908 Devices Inc. (MASS) Q2 2024 Earnings Report, Transcript and Summary

Hello, and welcome to the 908 Devices Second Quarter 2024 Financial Results Conference Call. My name is Elliot, and I'll be the operator for your call today. [Operator Instructions] I would now like to hand over to Kelly Gura, Investor Relations. Please go ahead.

Thank you. This morning, 908 Devices released financial results for the second quarter ended June 30, 2024. 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, our commentary today will include the presentation of some non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release, which is available in the Investor Relations section of our website. Additionally, 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, 2023, 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, August 6, 2024. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our second quarter 2024 earnings call. We delivered solid execution on a multitude of fronts in the quarter, and we ended the second quarter with revenue of $14 million, representing 16% growth year-over-year. This included $3.1 million of revenue from RedWave Technology, which we acquired on April 29. We are excited to add RedWave devices for both chemical identification to our commercial engine, complementing our handheld MX 908 mass spec for trace chemical detection. We now have an expanded portfolio of handheld chemical analysis devices for forensics workflows. Our customers value our point of need offerings as demonstrated by consistent recurring revenue, which for the first half of the year, representing 41% of our revenues. Our goal has always been to win point-of-need chemical analysis in life-altering applications from forensics through biopharma process control and characterization. Our progress towards that goal in the quarter is measurable. During the quarter, our team completed the commercial integration of RedWave Technology, including product training for the sales teams plus CRM and website integration. Also, we received our first multi-system order, 13 devices in total and the same customer that included both our handheld MX 908 and RedWave Explorer devices. Overall, we sold 153 devices in total in the quarter. I want to thank our team for their enthusiasm and relentless work to quickly bring RedWave into 908 Devices and for the tremendous momentum they have created as a result. We also recently welcomed Michelle Lenhart, former administrator of the US Drug Enforcement Administration to our Board of Directors. Michelle is a determined leader in the fight against illegal drugs and a passionate advocate for substance abuse prevention to young adults. She brings extensive government knowledge and experience, which will support our efforts to further penetrate the forensics market. For our desktop portfolio that serves a life science instrumentation and bioprocessing market, macro market pressures have persisted, and we continue to see an overall conservatism towards adopting innovative technologies and CapEx spending. Despite ongoing pressures, we continue to focus on building a foundation that will position us well for the future. We are aggressively pursuing partnerships with hardware innovators in the cell therapy space, and I'll show more on our progress there shortly. As we launched two new desktop devices last year, we're focused on capability upgrades to our existing products this year. This includes developments to enable integrations and simplifying and hardening our technology with the ultimate goal to present as a simple process sensors. For our REBEL device introduced in 2019, we are optimizing the devices software and hardware has begun initial testing with key pharma customers. Feedback has been positive with one customer noting that they now plan to use REBEL routine manufacturing support in addition to its current use and process development labs. We are truly appreciative of our customers' input and support in these product enhancements and improvements. Now I'd like to provide more detail on the progress we have made across our three focus areas during the second quarter. Starting with our first objective, market expansion. Our focus is to expand our market outreach by engaging with new key accounts, fostering strategic partnerships and extending our reach across global enterprise accounts. We are proud that first responders choose our handheld devices in their mission to protect the public and key infrastructure from chemical hazards, of particular concern, especially at large public events is the ability to test and identify unknown gases, papers and aerosol. Our XplorIR hand held FTIR device can quickly identify thousands of gases and vapors, including complex mixtures and our MX908 Beacon complements this by providing remote detection and monitoring of vapors and aerosol at trace levels. Both devices were used by local response team at the Indianapolis 500 on field race and Republican National Convention and at both events, the XplorIR was integrated onto Boston Dynamics Spot Robot. In addition, several Beacons were deployed at large open-air events in our nation's