Hello, everyone, and welcome to the 908 Devices Fourth Quarter 2023 Financial Results Conference Call. My name is Seb and I will be the operator for your call today. [Operator Instructions] I will now hand the floor over to Kelly Gura, Invest Relations to begin. Please go ahead.

Thank you. This morning, 908 Devices released financial results for the fourth quarter and full year ended December 31, 2023. 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 email 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 listing description, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2022, 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 after the live broadcast March 5, 2024. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our fourth quarter 2023 earnings call. We ended the fourth quarter with $14.4 million in revenue, up 23% from the prior year. Total revenue for 2023 was $50.2 million, up 7% from the prior year, with product and service revenue up 12%. I'm very pleased with how our team has continued to execute, stay focused on our customers, and deliver a solid close to the year. The variety in our product portfolio and our presence in multiple markets have been a strength and distinct advantage. Revenue from our handheld devices that serve the forensics market grew 28% in 2023 with consistent year-over-year growth each quarter. This growth significantly offset the macro headwinds that have pressured the life science instrumentation and bioprocessing markets which includes revenue from our desktop devices. While we expect these headwinds to continue in the near term, particularly in the first half of 2024, we are encouraged by three indicators. First, we saw an uptick in fourth quarter bookings, resulting in our best desktop bookings quarter since Q4 2021, helped in part by contributions from our new products, MAVEN and MAVERICK. A second indicator is that we generated 25% more opportunities in the second half of 2023 for our desktop devices compared to the first half of the year, helped in part by our new product launches. And third, we generated 50% more leads in the second half of the year than over the first half, helping us fill the top of our funnel. We saw strong demand for our handheld devices throughout 2023 and expect demand will continue this year as applications for chemical detection and identification at the point of need continued to gain traction in the US and internationally. We ended the year with 16…

Thanks, Kevin. Starting with our fourth quarter results, revenue for the fourth quarter 2023 was $14.4 million, up 23% from $11.6 million in the prior year period, primarily driven by an increase in handheld device revenue. Handheld revenue was $11.1 million for the fourth quarter 2023, up 57% from $7.1 million for the fourth quarter 2022, primarily related to an increase in device sales, with 116 MX908 handheld device shipments in the fourth quarter. Desktop revenue from our products serving the life science, instrumentation, and bioprocessing markets for the fourth quarter 2023 was $3.2 million, down 2% from $3.3 million in the prior year period. This included five ZipChip interfaces, three REBEL, 10 MAVEN, and five MAVERICK device shipments. As a reminder, starting next quarter we will no longer break out placements by device. We'll focus more on overall revenue and combine desktop placements as the key metrics for growth for our broadening desktop portfolio. We exited 2023 with a cumulative handheld and desktop install base of 2,853 devices, up from 2,385 exiting 2022. Recurring revenue, which consists of consumables, accessories, and service revenue, represented a third of total revenue in the quarter, and was $4.7 million, a $1.2 million decrease over the prior year period. This decrease was driven by a decline in handheld accessory and consumable revenue, offset in part by growth in service revenue. As a reminder in the prior year period, we had $2.2 million in recurring revenue from a large enterprise order with the U.S. Army. Gross profit was $7.3 million for the fourth quarter of 2023, compared to $5.9 million for the prior year period. Gross margin was 51% for the fourth quarter 2023, consistent with the prior year period. For the fourth quarter of 2023, product and service gross margin improved to 51%,…

