, you're right, I feel like we have it under control. We are seeing additional costs related to inflation and supply chain. It is hampering our margin expansion in 2022 as we balance the pricing of our products and our end customers and some of the potential volume leverage with the increasing revenues. But specifically on cost inflation, our supply chain impact, we're experiencing some direct and indirect impacts indirectly. We're having to pull resources outside of the purchasing team, namely R&D to assist with vendor qualification, redesigns and ensure we have adequate supply of those key components. On the direct side, we're seeing some delays in our supply chain with vendors, their approaches to communication and the lead times and deliveries. They're picking our build plan timing within 2022. We feel like we have it under control to be able to deliver to our customers a high-quality product. So in essence, cost of materials cost of shipping expediting and pass-through costs and some of the labor inflation are factors within our supply chain and we're very vigilant on trying to manage and monitor those the best we can.

Great, thanks.

Welcome.

Thank you. Our next question comes from Dan Arias with Stifel. Your line is open.

Good morning, guys. Thanks for the questions. Kevin, on the REBEL, can you just talk a little bit about the workflow intensity that you're seeing when you look at the various project types? Maybe particularly as it relates to cell and gene. I think the assumption there is that those guys have their instruments sort of going at a level on a frequency that's beyond other modalities. So, are you seeing that play out once accounts get up and running? And is there any reason why I think the six to seven systems that you mentioned going to cell and gene labs this quarter wouldn't be accretive to the pull-through average once they get fully scaled up?

Yes, sure. Happy to, Dan. Yes, we see lots of excitement for the applications for MABs, but the advanced therapy cell and gene are particularly exciting and as we've said, we view it as an area that as we penetrate, it's really unlocking a large portion of the total addressable market, and that's because the typically being done in a more smaller batch, more personalized manner. So, we watch that metric. We try to foster it with customers. I think we're seeing good utilization across the board, across the applications, but do have a lot of excitement for the future of the cell and gene area. Again, I would say across our installed base, we see around that one kit a month utilization rate once a customer is up and running, and it could take a little bit for a customer to be productive. And we think it's very important as well to really showcase what can be done and that's why we announced recently a new partnership with CPI and AMBIC for those reasons.

Okay. Just to push a little further there. So, if one kit is the average that you're finding, which is pretty consistent with other periods, and that's obviously an average of highs and lows, are you finding that the high -- are the cell and gene companies, the ones that are coming in above one and therefore, lifting the average and that's offsetting the newer guys or the different modalities?

I think, Dan, that we're seeing a range, and in some cases, they're selling gene customers, but also in a few cases on the MAB side. A lot of it gets to the utilization of the workflows of the end customers. And you're right, over time, we may see cell and gene trending more consistently above the average. But I think that will continue to play out in the coming quarters and the year.

Okay.

But we are seeing some...

Yes, I hear you. Thank you for that detail, Joe.

Welcome.

And just on the placement total for the year, do you feel like the reasonable expectation on mix between new and existing accounts is to sort of stay at that 50-50 split? Or is there a reason why maybe one half of that equation would change a little bit in the back half of the year?

Well, we've certainly seen it true for I guess, about three quarters now. We've seen that playing out. We think it is a good healthy mix there because as we have a foothold in those, larger accounts have a lot of capacity and you can move throughout and get referenced within those companies. So we do expect that to continue to play out. But we're busy in new geographies. We're busy working to get new accounts captured. So we'll see what the mix is, but I think it's been reasonable over the last three quarters.

Yes, okay. Appreciate it, guys. Thanks.

Welcome.

Thank you. Our next question comes from Max Masucci with Cowen.

Hi, this is Stephanie on for Max Masucci. Thanks for taking the question. The first one here, have you received any feedback from your customers following the updated FDA draft guidances for CAR-T development and gene editing in late March? How do your conversations today potential weather adopters differ from the conversations that you had 12 and 18 months ago? And what are the key factors determining a customer's decision to adopt or hold off on the purchase of a REBEL analyzer?