capital over the July 4 holiday. We value the confidence the response change had in our first-of-its-kind air monitoring technology and the partnership we have with these leading organizations. Turning to our desktop portfolio, I'm excited to announce that we have officially launched our MAVEN configuration for Terumo, Blood and Cell Technologies, Quantum Flex cell expansion system that enables real-time monitoring and control glucose and lactate without the cost and risk of manual sampling. The Quantum Flex cell expansion system is used throughout the cell therapy culture from process development through clinical manufacturing. In a webinar in July, posted by BioInsight, Terumo Sciences noted that real-time automated glucose and lactate sampling allows more frequent data that can be used to maintain tight control over cell culture conditions. He further noted that automated systems like MAVEN ensure reproducibility and reduce the amount of hands on time required for operators. Our respective teams are excited to offer cell therapy developers the ability to gain valuable process insights in order to reduce cost of goods and accelerate progress for these personalized treatments. Earlier this year, we announced a development collaboration with Solaris to integrate our MAVERICK in-line analyzer into Solaris cell shovel system fully integrated, scalable, cell therapy manufacturing platform, MAVERICK, a Raman-based PAT solution provides real-time monitoring and control of critical bioprocess parameters. In addition to Solaris and Terumo, we are actively engaged with a handful of other hardware innovators and continue to see other alliances as there is a need for simple, automated PAT tools, such as our novel devices to enhance process understanding to ensure batch-to-batch reproducibility with these personalized treatments. It is critical to address cost and access for cell therapy and our products directly contribute to it. Ultimately, we believe this integration strategy could create an inflection point for our desktop and an efficient path to market and that complements our direct sales pursuits. Further the value of our desktop portfolio for cell therapy applications, we recently entered into a research collaboration with CTMC, a joint venture between National Resilience and MD Anderson Cancer Center. From process development to integrated regulatory support, TCMC aims to usher novel cell therapies, seamlessly and efficiently through every step of the development journey. During cell therapy production, there are multiple points for samplings required, which is a manual process that is labor-intensive and time continuing. Our collaboration aims to demonstrate the benefit of continuous monitoring of glucose and lactate and GX-bioreactors, today's industry standard. MAVEN is an easy-to-implement solution for hands-off monitoring of cell therapy manufacturing, and we believe will ultimately lead to higher efficiency and more robust therapies. We've also expanded our partnership with the National Institute of Bioprocessing Research and Training or NIBRT based in Ireland. NIBRT's research focus is to make transformative discoveries that revolutionize the manufacturing of recombinant proteins, vaccines and cell and gene therapies. Earlier this year, we began the collaboration that demonstrates how our desktop portfolio can add value in bioproduction and includes MAVEN, MAVERICK for real-time process analytics with REBEL providing at-line cell culture analysis and ZipChip, the rapid product quality assessment. At the upcoming Bioprocessing Summit in Boston this month, Dr. Jonathan Bones, infill investigator at NIBRT, will present findings on an integrated platform of MAVERICK, REBEL and ZipChip that enables rapid generation of informative data and manufacturing process behavior for monoclonal antibodies. We believe these strategic partnerships and research collaborations lay a solid foundation for demonstrating and realizing the value of our innovative PAT solutions. Turning to our second objective, portfolio engagement. We are leveraging our expanded product portfolios to maximize opportunities and strengthen engagements with our customers. In June, we launched an enhanced quantification software package for our XplorIR handheld gas and vapor analyzer, enabling first responders to identify and quantify nearly 5,000 airborne chemicals. XplorIR is the first handheld product of its kind that using FDR spectroscopy to identify, quantify, frac, gases and data. The device is simple to use and can automatically and accurately identify multiple compounds simultaneously at the parts per million level. We believe XplorIR is a game changer for firefighters According to the National Fire Protection Agency, approximately 1.3% of all called – are called hazardous materials compared to 4% fall to fire. Many calls are the result of unknown odors detected by civilians and fire departments need advanced technology in the field, such as the XplorIR, so that they can effectively manage and mitigate potential hazards. We continue to diligently monitor the evolving drug landscape and included new drug