Ladies and gentlemen, thank you for standing by, and welcome to the 908 Devices First Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. This morning, 908 Devices released financial results for the quarter ended March 31, 2021. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an email to [email protected]. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer.

Thanks, Carrie. Good morning and thank you for joining our first quarter 2021 earnings call. We started the year strong with the first quarter revenue growing 39% to $5.5 million and we placed 66 devices during the quarter, bringing our installed base to over 1,400 devices across our three products. This is double the number of devices placed compared to the first quarter of 2020. Over the course of the quarter, our team continued to execute and made outstanding progress towards our vision of democratizing mass spec by breaking it out of the confines of the central lab and bringing its power to the point of need. To continue this momentum throughout 2021, we're executing to drive expansion across our sales channels, customers and platform. And since we last updated you at the end of March, we've continued to make incredible progress across all three of these dimensions of our business. Starting with our sales channels and commercial team, we ended the quarter with 41 sales, marketing and product management employees, adding 11 employees over the course of just the first quarter. I'm really pleased by the incredible talent we're attracting to 908. We're continuing to track toward our goal of reaching 60 employees by Q1 2022, doubling the number of sales and marketing employees from the third quarter of 2020. To further support growth across our entire organization, we're excited to announce Michele Fournier as our new VP, Chief People Officer, who joined our team in mid-April. Prior to coming on board at 908, Michele most recently served as the Chief Human Resource Officer at Parexel International, a large clinical research organization. She brings a wealth of global experience in attracting and retaining top talent and will be instrumental as we ramp up our commercial organization.

Thanks, Kevin. Revenue for the first quarter 2021 was $5.5 million, compared to $4 million in the prior year period. Products and services revenue for the first quarter 2021 was $5.4 million, up 103% from the prior year period. This increase was driven predominantly by an increase in MX908 and Rebel units, as well as strong recurring revenue. Importantly, we are starting to see increasing contributions from recurring revenue, as our customers become more active in our desktop installed base continues to grow. License and contract revenue for the first quarter 2021 was approximately $200,000, down $1.2 million from the prior year period. The decrease was anticipated, and we do not expect license and contract revenues to be a significant contributor of revenue on a go-forward basis. As our business evolves, our revenue mix is more weighted toward product and service revenue, which is a more sustainable growth driver of long-term growth. Our installed base grew to 1,427 units with 66 devices placed during the first quarter. This increase in placements was driven by MX908 and Rebel Devices. This included the shipment of a number of MX908 units in Q1 that we had previously anticipated for shipment in Q2.

Thanks Joe. Before closing, I want to thank our team for their incredible work to bring to fruition our vision of democratizing mass spec by breaking it out of the confines of the central lab and bringing its power to the point of need. What I'm most excited about is the momentum and enthusiasm we're seeing across our customers and pipeline of customers. We made great progress this quarter and to continue this momentum throughout 2021, we are executing to drive expansion across our sales channels, customers and platform. We look forward to updating you on our future progress. With that, we'll now open it up for questions.

Our first question comes from Doug Schenkel with Cowen. You may proceed with your question.

Kevin, maybe a couple for you to start and then I've got a follow-up for Joe. First, could you help us contextualize the importance of the MX908 enhancements? I'm wondering if these in themselves open up any new market segments or make it easier to move into some adjacencies than relative to how you're positioned before. And then were there - were some of these enhancements communicated to customers in advance of announcing this today? I ask because I'm just wondering if these enhancements themselves had an impact on order trends over the recent weeks or months?

Yes. I got it. Yes, thanks Doug for the question. Yes, we're excited for the enhancements to the MX908, the handhelds. We had stated in the past that we're really creating this momentum as we see it and building out our platform across handhelds and desktops and adding new features and capabilities. The ones we announced this week for the MX, we do think are meaningful; the Bluetooth connection allows the devices to more seamlessly connect with the cloud for updates and allow service supports and transfer of information. We also announced the Aero, which allows it to do another state of matter. Today, it's solid, liquids and vapors, and now with the Aero, it allows it to do aerosolized particles, so meaning things like fentanyl and opioids, which are so toxic to our first responders. So, we think they are meaningful. Yes, we've worked with customers to define as we do for all of our product release with key customers to define it. So there certainly are some customers that are knowledgeable about what's been coming and we use their input to define, but I think they're meaningful. At the end of the day, they're really just a good proof point for the continued expansion of capabilities and the value when a customer buys an MX that we're going to keep investing in it, keep upgrading their capabilities, and it's something that is worthy for them to step forward and continue their adoption.