Yes. Sure, happy to give some color, Stephanie. I think our conversation has obviously continued to evolve since the launch of the product. We're very much adopters with about 115 boxes therein. I think that what really drives folks is that quest for more analytes, more information and as we said in the past, we really view it that the market for numerous reasons, some regulatory perhaps, but there is a strong demand for analytes and information, and we call that Bioprocess 4.0. So, I think over time, we have been experiencing folks that are interested in having more frequent measurement of data. The conversation in the early days started with, 'Well, I normally send this out to the lab, and I do it at kind of time point 0 at the beginning of a bioreactor run. But with your value proposition and my knowledge that these analytes are so important to the cell cycle, why shouldn't I measure it frequently throughout my, call it, two-week in process development?' So, I think our conversation now has elevated to, 'Well, what can I do with that information with higher frequency measurements?' And that's why we're working to make sure we have the right data integrations, one we said in the past, the Sartorius SIMCA platform that we can allow to push in, so we can have folks be able to see the streaming analytes and be able to visualize that and pull insights from that. So, conversations continue to evolve there but we've seen good strength in the adoption and willingness to want more info.

Got it. Thanks for that color. And just a follow-up. You highlighted your objective to broaden your bioanalytics platform, and it was great to hear simple examples of your customers using your chip platform and their positive feedback. As you expand your platform, can you give us a sense of how you plan to enhance it? Are your customers asking for any feature specifically?

Yes. We were very excited that our platform is pretty broad in its capability. We've got with our ZipChip, really a focus in the product quality attributes and giving those in a time frame that can be 20x faster than legacy liquid chromatography. And then with our REBEL, very excited that at-line, we're giving them the process attributes, these key process parameters that we're able to do . And again, things that are so critical to cell cycle, things that are informative of their predictive models that there's multiple institutions developing and the analyte panel being so enabling. So we're continuing to work with customers to build that platform out, build those workflows out. We do have a strong roadmap there to look at increased analyte panels. As we've said before, other accessories, data integrations that can help with that entire workflow.

Got it. That's helpful. And last one for me on the new MX908 remote application for iOS devices. Could this open up the opportunity for MX908 placements to law enforcement at the state, regional or local level? Are you seeing any differences in law enforcement budgets here in 2022 versus 2021 or 2020?

Yes. Thus far, I don't think we are seeing anything measurable on a change in budgeting. We put a few things in the script there because the applications that we're chasing here across state, local law enforcement, federal government under the organizations around counterfeit pharmaceuticals and illicit fentanyls and combating the opioid crisis, those seem to be remaining a high priority to our customers. We are seeing adoption of our products across international, but a lot in our U.S. state and locals. Again, because this problem is affecting and killing so many. So, I think things like our iOS app, things like adding analytes, it makes it easier for customers to ensure they're partnering with the right organization, that they're putting their capital dollars to work because we're giving them new features and functionality that are responsive to their job -- thing like the iOS app, we like a lot because it connects more intimately to the customer in their workflow, which we expect to be able to keep broadening over time.

Got it. Thanks so much for the color and thanks again for taking my questions.

Thank you. Our next question comes from Brian Weinstein with William Blair. Your line is open.

Hey, guys. Good morning. Thanks for taking the question.

Absolutely.

Just a couple of them. First, can you just talk a little bit about what you're seeing from your end users on kind of the health of their businesses and their willingness to engage what you're seeing on kind of sales cycle? Is that as expected? Is that elongating a bit from small to large biopharma on the desktop side, but also anything that you're seeing and willingness to engage sales cycle or anything else with various governments on the handheld side?

Yes, sure. Happy to add some color there. In the biopharma environment, we're not seeing really, I would say, any negative impacts. I would say, again, that we see that the driver of advanced therapy, some of the more complex modalities, it is making it clear and clear to individuals that they need more analytes, more information. So, we're seeing a lot of engagement. Obviously, our product, driven by REBEL and the desktop side has been growing pretty nicely over the quarter. But it's still early days for us. We're well past the early adopters, but we have only about 115 or so out there. So there's a ton of sockets and runway. I would also say that our products really fit well into a customer's existing workflow. We're not meeting a company to build out a new facility or a new line or add infrastructure capabilities in any way. It's a simplified box that has a network connection, a simplified plug that sits right next to their bioreactors in their labs and their biology labs today. So, I wouldn't say we've seen any measurable change in their engagement. For our handhelds, a little bit like I was just mentioning with Stephanie, the applications we're chasing, the metrics continue to be just staggering. The number of overdose deaths, the number of counterfeits that are out there amongst and causing harm to communities, so we continue to see a priority for our products throughout this time.