targets in Version 3.5 software or MX908-handheld mass spectrometer, which was released electronically during the quarter, enabling all-in-the-field devices to be easily updated. Drug target additions include three synthetic cannabinoids, one synthetic cathinone and protonitazene, a nitazene that has identified in combination with other drugs of abuse. Concerningly, recent data has also shown that it is even more potent than [indiscernible]. Our MX908 is currently the only handheld device used by first responders that can identify protonitazene at trace level. In addition to MX908 analytic target updates released in software, our team of forensic chemist monitors new drug targets and concoctions that appear in the field through our reach-back data service, informing and educating our internal application team and importantly, making customers aware of emerging trends. As an example, our team recently became aware of [indiscernible] known as pink cocaine, a drug cocktail that does not contain cocaine, but usually a mixture of ketamine, MDMA, methamphetamine and other substances such as opioids. While pink cocaine has been seen mostly in Latin America and Europe to this point, it is gaining traction in the US and in fact, our reach back team is now seeing it in US field data. They remain hypercritical that law enforcement personnel and other first responders have advanced and upgradable technology in the field, such as the MX908, along with the 24/7 support they need to stay current and to quickly and accurately identified with the liquid drug. Turning to our desktops. We had a strong technical showing at the American Society for Mass Spectrometry or ASMS pumping in June. At the launch of the Thermo Scientific Stellar Mass Spectrometer, the pairing with our ZipChip C device was used to demonstrate fast metabolite acquisition speed and high-quality quantitative data. Results noted quantitative accuracy and precision for 124 compounds in less than two minutes to bring a wide concentration rate. It's great to see these new launch mass specs that can exploit the full speed of our ZipChip. Also at ASMS, the collaborators at Nayberg [ph] and the University of Wisconsin-Madison a three oral presentations on the research using ZipChip. Research applications included metabolomics, probiomic and upstream production of monoclonal antibodies. Our team also presented 13 posters, which included collaborators from Bio-Techne, AstraZeneca, Thermo Fisher Scientific and the University of North Carolina at Chapel Hill. ZipChip's ability to provide high-resolution separations in minutes was also highlighted in several peer review articles published in the scientific journal in the quarter. In a publication in the Journal Analytica Chimica Acta scientists from AstraZeneca highlighted ZipChip's high sensitivity in the short analysis time of less than eight minutes in the metabolite study of ATP, which serves as a primary energy source for living cells. In a publication in the Journal of Pharmaceutical and Biomedical analysis, scientists from Polpharma Biologics, Nayberg and the Center for Analytical Sciences in Amsterdam noted that charge variant analysis data from ZipChip enables rapid selection of the most promising cell lines during process development of a biosimilar. Finally, in a publication in the Journal of Pharmaceutical Scientists, scientists from Regeneron noted that ZipChip's high-resolution analysis enables identification of charge variance species under various stress conditions, thus supporting rapid process and formulation development of biotherapeutics. Overall, I'm pleased that we continue to strengthen customer engagement with our newly expanded and held and desktop portfolio. Finally, our third objective, operational excellence. We are executing to a framework for sustained growth with the past profitability. We've enhanced our financial profile significantly by acquiring RedWave Technology, a profitable company that's accretive to both revenue growth and gross margins, and we have identified more than $5 million in forecasted annual cost synergies to be realized in 2026. Our integration is progressing smoothly, and our commercial team is effectively managing our broader portfolio of forensic solutions. We're pleased with RedWave's contribution to margins and revenues in Q2, which we view as an early evidence that our overlapping customer bases and call points will support improved scale and better leverage of sales and marketing investments. As we enter a seasonally strong second half for our forensics portfolio, we plan to leverage existing relationships with government accounts to further penetrate this opportunity with RedWave's ways complementary solutions, again, creating efficiencies of scale. We believe these strategic efforts will accelerate our path to over $100 million in annualized revenues and accelerate our crossover to cash flow breakeven with a steeper profitability grant thereafter. And importantly, we continue to expect that we'll be able to reach breakeven with our cash on hand. With that, I will now turn the call over to Joe for more details on our financials.

