908 Devices Inc.

Hello everyone and welcome to the 908 Devices first quarter 2024 financial results conference call. My name is Seb and I'll be the operator for your call today. If you would like to ask a question during the Q&A session, please press star 1 on your telephone keypad or press star 2 if you would like to withdraw your question. I will now hand the floor over to Kelly Gurra, Investor Relations, to begin the call.

Thank you. This morning, 908 Devices released financial results for the first quarter ended March 31, 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 at 908devices.com. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial Officer. Today's call includes a slide presentation which is viewable to those joining via webcast. The slides will also be available after the call ends at ir.908devices.com under the menu header Events and Presentations. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release 908 Devices issued today. For a more complete list and description, please see the risk factors section of the company's annual report on Form 10-K for the year ended December 31, 2023, and 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 April 30th, 2024. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our first quarter 2024 earnings call. We had a solid start to the year with top-line revenue of $10 million for the first quarter, representing 8% product and service growth year over year. We continue to see robust demand for our handheld devices in Q1 and anticipate this trend to persist throughout the year as applications for chemical detection and identification at the point of need gain further traction in the US and internationally. Over the past several years, our team has built a robust product portfolio that serves the forensics and bioprocessing markets through both our own innovation as well as through a strategic acquisition. On our last earnings call, we outlined three clear objectives for 2024. First, to expand our market reach. Second, to leverage our expanded product portfolio. And third, to execute under a framework for sustained growth with a path to profitability. This morning, we are excited to announce the acquisition of RedWave Technology. This acquisition is additive to each of our existing initiatives for the year and we believe will be a very strong strategic fit over the near and long term. As you will see momentarily, there is very strong strategic rationale and synergies between the two companies, which makes this a very compelling acquisition. Importantly, our teams have very similar cultures and ethos, which makes me extremely confident of the fit as we welcome the Red Wave team into our organization. 908 Devices has a mission of creating positive impact in people's lives with our efforts to help our customers rid our communities of fentanyl and counterfeit pharmaceuticals and advance life-changing personal medicines. Similar to our mission, Red Wave thrives on helping increase the safety of first responders and other frontline workers that must answer the call each day. It is a founder-led, highly technical organization that we believe matches well culturally with our innovative team at 908 Devices. Further, our Chief Product Officer, our VP of Government Sales, and I, along with many others in our management, commercial, and technical teams, have immense experience with optical spectroscopy from product development to large-scale commercial penetration. This is a well understood technology space, set of products and applications for our team, which we believe will significantly lower the execution risk of the acquisition and enable us to focus on the positive financial impacts we expect to materialize. So prior to reviewing our first quarter results, I wanted to walk you through a set of slides that outlines why we are so excited about this acquisition and the positive synergies we expect to see for our business. We believe there are many compelling points that highlight the strong rationale for this acquisition, which I will summarize into five key areas. First, RedWave, as a standalone company, has an attractive financial profile. It is a profitable, high-growth, privately-owned business with unaudited 2023 full-year revenues of approximately $13.7 million, attractive gross margins of approximately 52%, and a positive operating margin of approximately 15%. Last year, they grew revenue 20% plus year over year and operated as a cash flow positive business. Second, Red Wave expands our toolkit of handheld chemical analysis devices to serve broader forensics workflows spanning unknown solids, liquids, gases, and aerosols from initial detection through their identification. With this acquisition, our handheld portfolio goes from one to four market-leading handheld products. With the comprehensive capabilities of this expanded handheld portfolio, we expect to accelerate penetration of the addressable forensics market, which we estimate to be more than $1.3 billion. Third, the RedWave products immediately add to the bags of our 908 direct sales and applications team. enhancing our efficiency and scale while supporting RedWave's growth trajectory with our robust commercial platform and global reach. Fourth, in addition to the synergies for our forensics customers, RedWave's products also bolster our bioprocessing business. Their technology is based on an infrared optical spectroscopy platform called FTIR that is additive to our newly released Raman product, Maverick, that operates on a related scientific principle. Process analytical technology customers in pharma often leverage FTIR, Raman, and other