Thanks, Joe. We view 2024 as a transitional year for 908 Devices. We expect solid growth from our product serving the forensics market and overall revenue growth to accelerate throughout the year as the headwinds in the life science instrumentation and bioprocessing market begin to subside. With this anticipated improvement, we are well positioned to capture the opportunity in this market with an expanded product portfolio. We are confident that with an improved macro environment, we'll be able to return to robust double-digit growth in 2025, which will solidify a path to profitability with our existing cash reserves. To get there, we are laser focused on three key areas for 2024. First is market expansion. Our focus here will be on broadening our market presence by actively engaging with new key accounts and developing strategic partnerships, while also expanding our reach across global enterprise accounts. In 2023, we saw an increase in the pipeline of opportunities for our handheld devices with a 25% increase in enterprise potential. Given the strong growth of our handhelds in forensics, we will invest in areas where we believe we can drive higher growth, both domestically and internationally, and explore ways to further leverage our sales and marketing channel. Additionally, planned increases in NATO defense spending and spending in the Middle East are expected to have a positive impact. For our desktop products, we are working to introduce MAVEN and MAVERICK into advanced therapeutic modalities, establishing a presence with design wins, and strategic relationships with innovators in the cell therapy space. A second area of focus will be to leverage our expanded product portfolios to maximize opportunities and strengthen customer engagements. Our PAT portfolio now includes at-line, online, and in-line analysis capabilities, providing real-time analytics for our customers. This has led us to being increasingly viewed as partners in the cell culture analysis for biologics and cell and gene therapy applications, enabling broader conversations and ultimately larger potential. With all the necessary desktop products in place to address near-term opportunities, we are being selective with our R&D investments, focusing on incremental rather than next generation advancements in 2024. And finally, we will execute a framework for sustained growth with the path to profitability. Our year-over-year operating expenses, excluding stock compensation are projected to remain flat in 2024, with R&D spend tempering now that major product launches of 2023 are complete. We are committed to reaching profitability with our existing cash reserves, and this path will be solidified as we return to robust double-digit growth rates in 2025. I look forward to updating you on our progress across each of these initiatives throughout the year. With that, we'll now open it up to questions.

Thank you. [Operator Instructions] The first question comes from Puneet Souda from Leerink Partners. Please go ahead.

Hi, Kevin, Joe. Thanks for taking my questions. So first one is a demand question tied to the guide, actually. You have more products than ever before as a company with a number of launches and PAT. So just help us understand, as we look at 2024, when you look at the funnel, what gives you more opportunity, what gives you more excitement in terms of adoption of these products? And what are you hearing from the field today in terms of REBEL, MAVEN, and MAVERICK products gaining more adoption and sort of contributing? I'm simply asking that because, when we look at the bioprocessing industry, we are seeing some signs of recovery, but your products are very nascent still in this marketplace. So I just want to get a more nuanced view there if I could.

Yes, absolutely. Thanks, Puneet. You're right. I mean, we feel very happy that we've been able to expand our set of products and kind of go from a one product to a complete strategy of PAT products spanning at-line, online and in-line capabilities and with that it gives us a range of price points that are accessible to a customer, a range of capabilities from, call it, more the bread and butter analytes, glucose and lactate, all the way through to a very comprehensive panel with our REBEL at-line analyzer. So I think one of the things we've been seeing from that is across the board, despite this environment, we're engaged now and being viewed more as a bit of a as a partner in cell culture analysis and really driving conversations perhaps at more of a senior strategic level within these accounts which I think ultimately is going to lead to more potential on it. More specifically, I think we're seeing MAVEN and MAVERICK get some keen interest in biologics, but also some cell therapy areas, and then REBEL as well, in the biologics space predominantly, but interest there as well in the cell therapy space.

Okay. That's helpful. And of -- if I can follow up on MX908, could you talk about the sort of the puts and takes here. It seems like there is a significant interest, just given the political uncertainties, war and other situations and as well as fentanyl crisis. It seems like the need for such a product is strong. But can you maybe take us through sort of the puts and takes, what we need to consider, what could drive expectations towards your higher end of your expectations versus towards the lower end, what are some of the puts and takes there? Appreciate it. Thank you.

Sure, you're right. I mean, we definitely saw a strong demand for our handhelds over 2023, and we do expect that to continue through this year. And you're right, that application of trace chemical detection identification distributed at the point of need. It continues to get traction for us in the US and international. Robust need drivers that we did point out in the script, but significant levels as you read in the news every day of geopolitical risk across Europe and Middle East. And then, of course, the fentanyl crisis is not abating, unfortunately, there and it just continues to rear its head in a broader way. So we had some items in the script and in the prepared remarks there, but around seeing more and more adoption internationally. We're seeing larger deals developed internationally. We've seen good growth overall since the IPO. So really a 29% CAGR we've seen over the time between 2020 and 2023. And likely not the same growth level of 28%. We saw this there, but meaningful opportunity as we put out today in the guide.