Thanks, Kevin. Revenue for the second quarter 2024 was $14 million, up 16% from $12.1 million in the prior year period, primarily driven by an increase in handheld device revenue. This included approximately $3.1 million of RedWave revenue. Handheld revenue serving the forensics market was $11.1 million for the second quarter 2024, up 26% from $8.8 million for the second quarter 2023. This increase was driven primarily by revenue related to our recently acquired FTIR products and an increase in service revenue. We shipped 143 handheld devices in the second quarter, bringing our installed base to 2,618. Revenue from our desktop products serving the life science instrumentation and bioprocessing markets for the second quarter 2024 was $2.9 million, decreasing 9% from $3.1 million in the prior year period. 10 desktop devices were placed in the second quarter. Desktop revenues included a small contribution from RedWave in line with our expectations, which drove an 11% increase sequentially from Q1 2024. We ended the second quarter of 2024 with a cumulative handheld and desktop installed base of 3,067 devices, up 18% from 2,590 at the end of the second quarter 2023. Recurring revenue, which consists of consumables, accessories and service revenue represented 38% of total revenues this quarter and was $5.3 million, a $1.3 million increase over the prior year period, largely driven by service. Recurring revenue in the second quarter consisted of $3.3 million related to handhelds and $2 million related to desktops. REBEL utilization remained at approximately 0.5 kit per month for our active users, which has been a consistent run rate. Looking ahead, we continue to expect recurring revenue for our product portfolio to be around a third of product and service revenue for the full year 2024. Gross profit was $7.4 million for the second quarter of 2024 compared to $5.8 million for the prior year period. Gross margin was 53% for the second quarter 2024 compared to 48% for the prior year period. Adjusted gross profit was $8.2 million for the second quarter of 2024 compared to $6 million for the prior year period. Adjusted gross margin was 58% as compared to 50% for the prior year period. The increase in gross margin was partly due to favorable timing of production, including preparation for strong back half seasonal demand for MX908. In addition, we continue to build scale with higher handheld service revenues, which contributed to higher gross margin in the second quarter of 2024. Over the longer term, we continue to expect volume-based improvements to our gross margins as we achieve better leverage over fixed costs. Additionally, we expect adjusted gross margin to be in the mid-50s in 2024 with further expansion in 2025 with the integration of RedWave. Total operating expenses for the second quarter of 2024 were $21 million compared to $16.7 million in the prior year period. This increase was driven by approximately $2 million in nonrecurring acquisition and integration costs, as well as the inclusion of 2 months of operating expenses related to our RedWave acquisition and a $0.9 million increase in stock-based compensation. Net loss for the second quarter of 2024 was $12.5 million compared to $9.3 million in the prior year period. Adjusted EBITDA for the second quarter was a loss of $7.3 million compared to $7.7 million for the prior year period. We ended the second quarter of 2024 with $77.4 million in cash, cash equivalents and marketable securities with no debt outstanding. We anticipate that our cash on hand continues to be sufficient to support our path to cash flow breakeven. Looking ahead in 2024, we continue to expect revenue to be in the range of $63 million to $65 million, representing reported growth of 25% to 29% over full year 2023. Our updated revenue guidance includes the following assumptions. First, we continue to expect $11 million in 2024 reported revenue from RedWave, which reflects 8 months of ownership. Second, we are reiterating our $52 million to $54 million revenue guidance for the core 908 business, representing 4% to 8% year-over-year growth. Compared to prior expectations, we now expect the mix to shift more toward our handhelds with slightly lower contribution from desktops in the second half of 2024. Consistent with our historical second half seasonality, we have a number of 20-plus unit handheld orders that we need to execute on with the closeout of the US government fiscal year. Additionally, while we are seeing interest with our newer desktop products launched last year, the sales cycle is taking longer than expected as customers desire to evaluate and trial our novel technology in this recovering market for preclinical instrumentation. Thus, we now anticipate less of an immediate contribution from new product placements than we did entering the year. On a pro forma basis, assuming RedWave ownership for the full year 2023, our reiterated revenue guidance implies 6% to 9% year-over-year pro forma growth. Following our acquisition of RedWave, we shifted our focus from GAAP to adjusted gross margins. We delivered a strong 56% adjusted gross margin in the first half of 2024, with outperformance, largely due to the timing of MX908 production ahead of a seasonally strong second half. For the full year, we expect adjusted gross margins to be in the mid-50s range, a slight improvement from our prior expectations. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. We are building a solid foundation for growth this year with their expanded handhold portfolio to forensic workflows and believe we are well differentiated and well positioned to take advantage of the sizable opportunity with biocasting analytics as momentum in the space returns. As mentioned at the outset of our call today, our goal has always been to win point to need chemical analysis in life-altering applications broadly from forensics through to biopharma process control and characterization and beyond. We are pleased with our progress towards this goal this quarter and the trajectory where we are on for the full year. Lastly, I'd like to again thank our team for their hard work towards our first half performance. The successful integration of RedWave into our commercial structure and ensuring RedWave is an integral part of 908 Devices. With that, we'll now open it up to questions.