related infrared spectroscopy technologies for QC, upstream, and downstream applications. RedWave has a small presence already here today, and we see future opportunity to leverage the RedWave technology to further enhance our existing bioprocessing portfolio. And finally, fifth, this combination significantly enhances our financial profile. Red Wave is profitable and cash flow generating. Immediately, Red Wave is accretive to our gross margins. We have also identified more than $5 million in forecasted annual cost synergies that we expect to be realized in 2026. The contribution of Red Wave revenue, the leverage of 908 sales infrastructure, and the identified cost synergies are expected to accelerate our path to reach $100 million in annual revenues and accelerate our crossover to cash flow breakeven with a steeper profitability ramp thereafter. And importantly, we continue to expect that we'll be able to reach breakeven with our cash on hand. The upfront transaction value is $53.5 million, which is comprised of $45 million in cash and 1.5 million shares, representing $8.5 million using our closing stock price as of April 26th. In addition, There is the potential for milestone consideration totaling up to 4 million additional shares, representing $22.7 million, using our closing stock price as of April 26 for accelerated growth over the next 24 months. An annualized approximate 22% growth is required to meet the minimum threshold for these payments. As RedWave's growth then becomes on par with 908 Devices' historic handheld revenue growth levels, additional consideration is earned over the 24 months achieving the full earn out at an approximate 38 annualized growth rate we believe this structure creates long-term value for our shareholders and rewards red wave for accelerated growth with stock issuance upon performance red wave is a leader of innovation in optical spectroscopy the company was founded in 2016 by a well-known and respected team in the detection space and is headquartered in a modern and cost-efficient 38,000 square foot facility in Danbury, Connecticut. They've developed a compact and mobile technology variant of infrared spectroscopy called FTIR. FTIR is renowned for its specific substance identification abilities across a broad range of bulk materials. Using this technology, Red Wave products can identify more than 22,000 chemicals in bulk including visible amounts of drugs, white powders, and other unknown solids and liquids. This is a very complementary capability as our mass spec technology is highly regarded for its tremendous sensitivity, providing unparalleled detection identification capabilities at trace and invisible levels for a focus list of chemical species. Given the complementary capabilities of our devices, Red Wave products target the same types of customers as our handheld products, including first responders, law enforcement, and other frontline workers, including customs and postal inspection agents globally. There's a long runway of opportunity ahead for growth. Red Wave products are well positioned to replace more than the 15,000 legacy FTR products that are lacking modern conveniences, such as remote connectivity and app integration. In addition, to the significant opportunity to replace legacy FTI products, there's an opportunity to address an expanded use case for unknown gas identification. Red Wave offers products that can identify 5,500 toxic and VOC gases to help track down the source of a leak in industrial and hazardous material situations. They've built three innovative handheld products that pair well with our MX-908 and fortify our MX aero offerings and our roadmap in the air monitoring space. Our sales team is excited to add these complimentary Red Wave products to our handheld product offerings immediately. As I mentioned moments ago, our products are highly complimentary for analyte detection and identification. Forensics customers use both MassSpec and FTR to rapidly assess and monitor their environment for dangerous trace chemicals and possible bulk chemical hazards. In the most general sense, our MX MassSpec handheld focuses on the invisible and unseen. targeting fentanyl, its many analogs, and hundreds of such highly toxic analytes. RedWave's FTIR-based products expand our detection capability to more than 22,000 and are ideally suited for visible bulk sample identification. Together, the two technologies offer a fast and comprehensive field forensics toolkit supporting our customers' broader workflows. By bringing RedWave's market-leading handheld technology to 908 devices, We can leverage our existing scale and platform to serve both new and existing customers more efficiently. Strong relations and support through the sales cycle are key to our customers. By bringing their team onto our existing commercial platform, we can better serve customers across the sales cycle, from technology and application to offering world-class support and service. And we can now offer a combined situal awareness view through our 24-7 reachback service with multiple data modalities available. Additionally, with scale of RedWave's cloud-based fleet management offering, we have the potential to offer new value-add data services for additional recurring revenue. The existing RedWave devices already in the field significantly expand our base. Collectively, we now have over 3,600 units fielded, and more than 18,000 trained users. Over the last few years, we focused on creating a portfolio of desktop devices to serve biopharma, and we released two products just last year, as we believe our desktops will be a significant contributor