Got it, thank you. And I've asked the next question in various forms before, but I just wanted to revisit it here. The TAM expansion that you guys talked about was a big part of the IPO story, continues to be a big part of the story today. Right? And I guess there's probably no reason to revisit those numbers that you've put out previously. But I just want to kind of better-understand and go back through how much of that TAM expansion is based on the capabilities that you're adding to your technology versus what is needed from kind of the underlying markets to grow themselves? And on the part of that, that it is related to your technology, you guys have talked about kind of major product releases every kind of couple of years. I think it was 24 to 36 months. So can you go through without giving, obviously, any kind of competitive information you don't want to give out, what should we be thinking about for what kind of major product releases and technology advances that we should be thinking about over the next year or two that kind of leans into what that TAM expansion looks like? Does that all make sense?

Yes. It does. You're right. We think there's a sizable TAM today for the products we have at hand today. But you're right, we've shared and discussed at length in the past that we see that TAM broadening quite significantly. A lot of it is with that tailwind of cell and gene therapy and getting our products adopted at these early stages as well as that expansion. And without going into all the details, you know the advanced therapies are growing quite a bit and having multiple increases and there's a lot of need in the space for technologies to address that. And we see REBEL really beginning to do that, and that's why we highlighted that about 30% of our placements here in Q1, about 25% we reported last time overall, were in that space because we see that as an important driver and again, driving that thirst for analytics, which we think we're well-positioned to do with both our ZipChip and our REBEL. From a roadmap standpoint, yes, we're a pretty innovative company. As you know, we're very vertically-integrated. We're working to have a constant cadence of releases of things like analyte panel expansion, software integrations, but then more major release as well. Some of the more incremental, we announced just the other day and many last year, accessories and data integrations on the REBEL and handheld and we have many more plans for this year. On the large side, yes, we've talked about products that are developments underway -- things like REBEL online, the ability to connect the REBEL more seamlessly to the bioreactor and avoiding the manual pipe heading step. We think it's important to be driving with groups like CPI and AMBIC the need for frequent measurements while we lay the foundation of the hardware and get that released for REBEL online upcoming in the time frame you've mentioned. And we also talked about that there's a long, long way in what we can do in the handhelds, really shrinking those devices down and getting those devices to be significantly smaller and ultimately spawning an upgrade cycle for the thousands of devices that we have in the field. So, we have that, and we have, I would say, a considerable robust road map in general around the bioanalytics platform that we've taken into too much here today, but it's again around adding analytes and being a part of the established workflows there.

It's a great answer. Thank you for that. And then one quickly for Joe. Joe, I think Dan has asked for the question about the consumables and the pull-through there. It looked like it was about 30% of total revenue this quarter. We've typically talked with you guys about that being closer to 20%, 21%, 22% as we think about kind of what the full year looks like. Can you just tell us your thoughts within the guidance on what that recurring revenue should be kind of trending at 30% from Q1 reasonable?

Absolutely. Just to revisit a bit, so for 2021, it was 19% on a full-year basis. You're right, it was 31% here in Q1, which was up from 27% in 2021 Q1. It is our lightest quarter from a top-line perspective, so I'd expect that percent to be higher as the installed base is growing. But when you look at it from a full-year perspective, to start with the two, probably in the low 20 percentages is probably more reasonable than the 30%. Now, as we dream and think longer term in the building installed base that have it start with a three in the future is absolutely something we're targeting, but not here in 2022 -- likely in the low 20s from a percent overall, if that's helpful.

Very helpful. Thank you, guys.

Your welcome.

Thank you.

Thank you. And there are no other questions in the queue. I'd like to turn the call back to Kevin for closing remarks.

Yes. Thank you all for your time and have a great day. We appreciate the questions and your participation.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.