Thank you. [Operator Instructions] Our first question comes from Steven Mah with TD Cowen. Your line is open. Please go ahead.

Great. Thank you. Congrats on the quarter and thanks for taking the questions.

Yeah, Thanks, Steve.

So one question -- yeah, sorry. So a question, you said you completed the commercial integration of Red way. So does that mean the sales reps on both sides are now completely cross-trained on all products? And then secondly, when should we expect to see potential revenue synergies from the combined commercial operation?

Yeah, sure. We're really happy with the pace of integration we've had with the RedWave team in Danbury, Connecticut. During the quarter, we were focusing on just that the commercial indication of the team, and that includes -- we did product training of the sales team. We integrated the CRM and the website. From a rep standpoint, we added four direct sales reps that came from the RedWave acquisition to our forensic team and a number of field applications professionals, which is so important on the customer success side. So if you think about it, that's kind of an incremental add to the about 70 people we had at the end of 2023 in our sales and marketing team. And again, very importantly, that includes sales application and support people. I think we are starting to see the initial benefits of that and having people cross-trained as you touched on, it certainly super excited that we saw our first multi-system order within the quarter. It was probably 60 days in. We saw that, and I know it was a single order with purchasing -- single customer, I should say, purchasing 13 handheld devices in total and included our MX908flagship but also RedWave Explorer devices. So I think it's a good testament of where we've come so far, but we're still going to take a few quarters here as we wrap our arms around the total potential and keep introducing the RedWave products into existing 908 accounts.

Okay. Great. Thanks. And then maybe pivoting to Bo processing. I know you said the sales cycle is taking a little bit longer for your desktop instruments. How do you square that away with some companies have stated there's a sign of improvement in bioprocessing. And the second part of the question, are you seeing the sales cycle taking longer from early-stage customers versus large stage customers? And any color you could provide would be great. Thank you.

Yeah, sure. Happy to touch on those points. Yeah. Absolutely, the macro side continues to be a bit of a headwind for us. We're still largely driven by placements versus recurring consumables. Recurring has been a meaningful part of our business, about two-thirds of our H1 revenues, but really, we need to drive more device placements, the hardware for that long-term growth. And we had about 10 in Q2 desktop placements. And definitely encouraged by those in the bioprocessing space seeing some order growth recovery, particularly those large tool players. And that's particularly in our view, been around the consumables side of things. And I think that is a good positive leading indicator of some normalization that's happening, but maybe not a perfect read-through given our reliance on placements and our reliance on the CapEx side of things. And we're for sure seeing whether it's the large Biopharma is being more thoughtful on their instrumentation spend is really high. I would look at where we're participating there with their CapEx and particularly for novel technologies. And then for the smaller Biotechs, we certainly see many of those call it, waiting for some corporate level funding. And I do have one example of a unit here in July that did close once a corporate funding event happens. So we do have a handful of those in our pipeline. So I think the biotech funding will help, but it's probably over more about six to nine-month period perhaps. So yeah, in short, sales like cycles really have been prolonged, but I would say the customer interest has really been as strong as it's ever been. And we did see a quarter-to-quarter step-up in our total desktop device placements. And really that next milestone is seen, if we can get on a cadence more at the levels of 2021 and the beginning of 2022.

Great. Thank you. Super helpful.

We now turn to Matt Larew with William Blair. Your line is open. Please go ahead.

