908 Devices Inc.

Hello and welcome to the 908 Devices third quarter 2024 financial results conference call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's events, please press star followed by one on the telephone keypad. I would now like to hand over to Kelly Gurra with the Gilmartin Group. Please go ahead.

Thank you. This morning, 908 Devices released financial results for the third quarter ended September 30th, 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 Knopf, 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 listing description, please see the risk factors section of the company's annual report on Form 10-K for the year ended December 31st, 2023, and in its other filings with the Securities and Exchange Commission. Except as required by law, Nanrate Devices claims 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, November 12th, 2024. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our third quarter 2024 earnings call. We ended the third quarter with revenue of $16.8 million, an increase of 17% over the prior year period. However, our financial results fell short of expectations. As we noted in last quarter's earnings call, we expected second half 2024 growth to be driven by our handhelds, including a number of 20-plus unit placement opportunities internationally and domestically. While we secured many sizable orders and placed 178 handheld devices in total during the third quarter, placements were less than expected in part due to a compressed spending period resulting from the delay in passing the federal budget and delays with advancing international contracts. In addition, we continue to see softness in the bioprocessing and life science instrumentation market, elongating the sales cycle of our desktop devices. Our prior 2024 guidance contemplated a quicker and sharper recovery in second half demand, which hasn't yet materialized. Given the muted 2024 spending environment and the delayed opportunity with the ending of the U.S. government fiscal year, We are appropriately lowering our 2024 revenue guidance to be in the range of $56 million to $58 million, representing 11% to 15% growth. Joe will provide more detail on our guidance in a few moments. The end of October marked six months since the closing of our acquisition of Red Wave Technology. We continue to be incredibly excited about the union of our two platforms and the rationale for bringing the two companies together remains absolutely unchanged. As a combined company, we are now better equipped to serve our customers by offering a full, best-in-class portfolio of innovative handheld devices paired with world-class service, training, and comprehensive decision support. Reflecting back on our learnings over the last six months, Combined with the shifting dynamics in the markets we serve across our entire portfolio, it's become even more evident that operationally, our harmonized platform creates a path for further cost efficiency and expanded gross margins for all of our products. We are implementing three structural adjustments to fully realize this. We are at a turning point and believe now is the right time to lead into these changes and accelerate the transformation of 908 as we prepare for 2025 and the growth beyond. First, we will move manufacturing out of Boston by the end of Q3 2025 to our facilities in Morrisville, North Carolina and Danbury, Connecticut, which are lower cost manufacturing locations. We successfully moved production of our consumable chips to North Carolina earlier this year, and this site will now take on production of our desktop devices. We completed the expansion of our Danbury facility in the third quarter, and this site will manufacture all of our handheld devices going forward, including our U.S. Department of Defense AVCAD product in partnerships with Smith Detection in the potential full-rate production phase. Our Danbury site offers a roughly 75% reduction in facility rent costs compared to Boston, and this will be leveraged over time to expand device gross margins for our highest volume products, our handhelds, representing approximately $2.4 million of annual savings starting in 2026. Second, we have right-sized our bioprocessing and life science instrumentation efforts for current market growth. Last week, we took the action to reduce our workforce by 11%, which included positions in sales, marketing, and R&D. This reduction is expected to save approximately $4.2 million annually, and importantly, enhances our team's agility to capitalize on opportunities as the industry recovers. Third, we're optimizing our full sales organization for new efficiency, focus, and flexibility to quickly take advantage of growth opportunities. For our handhelds, this includes taking a page from the RedWave playbook and efficiently driving device sales through inside sales efforts with virtual demos and leverage of their established Try Before You Buy program, which combined represented about 25% of Red Wave sales year to date. For desktops, we're leaning further into our strategy to pursue biopharma partnerships with equipment innovators, particularly in the cell and gene therapy space. To expand our account reach, we will step back from our subscale international direct sales team to gain a larger presence through specialized channel partners in the bioprocessing space across Europe going forward. This model