going forward. With this acquisition, we are adding three products to create a like portfolio of handhelds for forensics to gain efficiency and scale in that space as well. both our desktops and handhelds we see great benefits by having complete and complementary suites of products to offer our customers we believe the strategic rationale here is incredibly clear first we believe this acquisition will meaningfully accelerate our revenue growth in an end market that has been performing well second the overlapping customers and call points enable significant sales and marketing synergies third It is projected to improve scale and efficiency in a large addressable forensic market, opening access with a broader portfolio of capabilities for our customers. Fourth, it expands our tech toolbox and have now created a leading point of need analysis platform, MassSpec, Raman, and FTR, three lab grade technologies supporting a robust roadmap long-term in forensics and bioprocessing. And finally, It is forecasted to be accretive to both the top line and gross margins. We are acquiring a profitable cash generating business, which accelerates our path to brick even. As I touched on earlier, RedWave offers a compelling financial profile with meaningful revenue and margins, growth rates and earnings above our own corporate averages. RedWave and 908 Devices have an overlapping customer base and call points, supporting improved scale and leverage of sales and marketing efforts. Red Wave has just begun to make sales into US federal government accounts, and we believe that our success with large enterprise accounts will help to further penetrate this opportunity. Internationally, Red Wave and 908 devices share many of the same channel partners. We estimate an 80% overlap, again, creating efficiencies of scale. As mentioned, beyond mass spec, Pharma PAT customers often leverage FTR, Raman, and related infrared spectroscopy technologies for applications in QC, upstream, and downstream. 908 Devices' desktop portfolio includes our new Raman-based Maverick device for upstream bioprocessing, and RedWave now adds a line of Raman and FTR accessories for PAT and industrial QC, with the potential for optionality to extend FTR devices into downstream pharma. These accessories represented approximately $2 million of their full year 2023 sale. We are positioning ourselves for accelerated growth through our selective acquisition strategy and new product launches. RedWave is our second acquisition as an organization following the successful acquisition and technology integration of Trace Analytics GmbH in 2022. Since our IPO in late 2020, we've developed and launched a suite of innovative desktop devices to just last year to position us for growth as the headwinds for life science instrumentation and bioprocessing subside and advanced therapeutic modalities take hold. Over time, we have grown total top-line revenue at a three-year CAGR of 23%, supported in large part by our flagship handheld device for the detection of fentanyl and related trace applications. In 2023, handhelds represented 76% of our revenues and grew 28% year over year. We absolutely want to continue to win in that space while we nurture and grow our desktops for bioprocessing. We believe the acquisition of RedWave does just that by solidifying our handheld market position and driving accelerated growth in a market we have seen with durable success. With the contributions from eight months of RedWave revenue for 2024, we now expect full-year reported revenues to be between $63 to $65 million, an increase of 25 to 29% compared to 2023. Joe will address the details of this guidance in a moment. We project favorable financial impact from this acquisition, including higher growth, improved margins, and a faster path to profitability. In 2024, we expect to add $11 million in revenue, representing eight months of ownership on top of the revenue guidance we provided for the core 908 business earlier this year. Over time, we expect Red Wave to contribute strong gross margins above 908 devices corporate average. We are absorbing a cash flow positive business, and going forward, we've identified more than $5 million in forecasted annual cost synergies to be realized in 2026. The acquisition is fully funded with the cash from a balance sheet, and an additional consideration will be paid in stock contingent on Red Wave meeting a minimum annual growth target of approximately 22% over 24 months. We continue to believe that our cash on hand is sufficient to reach cash flow breakeven. At 908 Devices, we have always operated our business with the goal to build a solid financial foundation for durable, long-term, profitable growth. This acquisition is squarely in line with that vision and further fortifies the foundation we are building. We now have multiple lab-grade analytical platforms at hand to power point-of-need chemical analysis today and well into the future. We have a consolidated portfolio of handheld and desktop devices to address greater than $6 billion of forensics, research, QAQC, and bioprocessing TAMs. And we believe we've accelerated our path to reach more than $100 million in annualized revenues with improved U.S. and international scale. Further, we continue to project the ability to reach cash flow break-even with our current cash on hand. I'm so proud of what our team has been able to accomplish over the last several years, and with the addition of Red Wave technology, I am even more excited for what's next. With that, I'll now turn the call over to Joe for more details on our first quarter and on our updated guidance.