Yeah. This is -- hey, good morning from Matt. Thanks for taking my questions. I just wanted to focus a little bit still on that desktop portfolio and maybe like a similar question, but we have seen biotech funding…

Yeah.

…has had strong improvements in the first half of the year, which is clearly a positive indicator, but recognize it takes time to be reflected in revenue growth and other companies have referenced two to four quarters. And you just noted that macro pressures really at CapEx have persisted. And you're now expecting less contribution from desktops in the back half of the year. So just kind of wanted to maybe get you to elaborate more on, what you're seeing in the market? And what sort of live do you anticipate before you start seeing improved ordering activity and just any visibility into 2025? And if you see demand returning or anything like that?

Yeah. Happy to further elaborate as much as we can there, but yes, I think you hit it. I mean we're still seeing some of those macro pressures and that conservatism towards the innovative technology technologies. And there's the Bioprocessing recovery on the, call it, large manufacturing side of things and the destocking and perhaps the consumables are again a leading indicator there. We're more participating in the CapEx side of things for instrumentation. More modest price instrumentation I realize, but it's yet -- it is. So if you look across our portfolio, we're super excited that we now have multiple products participating in there, and we think that is a distinct advantage, because you're talking about a complete portfolio of products and across a various range of price points. So I think that helps us engage a bit broader and be there for when the demand is recurring, but you're just seeing people taking their time taking being a little more thoughtful. Maybe one example to give you a bit of color, but we have a customer that's quite interested in our new MAVERICK product. They have an existing Raman Product that could be a decade old or more. And it's broken. And it's a large Pharma Company. And their CapEx is very limited. So they're having to make that decision. I don't have the dollars for both, do I replace with a new innovative technology like MAVERICK, or do I repair? And again, I can't do both. So that really makes them think very hard, and we're seeing our products remain incredibly amount of interest and differentiated, but it's taking people to have some pause, some thoughtfulness more on the evaluation side, and we're kind of building up a pipeline of those evaluations, particularly for our novel products. So maybe that adds a little bit more color to the previous response for you.

Got it. Yeah, that's helpful. And then maybe switching to the handheld, I think you said your guidance assumes 20-plus orders or so that you still need to close out in the back half of the year. Can you just kind of speak to your confidence and be able to close those out? And are those for sure, going to be able to be delivered or just some color there would be helpful.

Yeah. Maybe I'll start and then pass it to Joe here. But yeah, to hit our second half revenue target, we absolutely need to continue to deliver with our large enterprise accounts and we've been making great progress on that over the first half of the year. It's always a little bit challenging on the timing of exactly pinpointing those down, but we do feel pretty good at this moment in time here about the guidance we provided, probably a little bit more on the error bars for our desktops that we've been speaking to, but let me pass it to Joe.

Yeah. So I think specifically on handheld, consistent with our historical second half seasonality. As you mentioned, we have a number of 20-plus unit handheld placement opportunities that we need to execute on ahead of the closeout of the US government fiscal year, and we've done a, let's say, a great job capitalizing on these opportunities in the past, and our sales team is hard at work to continue this trend here in 2024. So similar to past years, we'll have better visibility around some of these larger, I call it needle-moving handheld orders at the time of our Q3 call, and we'll definitely keep you updated as we progress.

Got it. Thanks for the question guys.

[Operator Instructions] We now turn to Daniel Arias with Stifel. Your line is open. Please go ahead.

Good morning. It's Paul [ph] on for Dan. I just want to touch on the outlook first. So you mentioned some seasonality assumptions for the back half. Can you just touch on -- is that assuming a return to historically normal budget flush? Or is that attenuated a little bit? What are the assumptions there? What kind of scenarios would get you to the top end of the range versus the bottom end of the range for the full year?