And maybe to tie together, both on the desktop side and the handheld side. As we think about 2024, our desktop growth that's expected to be more variable than the handheld growth for reasons we called out in the remarks. With rising contributions from those new product launches, we are expecting desktop growth to rebound into positive territory in 2024. So we're encouraged, we're seeing some of those positive indicators and anecdotes that things are moving in the right direction. With the Q4 and product adoption, it was solid. Our base case does assume that the desktop spending shows gradual improvement during 2024. So on the whole, this year we expect 2024 to be better than 2023, likely not a material step change, but steady market improvement. And if recovery trends are better than expected, and we see a case for accelerating desktop growth in the second half of the year, maybe towards the double digit range. But as a reminder, desktop revenues really is about 24% of our total 2023 revenues. And over the years, this number should rise and then over the next two years, but today handheld really remains our meaningful contributor. And on that handheld side, we have delivered the consistent growth above levels in the traditional lab mass tech market and grown 14% CAGR over the last two years. Maybe a few factors in play for 2024 relate to that growth, $2 million year-over-year step down in AVCAD [LREC] (ph) revenues anticipated in the guide, which translates to roughly a 5% drag on our handheld growth. And we await the potential full rate production award as early as 2025 for AVCAD. There's a bit of a gap in 2024. For 2024, the delays in the US federal budget will remain the -- pressuring our handheld revenue growth. We see an opportunity to recapture the maybe Q1 weakness throughout the remainder of the year. So we do expect our 2024 handheld revenues to be in the kind of mid-single digits in the guidance range that we shared today.

Got it. That's helpful, guys. Thank you.

Welcome.

Our next question comes from Dan Arias from Stifel. Please go ahead.

Good morning guys, Thanks for the questions. Joe, maybe just digging into Kevin's comments there and your comments there on bioprocess. When we look at the guide for the year, the $52 million to $55 million that you're talking about, and we try to sort of impute some placement trend across the year for REBEL, can you maybe just talk about how the year might start versus finish on REBELs if we were to sort of get to the middle of that range? And then did I hear you right when you said desktops might step up this year? Kevin, the rebound that you mentioned, does that refer to instrument revenues for REBEL, MAVEN, and MAVERICK relative to 2023? I just want to make sure I clarify the way in which you're thinking about 2024 over 2023.

Yeah, I think a few different pieces there, Dan. Yes, we did reference to stepping up throughout the year, we see some continued pressures here in Q1 and Q2 on placements on the device side, both with kind of our ZipChip and REBEL devices, but also the timing of some of the new product adoption and placements on MAVERICK and MAVEN, especially with MAVERICK as we start to get the evaluations out there with the customers. It may take a few weeks. We're excited by some of the conversations we're having with MAVERICK, but the timing is probably Q3 and back half. So seeing some of that accelerated growth as we go throughout the year, more in the back half on the bioprocessing of products is assumed in the $52 million to $54 million range.

Okay. And then just on the handheld side and the funnel that you highlighted, what are you looking at in terms of a mix of bigger enterprise deals versus smaller ones, 10 to 20 system deals? Just trying to think about how the order book could build if we put it in sort of baseball context and think about triples and home runs versus singles.

