Ladies and gentlemen, thank you for joining us, and welcome to the 908 Devices Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now hand the conference 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, 2025. 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, 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 direct 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, 2024, 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 5, 2025. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our second quarter 2025 earnings call. I'm really proud of our team's performance and execution in the second quarter. We delivered strong growth ahead of internal expectations while undertaking initiatives to meaningfully reduce our OpEx and spending to march towards profitability with the goal of being adjusted EBITDA positive by Q4 of this year. Revenue from continuing operations was $13 million, an increase of 14% over the prior year period. Growth was driven by strong device sales with our mass spec devices again this quarter, accounting for roughly 60% of revenue and our FKR products making up the other 40%. Our adjusted EBITDA loss was $3.9 million for the quarter, an improvement of more than 45% year-over-year compared to our previously disclosed adjusted EBITDA for Q2 2024 prior to our transformation. And importantly, the adjusted EBITDA loss reduced by 15% quarter-over-quarter. We are advancing with urgency and discipline towards the 908 Devices 2.0 vision outlined earlier this year, positioning the company for sustained growth and impact. To realize this, we've established 3 strategic focus areas for 2025, targeting market expansion, advancing innovation and reinforcing financial discipline. I'll walk through the progress we've made across each area in the second quarter. Our first focus is to increase adoption of our devices to address global threats to public health and safety. We equip frontline responders with rapid, reliable chemical identification tools that require minimal training and perform when it matters most. Our aim is to define the benchmark for advanced chemical detection in the field. We delivered another strong quarter in Q2, placing 164 devices, including a record number of XplorIR units. This marks our highest quarterly performance for XplorIR and underscores its impact in filling a critical gap in hazardous gas identification.…

Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, our financials will be reporting continuing operations only with any current and past activity related to our desktops, including the gain on sale on one line item within discontinued operations in our financial statements. Total revenue was $13 million for the second quarter 2025, up 14% from $11.5 million in the prior year period, primarily driven by an increase in handheld product and service revenue. Handheld product and service revenue was $12.5 million for the second quarter 2025, up 13% from $11.1 million for the second quarter 2024. We shipped 164 devices in the second quarter compared to 143 devices shipped in the second quarter of 2024, bringing our installed base to 3,336. As expected, program product and service revenue was not material in both the second quarter 2025 and 2024. We are not assuming any meaningful revenue contribution from the AVCAD program in 2025 as we completed the initial low rate production deliveries in Q3 2024 and are preparing for full rate production in 2026. OEM and funded partnership revenue was $0.5 million for the second quarter 2025 compared to $0.4 million in the prior year period. This revenue was primarily driven by pharma and industrial QA/QC customers. Recurring revenue, which consists of consumables, accessories and service revenue represented 36% of total revenues this quarter and was $4.7 million, a 28% or a $1 million increase over the prior year period, largely driven by service revenues and accessories, including the software quantification module for XplorIR and Aero modules for MX908. Looking ahead, we continue to expect recurring revenue for the full year to be approximately 30% of total revenue as device placements increase in the second half. Gross profit was $6.4 million for…

Thanks, Joe. To wrap up, Q2 was a strong step forward in our transformation. We delivered top line growth ahead of expectations, executed key structural initiatives to improve our financial profile and made solid progress on our path to profitability. With record placements of XplorIR, the successful launch of VipIR and a funding environment that's improving both in the U.S. and internationally, we're confident in meeting our 2025 targets and building sustained momentum into 2026 and beyond. We're also excited to welcome Dr. Brandi Vann to our Board of Directors. Dr. Vann brings decades of leadership in defense and biodefense, most recently serving as the Principal Deputy Assistant Secretary for the Defense for Nuclear Chemical and Biological Defense programs. Her background aligns squarely with our mission and her insights will be a strategic asset as we grow our presence across national security and global preparedness markets. Thanks again for your continued interest in 908 Devices. We look forward to updating you on our progress next quarter. With that, let's open it up to questions.

[Operator Instructions] Your first question comes from the line of Dan Arias with Stifel.

Kevin, it does sound like there are some good high-level tailwinds that you have when it comes to just federal funding items, some of the international priorities on security. You mentioned some pretty major sporting events. Are those things showing up in the order book or the sales funnel in a way that has some confidence behind it? Or is it sort of best to just think about the wind blowing in your direction right now, but you still need some time to see acceleration that sort of reflects those things?