Sure. Happy to give some color on that. So I'd say similar to -- overall, similar to 2023, our product diversification, we feel continues to support our positive top line growth trajectory, with solid handheld growth that we touched on, helping to offset the slower recovery with our desktop products. and we were pleased to be reiterating today our 2024 revenue guidance despite some unique challenges related to the US government budget delay until March and slower-than-expected recovery in CapEx spending for the life sciences instrumentation. Importantly, we are reiterating our 2024 revenue guidance for RedWave, which we view as a key driver of long-term sustainable growth in the handheld portfolio. But drilling down a bit more on the desktops, maybe elaborating another layer related to 2024, we now expect our core desktops to be down on a full year basis and relatively flat in H2 2024 with a similar trend as prior years where we realized a certain level of year-end kind of capital funding being available. We previously communicated our expectations on desktops to rebound to the double-digit top line growth if and when that instrument market recovery occurs and the growth recovery is taken, I'd say, longer to play out with our visibility here in 2024. We see the pace of growth in 2025 to likely be more muted, maybe not staffing back. But I'd say while the instrumentation macro recovery will be the key determining factor, we believe the instrumentation portfolio is positioned even better coming out of a challenge macro period than it was going into it. So, definitely some year-end budget for us assumed in our base line guide and that gives you some color on our thoughts as we turn the corner into next year as well.

Yes. That's really helpful. Thank you. And just a quick follow-up. In terms of sort of -- you mentioned the gross margin, what the kind of trend has been in the outlook. But can you touch on OpEx, just in terms of the lower assumption for desktop, is there an opportunity for a little bit of savings on the OpEx line as you kind of scale back the business on that side given the lower revenue expectations? Or does that -- do those resources just sort of get put into the handheld side and ends up netting out? A – Kevin Knopp: Yes. I think a few factors in play who are excited to layer on the resources and OpEx, innovative R&D team and kind of mentioned some of the selling team from the RedWave acquisition. So that will be incremental to our overall spend. But yes, I think there is the opportunity to continue to look and it's something that we're ongoing looking to optimize our OpEx efforts. With the RedWave of acquisition, we highlighted some cost synergy opportunities as much as $5 million starting in 2026 as we look to prioritize whether it's the R&D or selling and marketing spend. And I think specifically on the commercial and desktop side, we will continue to take a look at that growth trajectory and look to align the resources with that.

Okay. Appreciate the color. Thanks for the question. A – Kevin Knopp: Yes, Paul.

Our next question comes from Jacob Johnson with Stephens. Your line is open. Please go ahead.

Good morning. This is Hannah on for Jacob. Thanks for taking my question. Just to start, 153 placements in the quarter, is impressive. It's better than we expected, but perhaps it didn't translate to quite the same revenue outperformance that we would have expected. So, this placement number include RedWave or were there some of these placements OEM? A – Kevin Knopp: Yes. It does include RedWave placements, the three FTIR products that we got to the acquisition. So it had two months of placements within the handheld. So that 143 not only included our MX, but also our new Explorer Protector and Read ID products.

Great. Thank you. And then, you've talked about some of the cell and gene therapy partnerships, and you said there's some other opportunities that you're looking at. What about more traditional bioprocessing players, things like monoclonal antibodies and biosimilars like traces work with Sartorius? Are you doing partnerships there as well or is this more on the cell and gene therapy side? A – Joe Griffith: Yes. No, great question. I mean I think across the board there, we really see that these strategic collaborations and call it, partnerships with these hardware inhibitors could be very impactful. We've definitely been highlighting the work we're doing in the -- with the cell therapy inhibitors. Yes, we do have some in our pipeline, which would be more, call it, traditional monoclonal antibodies as well. And you pointed out we already have relationship with Sartorius with one of our products there. And I think we see opportunity in both as you look at, call it, the next-generation hardware platforms that people are launching out there. If you think about the cell therapy area and you think about the automation that's required to meet the access and lower cost gold, yield is a part of that, being able to do that with process sensors is incredibly important to help meet those goals. And we think there's just a very ripe opportunity as that really develops and as there's a ton of effort out there by some leaders in these areas that are just doubling down and trying to make that a reality. And we really want to seek design wins in there and then succeed as they succeed. So, a bit across the board in those six, but definitely weighted towards the cell therapy side.

Great. Thanks. I'll leave it there.

Our next question comes from Puneet Souda with Leerink Partners. Your line is open, please go ahead.