has proven effective for our forensics team. With these adjustments, we remain confident in our ability to operate in a lower growth environment and capture the opportunities in front of us. But we're also looking forward and remain excited to create an acceleration of growth and believe we remain well-resourced to achieve this. With our assessment, we've identified five key elements to accelerate our growth in the near, medium, and long term. One, increasing enterprise adoption of FTR handhelds. A strength of 908's commercial engine is the ability to penetrate and radiate across government enterprise accounts. Just over the last few months, MX908 was adopted into multiple global enterprise accounts, including the Vietnam Border Guard, the EU Drug Detect Program for prisons, and the U.S. National Guard Bureau counter drug program. For our FJR products, we secured initial purchases with the U.S. Coast Guard, U.S. Environmental Protection Agency, and the U.S. Navy in Q3. Now, six months into our prospecting, we've already identified hundreds of units of enterprise potential for FJR handhelds. These large enterprise opportunities take time, sometimes years, to develop, but it's great to see strong initial pipeline development. We're pleased to see Redway's products, including newest Explorer device, following MX-908's trajectory and making inroads with large government customers, which represents a previously untapped opportunity. We anticipate that our new Explorer product will be a major contributor as year-to-date placements are already double those of all of 2023. Number two, creating an upgrade cycle with the next generation of our MX-908 handhelds. Over 2,500 MX-908 devices have been deployed since its release in late 2017. We're preparing to disrupt the market yet again with the release of a next-generation device within the next two years, offering a step change in performance and simplicity with half the size and weight, a lower cost of goods, and a higher pull-through opportunity. Three, winning the full-rate production award for the U.S. Department of Defense AVCAD program in partnership with Smith Detection. We are developing a complementary variant of the MX-908 for program-wide adoption across the U.S. Armed Services, which represents thousands of units potential. To date, under the low-rate initial production contract, we have delivered approximately 100 units together with Smiths. The next phase is full-rate production, which is anticipated to result in over $10 million annually. The milestone decision is anticipated within the government's 2025 fiscal year. Number four, return of biopharma CAPA spending for novel instruments. Marker reports on biopharma R&D spending and on the cell and gene therapy outlook give us confidence that the industry will return to growth. The need for novel process analytical tools is fundamental and remains a key point of emphasis for both regulators and frontline workers. Last year, we launched two game-changing process analytical technology, or PAT, devices, Maven and Maverick. While we've had good customer engagement, we've seen prolonged product trials and evaluations. On the positive, our pipeline of engagements for Maven now includes multiple 12-plus unit opportunities across PDE and GMP manufacturing, and we expect Maverick to follow suit. We are expecting sequential improvements in desktops for Q4 and expect this pipeline to more significantly convert as funding headwinds lessen over the next 12 months. Partner integrations reaching scale. We continue to believe an efficient path to market and scale for our desktop devices is through integration partnerships with the innovators of process equipment. We are working to secure design wins with multiple companies to enable our placements to scale with these partners. We have previously announced projects with Solaris and Terumo BTT, and we are progressing well with a pipeline of more than six others across biologics and cell therapies. For Q4, about half of our anticipated desktop orders are a result of this effort, which was started formally only in Q1 this year. Many of these growth elements are now coming into view as a result of the hard work and dedication of our team and the relentless pursuit of our three focus areas, market expansion, portfolio engagement, and operational excellence. For that, I thank our entire team. While we aren't expecting a V-shaped recovery in our demand environment, we see encouraging signs of improvement. Stepping back, strong second half seasonality has been the norm for our handheld portfolio since the 2017 launch of our flagship MX908 device. Our government sales team has done a fantastic job executing on these large multi-unit government opportunities over the past seven years. delivering a 27% organic revenue growth CAGR between 2018 and 2023. Handheld growth has certainly been and continues to be lumpy at times, evidenced by our Q3 results and expectations into Q4. But the positive trend line is clear and remains clear. New opportunities for growth paired alongside margin expansion opportunities in our fixed cost and manufacturing operations That's up 2025 to be a transformative year for us, and we plan to provide additional color related to our growth and margin trajectory in subsequent calls. With that, I'll now turn the call over to Joe for more detail on our financials. Thanks, Kevin.