Yes. Thanks, Dan, for the question. I think it's a little more towards the latter. As you know, we're working in a defense and Homeland Security, just U.S. federal budget, that's a continuing resolution. It is a full year continuing resolution. We've talked in the past that that's not ideal, but it definitely provides better visibility to our customers. I think the good thing that we're trying to call out in the prepared remarks here is that the new administration is clearly prioritizing the areas that we're working most in national security, law enforcement, unlike, call it, NIH facing cuts, defense and DHS are seeing proposed meaningful budget increases, and we think that is a long-term driver, particularly as we get into FY '26, the government's next fiscal year there. Yes, we called out some legislation priorities around the DETECT Fentanyl Act, the HALT Fentanyl Act. And even just last week, if you saw in the news, there was some efforts to crack down on a roadside opioid product called 7-OH that's out there. So, a lot happening in these areas from the legislative side. But then if you look at the efforts with the One Big Beautiful Bill, and there is definitely, we see sources of strength developing to support our customers and drive us next year towards that 20% plus top line. So a lot of good things perhaps coming. We called out some of the increases in spending that are being forecasted for the grant programs, which our customers rely on. So yes, I think it's a little bit more towards the latter as you framed it.

Yes, makes sense. Okay. And then, Joe, on the crossover to positivity at the EBITDA line as you exit the year, do you think you can stay there? Or is it more likely to move around a little bit on seasonality and other factors? I know we'll talk about '26 in a couple of quarters, but just sort of interested in how things might progress once you hit the milestone, so to speak.

Yes. We did reiterate the Q4 adjusted EBITDA target and see a path to getting there. I think as you think about it crossing over to '26, we do have seasonality within the business. Usually in the first half, it's cash consuming, right? And then with volume and traction, it recovers a bit in the second half. So I'd anticipate that to be similar, but we're definitely off to a great start in the first 5 months since we announced the desktop portfolio divestiture and remain confident in our ability to get to that positive adjusted EBITDA in Q4. I think to achieve that, we need to hit our Q4 revenue projection about $17 million combined with expanding gross margins and lower operating costs. And then we'll be working hard on the full year 2026.

Your next question comes from the line of Matt Larew with William Blair.

This is Jacob Krahenbuhl on for Matt. I wanted to ask just about the new launch product VipIR, just launched that last month. Just give the opportunity to talk about the early uptake or any early contribution from that product? How does it fit into the existing sales team's bag? Are there any incremental training or expenses associated with that launch? And the guide was raised proportionately to the beat at least relative to our model, about $1 million at the midpoint. I know you noted that reflected the outperformance from Q1, but is there any incremental contribution from VipIR we should be expecting that could be upside to the model in the fourth quarter or back half of the year?

Yes. Thank you. I'll start with the first part of it. I mean we acquired RedWave in early 2024. And to us, it's a great platform technology, and we're really proud to have launched VipIR here recently in early June -- sorry, July. VipIR is a 3-in-1 handheld chemical analyzer, and it's really being built specifically for groups that are more like a global customs organization, people that are concerned with that intersection of security and trade. So it absolutely addresses the challenges of interdicting narcotics, explosives and toxic chemicals, but it's also trying to be quick and speedier and help with the flow of legitimate commerce. So the product fits well and it's differentiated with what we have in the bag, as you put it from our product set of our handhelds, including what we do for bulk solid/liquid detection because it integrates 2 technologies, FTIR and Raman and then takes a third technologies and strings it all together, which we call the Smart Spectral processing. And what that does is it makes a confirmatory workflow. So it's less operator involvement. It's faster, more of a confirmatory confident chemical identification, less sampling and the like. So strategically, it absolutely fits in the bag as you put it. Strategically, it very much fits into the -- what I like to think of a flywheel that we go from the early engagements with people in workshops and conferences through to our training events and then obviously, the post-sales support and reach back that our team is respected for by our customer base. So I think it fits very, very well into that. In terms of the financial profile, I'll pass it to you, Joe.

Yes. I think, Jacob, we see some potential sources of upside that could flow through here in the second half. One of those is VipIR and VipIR revenue growth inflection. We think it's more of a 2026 story as we sit here today. We have a few ops that are developing in our pipeline. Beyond VipIR, there are some other potential opportunities on the upside side. The realization of some of the macros that Kevin walked through are developing as tailwinds. If we begin to see some acceleration in demand and funding ability, to support related to the new administration's focus on defense spending, border security and combating the fentanyl crisis in the U.S. and similar trends internationally. So we see some of those priorities come together. It's probably more of a 2026 thing, but we do flip to FY '26 October 1. So if we can see some of those realized sooner. Also, there's always a better-than-expected conversion of large kind of enterprise opportunities for both our MX and our FTIR devices with our combined portfolio that could gain traction under the united sales force. So we mentioned that there's an opportunity for that to grow. So really, those combined, VipIR is just one of those opportunities.