Yeah, I think, Dan, it's a good mix. I mean, when we think of our funnel, we think of it as the smaller opportunities called pilots. We've got a hundred plus units in that stage of the funnel and that's across 16 accounts up a bit from 2022 and then our enterprise accounts has expanded about 25%, so those are the larger deal opportunities that you spoke of that that could be those 50 unit large or an addition to a previous large opportunity. What I think it's been really great to see is that, while we're always going to be dependent on some larger opportunities for a given year, we're also seeing more diversity in the pipeline develop. That's across the state and local accounts where you might see opportunities now that aren't just a single unit, but could be a high handful or a bit more in some unique cases. But then internationally, we've seen us progress from about 20% of sales last year outside of North America, and -- sorry, for 2022, and then for 2023, about 25% of sales. And importantly, if you dig into that a little bit more, we're just seeing that diversity in the size of those opportunities, seeing more larger opportunities develop outside North America as well. So I think we've got a healthy mix there, but we are dependent on large deals as well.

Okay. Thanks so much.

Our next question is from Jacob Johnson from Stephens. Please go ahead.

Hey, thanks. Good morning, guys. Maybe starting with a question on the cell and gene therapy side, I'm just curious, you've got two partnerships, Terumo is using MAVEN, Cellares is using MAVERICK. I'm just curious why they're using different instruments, maybe it's different unit operations, but I'm curious about that. And then maybe two, as we think about that market, how do you think of the opportunity for MAVEN versus MAVERICK, kind of the greater opportunity in cell and gene therapies?

Yes, I'd be happy to cover that. I was super excited to announce another collaboration there with the leading cell therapy developer and manufacturing Cellares, being very integrated and bringing them in line monitoring of some of these key cell culture parameters and lots of potential we believe in that space and getting designed in and partnered or co-marketed or otherwise connected to these leading innovators in the space, including Cellares and Terumo and others we're working on, but we haven't yet announced. We're super excited about that. As you know, there's a lot happening in the field at this time, and we believe we're bringing a strong value proposition across our set of products, including for our online and in-line connected where you're doing real time monitoring without the risk of sampling and with reduced labor. And that benefit allows for immediate corrective action and maintain sample integrity and reduce risk contamination. So lots of value there. In the case of MAVERICK, really looking to be compatible with their cell shuttle system and be fully integrated and be a scalable platform forum. Obviously it's quite an automation product that they're developing there. And MAVERICK with its scalability of today, a couple of key process analytes, but also some attributes. And then they open backend for people to do their own modeling and machine learning and other algorithm development on it. It's a broad set of capabilities, but the price point is different than MAVEN. The price point is more in the $100,000 versus in the $25,000, $30,000 range for our MAVEN. So MAVEN brings the glucose and lactate measure maybe more direct and applicable to a lower CapEx deployment where this could be more mated with that. So I think it also brings those same attributes, but it's more…

Thanks for that Kevin. You managed to answer my plain follow-up. So maybe go to a different direction then. Joe, when you talked about the gross margin outlook this year, I heard you mentioned kind of pricing as part of that. Maybe here's kind of your thoughts on how you're thinking about pricing this year?

Sure. I'm going to touch on a few different things on gross margin, but specifically on pricing each year. We look at the market and we have implemented price increasing here in 2024 to try to offset some of the inflationary impacts. But as we kind of look back on gross margin, we had some pressure on gross margin in the fourth quarter and in 2023 as a whole. A piece of that was an increase in spending to each scale within our operations and service functions. And that was really despite some higher revenues and the cost to deliver the revenue, service personnel, contract trainers, materials, they all increase. We also saw a temporary need and increase in our third-party contractors to train our customers on the MX908. As we saw, the increased demand for the use of the device, we're working to reduce the number of contract trainers we use going forward. I mentioned $0.6 million in non-cash stock-based compensation and tangible amortization as a driver, and that'll -- at least the non-cash stock count will increase a bit in 2024, so we get to our fourth year of being public. There are probably two other elements within our product gross margins about $0.5 million in higher materials and supplies on warranty obligations during 2023 and about $300,000 in higher provisions for excess and obsolete materials as our products progress and iterate through the years. Pricing is definitely helping [Multiple Speakers] we also have some headwinds across the board.

Got it. Thanks for taking the questions.

Welcome.

The next question is from Matt Larew at William Blair. Please go ahead.