Yes, hi guys. Thanks for the question. So, maybe just on forensic. I mean, ahead of the elections and just wondering, are you seeing any effect on the ordering on the forensics side, what are you hearing from the different state agencies and overall the U.S. agencies and internationally as well?

Yes. I'm happy to touch on that. I mean, I think as Q2 showed we had pretty strong demand for our handhelds across the board. Big drivers there are that need for trace and point-of-need chemical analysis and identification as it probably feels to all of us on the call, the global insecurity and uncertainty is quite high at this time. And then you layer that on with the fentanyl crisis that we explained on our last Q1 call is really now expanding internationally. A lot of big drivers there as we see it in the near and the longer term. And then if you think about now we can access more with our FTR products and then the fact that the international pipelines are growing out. So, I think all of those are helping to the Q2 success and helping towards the ramp that we're envisioning here as we go through the second half. But the election, in particular, I don't think there's going to be a material impact on our business in either outcomes, if you will. If you do look back through history, DA and military spending lines just as two examples of areas that funds come to 908 Devices from, I mean those have trends consistently higher, really regardless of administration. And if you look back over the last 20-ish years or so, those budgets have grown in the, call it, low mid-single digits range in the U.S. And in that global perspective, there's really been a positive additions out there and more of the NATO member countries are pushing to spend more of their GDP on technology. And in some cases, they have goals of 20% of their budgets to be invested in new major technologies and to support modernization, which we think is a positive from our innovative handheld tools there.

Okay, that's helpful. And then on the PAT side with the desktop and cell therapies, I just wondering, I think you're calling out sort of lesser desktop in the second half. I just wanted to understand, I mean, now that you have multiple products, shouldn't we expect some more cross-selling opportunities? Maybe just as we look at recovery in the markets, what's the conservatism in terms of lower second half? Is it just more seasonality? Is there a pull forward? Is there any other things that you're baking in with respect to the REBEL boxes and other cross-sell opportunities that you have with MAVEN and products?

Yes. Sure. Absolutely. I can give some color to that point. We really do -- as you said, we do have a broader desktop portfolio now, right? We've got four products serving that PAT space, really spanning the outline online to the in-line analysis capability. So that was really does, as you alluded to, really kind of strengthens your ability to have a customer engagement there and maybe improves our ability to CapEx spending, capture those dollars as the recovery happens. And if you think of all of them together, they can provide a pretty complex view. But that said, they are new technologies in the quarter. We did see placements across all of our products in the second quarter, about 10 in total for our desktop. But each and every one, especially our newer products in that preclinical space, and I gave a couple of examples earlier where customers are just being conservative with that. And so there's definitely more of a prolonged evaluation cycle, which we do have goals to do 10 plus of those double digits, I would say, in the second half year of our new products, but it just takes a little bit of time. So I think we're factoring that in, in the environment.

And Kevin, lastly, just quickly, is there any -- obviously, these are new products in the marketplace, but just wanted to see if there are any impact that you would assume from a biosecure or facilities changing hands that might be utilizing your instruments?

Well, I certainly can touch on the facility side. I mean, we've certainly seen consolidation across the space and some of our customers consolidating facilities and labs, we've certainly had our share of purchase orders to move equipment from one lab to another, where people contract you, our service team to come out and move it from one lab to another. So I think that has certainly not progressing quickly, because these companies are still, call it, going through that digestion phase. The Biosecure Act, I don't think we've seen anything we can tag directly to that at this point. If we see the construction of new process development labs, probably more on the upfront side, right, process development versus, call it, late stage or in the manufacturing side. I think that would be a benefit to us over time. But today, we haven't seen that. And then as you know, our position in APAC is quite small.

That's less than 5%, yes, from the....

Across all of our revenue perspective.

Across all of our revenue perspective.

Got it. Okay. Helpful guys. Thank you.

This concludes our Q&A. I'll now hand back to Kevin Knopp for closing remarks.

Yes. Thank you. Thank you very much. We're pleased to have you all on the call with us today and happy to answer other questions. Please reach out to the company if we can provide any additional information. Thank you.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.