Yes. And to hit your last point, which included in there was around the early feedback. So we are engaged with multiple customs organizations across the globe, and we are getting good initial early feedback. That is that seed, as Joe described it, to the pilot to then to the enterprise accounts likely in that, call it, 2026 time frame. One of the positive feedbacks we're getting is around the connected services element, the team leader connection to be able to do fleet management across that portfolio of -- or the fleet of the potential VipIR rollouts in a particular organization.

Got it. That all makes sense and sounds good. On XplorIR, your record device sales in the quarter, I think you noted maybe I misheard, but you noted the majority of the orders in the quarter were funded through this new U.S. legislation bill that was passed. Just kind of wondering what the runway for this level of sustained device placement growth looks like related to this new funding and whether there are any other areas within the portfolio you kind of expect to see and test similar outsized benefit from this new legislation?

Yes, absolutely. I mean the XplorIR is our, call it, second newest product next to VipIR, and we did highlight another strong quarter and really that first half now. Q2 was 164 new devices, but 45 of those were our XplorIR in Q2. And I think that's really happening because gas detection and air monitoring is very topical. You can see that in some of the other competitors' reports as well that there's some good drivers to that. It's detecting and identifying and filling a gap that doesn't exist out there in the world of gas detection, and that's unknown identification. So that fills a gap for capability for firefighters in particular. Yes, you're right, we did call out the majority were funded on the assistant to firefighters grant program for critical equipment. And that is a program that has been going for a number of years, and there is now being mentioned in the legislation for FY '26 around keeping that commitment and having around $370 million for firefighter grants going forward. So we're excited about that, that's continued. In the whole, as we called out, there's about $1.7 billion of grant funding that our customer base usually is targeting, and that's now in the One Big Beautiful Bill. We'll see what transpires as it moves through appropriations. But that's a meaningful increase. That's about an 11% increase in total that's there. So we're seeing good diversity in orders. We haven't seen just 1 large order to make up those 45. We've seen a lot of 1, 2 or 5 unit orders, which we really like. So again, we think what's driving the adoption is customers really prioritizing the air monitoring for hazmat response and identifying and quantifying unknown odors, leaks, gases. And so we're pleased about that progress.

Your next question comes from the line of Puneet Souda with Leerink Partners.

So maybe first on '26. You're expecting 20% plus growth there. Could you maybe elaborate how much of that is more of the run rate business that you're expecting from state and local agencies versus the upside that you are now expecting from the JAG program, the Urban Area Security, firefighters and other programs that are part of the -- maybe the One Big Beautiful Bill. How should we think about the overall upside and your confidence in the current portfolio to grab a portion of those grants?

Yes. No, great question. I mean we've highlighted in the past and again today around 3 growth catalysts that we see. One is equipment modernization. So that's taking that existing portfolio and executing. That does take into account the grant programs, which historically have funded our customers, particularly against state and local. So it's great to see that those are continuing. We see a lot of greenfield opportunities there. We are working, as you know, to replace some, call it, older and aging variants of these technologies out there. So there's about 15,000 or so, as we estimate, FTIRs out there that we are targeting with that. Our MX908 has over 2,800 devices out there. That's really been a class leader product. And as you know, we're working on the next generation. So Catalyst One is really that execution and driving the contract vehicles that I mentioned are a way to continue that momentum. It's great to see that they've increased 11% year-over-year in total. And then the new products, we talked about VipIR. We're excited about its contributions upcoming for largely 2026. And then we have talked about that next-generation MX. And then the last third catalyst that we've called out driving for the 20% plus if we're executing on all 3 of those, the plus would be emphasized, and that's really around the AVCAD and that we are again looking forward to a decision and a path forward with that program. We're still targeting the end of Q3 for such a decision. It's possible that it extends a bit into later this year. But certainly, by the end of 2025, we're looking for clarity on how that program is moving forward. And so we're working now with that manufacturing transition complete to be able to hit the ground running and be able to ramp as that comes into clarity for us. So all those 3.