Hi, good morning. Kevin, I wanted to ask you, you reference Terumo and Cellares, but you've had a partnership with Sertorius here for some time selling MAVEN. So just want to make a sense for how that has progressed perhaps as a way for us to gauge how these newer partnerships might progress as well.

Yes, absolutely. We do very much enjoy our partnership with Sertorius. We do have a previous generation of the MAVEN product that's for sale through that channel and that's been a good relationship. We're continuing to see that for glucose control and really kind of part of their system to allow a full offering to a customer, to a large farmer for biologics in particular. And need there is across from the small volume bench top bioreactors all the way up to pilot scale and beyond. So we're very much engaged working with them and developing a successful partnership there. And as you know, we do have Sartorius Korea as part of our distribution channel for that defined unique territory where they've got a very, very strong footprint. In that case, they're representing as a distribution partner for us our MAVEN, our MAVERICK, and our REBEL products.

Yes, I just maybe add that on the Sartorius side, they've been a great OEM partner and kind of collaborator and a proof point for the technology. And we look for those not only on the desktop side, but across on the handheld side too, as far as different ways to get our product in the market. AVCAD is an example of that on the handheld side. And we'll look for ways to enable that in the future. We have a really talented sales team across the board, especially on the government side, and we'll look to utilize where we see technology to be able to plug it in and get more top line contribution.

Okay, And then, Kevin, you gave some data points in the prepared marks around bookings and leads generated in the second half versus the first half of the year. [indiscernible] comment you can give on what the composition of those leads are, both from a product perspective in terms of the influence of new products, but perhaps also from a customer perspective in the sense of existing manual customers either with REBEL or another product to or you're now have an opportunity to build the desktop ecosystem versus perhaps new customers who were particularly attracted to one of the products that you launched last year?

Yes, absolutely. I can give you some more color on that. Happy to. If you think first from the bookings and where we landed for Q4 shipments of the new desktop devices, MAVEN and MAVERICK were absolutely key drivers to that uptick that we spoke of there in the Q4 desktop bookings and took it to be the largest booking quarter we had since Q4 2021. MAVEN, of course, was really just launched in January of 2023, and Q4 did represent its best quarter since launch. That being said, we had some favorable timing there, right, because as Joe had mentioned previously in an answer that you really see as you launch a new product, you get some additional placements, you work through customer evaluations and then you see that revenue uptick and we saw some of that happening with our MAVEN and then we also had our MAVERICK, our first shipments of MAVERICK occur in Q4 to customers and partners, distributors there, those adoptions. And then recurring revenue was also strong, we saw across the board, both in large pharma accounts that have been established users for say a REBEL product there as a big driver, but also in some newer customer adoptions there. So we had at least a couple of, call it, $50,000 to $100,000 consumable kit orders by large pharma customers, and that's kind of in that 12 to 24 kits to be delivered throughout the year. So we do expect that as we've seen in past years, but we did like to see that again. And our installed base really just continues to build across the board there and gaining some visibility into service and desktop consumable sales here. But with the launch of MAVEN and MAVERICK, now with the REBEL analyzer device replacements are still our priority, but it is nice to see some of those consumables or service recurring elements contributing to our Q4 bookings. From a distribution of customers, if I look back at our desktop sales over the 2022 and 2023, the bulk of it is into the biopharma biotech customer space. We have less penetration in the academics, government and CDMO, CRO space. So I would say we've got about 50% to 70% in that biopharma biotech space and maybe only 15%, 20% in the academics. And where we have seen some increases would be really more in the life science suppliers, media providers, and importantly, some of the things we touched on, the Sartorius relationship, the innovators in bioprocessing equipment for biologics and cell and gene. So as we become part of other systems or do more of these partnerships, likely that will continue.

Okay, thank you.

[Operator Instructions] And we have no further questions on the call, so I will hand the floor back to Kevin to wrap up.

All right. Well, thank you all for your time and we appreciate you tuning in today and look forward to giving you further updates as we progress across 2024. Thank you.

This concludes today’s conference call. Thank you all very much for joining. You may now disconnect your lines.