And Puneet, touching on the state and local channel, kind of the U.S. state and local. It's been a steady growth driver and for the first half was a little over $12 million of our revenues. And having that run rate, it takes work, right, 1, 2, 5 unit opportunities, but we have a top-notch sales team that delivers on that and is a good baseline. And with our expanded portfolio, continue to win, especially post the RedWave acquisition. So Kevin hit on the catalysts and the growth drivers, excited to have VipIR launched as a key growth driver in FTIR overall for 2026, some optionality on AVCAD as we get additional visibility and timing. So yes, targeting that 20% plus as we move into 2026.

Got it. That's helpful. And then on -- just following up on AVCAD, how should we think about the phasing of that? And if you could remind us what's the revenue opportunity? I think it was $10 million, but if you can remind us, how should we layer that in into '26? And then on the pricing and gross margin side, I just wanted to get your view on your ability to price within these grants and the programs that are coming up for '26. And now with the facility moves, are you -- could you maybe just elaborate on the capacity utilization? And how should we think about the gross margin ramp going ahead?

Sure. I'll touch on AVCAD and definitely can jump in on the other topics. So yes, on AVCAD, we continue to work through, anticipate the full rate production award. working through the timing there, but it can be roughly $10 million per year or greater over a 5- to 7-year period, likely ramping, right? So, I think there's the opportunity to start seeing some shipments in '26. Timing will be determined upon receiving the award. But as you know, we're a subcontractor, so we'd be providing the Smiths and then Smiths on to the end customer. So it continues to be a great opportunity for our mass spec technology and the expansion there. As we think about kind of pricing and gross margin in 2026, each year, we take a look at the market and the ability to increase the pricing at the top line to offset any related costs, et cetera. But I think from a pure cost perspective, a pretty heavy effort here in the first half to move facilities, get manufacturing down to Danbury, about a quarter ahead of time. We brought in some of the production of our MX to facilitate that move in Q2. But I think that sets us up for a lower cost footprint. There is plenty of capacity today. It's almost 40,000 square feet, mainly able to be ramped up for manufacturing. We run 1 shift today. So, a great acquisition that set that platform, amazing team that enabled the transition here in Q2. And I think it sets us up as we ramp into 2026.

Your final question comes from the line of Chad Wyrowski with TD Cowen.

Chad on for Brendan Smith. Just want to double-click on sort of manufacturing base. Will all of the new products, including the MX908 2.0 being manufactured in Danbury as well? And would that require any additional CapEx? Or is the space there today?

Yes, that's right. As Joe just highlighted, we really have worked aggressively to consolidate our manufacturing in Danbury, Connecticut. And that facility there is a great modern but yet cost-effective facility for us, and we're able to get a lot of leverage if you're doing all of your production lines in one place. We also called out on the call a small asset acquisition that we did with KAF Manufacturing, which is an ability for us also to work on those gross margins and secure our supply chain. We spend something around $5 million per year on external machine shops. Now we're able to in-house that a bit, and it helps us control the quality, but it also helps us drive the margin side.

Yes. And specific capital for MX kind of Next-Gen, I'd say it's minimal, right? It's leveraging our core technology. So probably a rounding error would be just around tooling and setup. But nothing with the facility move and the ramp-up of the people and transitioning from MX to MX Next-Gen, we should be in good shape there.

Got it. And then in terms of all the federal budget tailwinds that you called out on the call, is that more of a tailwind to ignite some of these upcoming replacement cycles? Or does this bolster your ability to sign new customers and increase the sales channel? How do you sort of prioritize? And how do you plan on juggling the 2?

Yes. I think it absolutely supports both. We do see a lot of greenfield opportunity for new customers adopting -- maybe XplorIR was some good evidence of that in this quarter. But the replacement cycle, if you will, of servicing some maybe more outdated technologies and getting in there with modern solutions. We think that is also well served in this. We called out some of the U.S. federal developing, call it, tailwinds for FY '26 and beyond that are part of the One Big Beautiful Bill. But I'd also point out that this isn't just the United States. We're also seeing activity across the NATO countries. You've probably seen in June, and we called out in the prepared remarks that some of the allied nations now are increasing their spend. So from our perspective, U.S. and international policymakers are responding to the instability out there, security risk, and we do see it creating a sustained tailwind for advanced detection technology, whether it be a replacement, whether it be a new adoption, whether it be an MX or whether it be an FTIR, we really want to be the leader across that whole space from gas detection to trace to bulk solid/ liquid, and we can do so pretty efficiently with the sales platform that we've created.

There are no further questions at this time. I will now turn the call back to Kevin Knopp for closing remarks.

Well, thank you all. Thank you all for your attendance today and support and interest in 908. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.