Okay, that's helpful, Kevin. And maybe one more for you, just on ZipChip and your strategy to address the large molecule characterization market. Could you tell us a little bit more about how you're thinking about that moving forward? I mean, it certainly seems like you could be in a both a competitive as well as a complementary position to some of the existing large mass spec incumbents. So, anything you could share on how you anticipate moving more aggressively with ZipChip in this application would be of interest?

Yes, absolutely. I mean ZipChip is founded on our microfluidic technology and it's essentially the same consumable technology that's within our Rebel device that we talked a lot about for bioprocessing, but ZipChip is more of a broad capability platform that connects to conventional mass spec as you know and it allows them to be more of a discovery open-access tool to explore new spaces and large molecule detection and characterization and monitoring, those are very important for the industry of biopharma, of course. We see ZipChip as really an alternative to LC or UHPLC rather than - because it's connecting to a typical conventional mass spec. So, I would say if anything, it's more competitive with those front-end separations technologies. Where it really excels is its simplicity of sample prep and the speed of separation. Our strategy there is really to work with key opinion leaders and key successes across biopharma. Quite a number of our products are being used for charge variant analysis and critical quality attributes characterization and we had a very recent paper as I mentioned from Amgen, that really shows advantages compared to conventional LC with dramatic time savings there. So maybe more like 10 minutes versus 200 minutes for a CQA run there. So that's exciting for us. And then really, we also are looking to partner with organizations to allow us to connect into workflows that move downstream into later stages and we announced the BioTechne R&D collaboration, where that's the goal.

Awesome. Okay. Last one for Joe and then I'll get out of the way for others. Joe, I think in your prepared remarks, you mentioned that some of the MX908 placements, I may be mischaracterizing that, so feel free to just correct me, but I think you talked about maybe some of those placements kind of getting pulled ahead into Q1. I guess kind of what would be helpful would be as we're updating our models, anything you could do to kind of help us either quantify that and/or I guess you can just talk about kind of pacing Q1 to Q2 in our model. So that kind of cleans up my jumbled question here. It'd be helpful if you could kind of talk about how - what was the value of those placements that were pulled into Q1 and how mindful of that should we be as we update our models, especially on a quarterly basis? Thank you.

Yes. No, absolutely. Thanks, Doug. So, yes, you're right. As I mentioned in the script, we did include the shipment of a number of MX908 units in Q1 that we had previously anticipated for shipment in Q2, and it was all connected to one opportunity, and it was the majority of the beat for those spreads here in Q1. As far as pacing, and we think about going forward, we expect revenue consistently to be more heavily weighted to the back half of the year, probably about two-thirds of our guidance. This would align with historical trends on some of the government year-end spending and former year-end push. As you - I recall, 2020 was an exception with the deployment of handhelds in Q2, 2020 where we accelerated the shipment to some COVID uncertainties, and we'd expect 2021 to be a return to more traditional trends. So hopefully that helps, as far as thinking about Q1, Q2 and the full year, which is really our primary focus for $38 million to $40 million for the year.

Our next question comes from Puneet Souda with SVB Leerink. You may proceed with your question.

Thanks for the questions and first one, Joe, for you. Just a quick follow-up, in terms of the pull forward that you mentioned here from the second quarter to the first quarter, that would imply that maybe Rebel and ZipChip and I totally appreciate that Rebel is a new product in the market and it's early and it is going to be early days for our product in terms of a launch and adoption. So maybe given that context of MX908 within that 66 units that you had in the quarter, could you quantify for us maybe what's happening on the Rebel? And then maybe another one for Kevin. Rebel is obviously a very important device, major innovation in this space in bioanalytics and bioprocessing analytics. So could you maybe quantify, sir, what are you seeing in terms of adoption and what is the commercial sales force seeing out there right now as you have conversations with customers?

Sorry, I will start it out with the last one there and parse that out quickly. But really, I mean, we're seeing good adoption and good color that we've seen through the quarter. As you mentioned, more than 50% of the placements were with new customers this quarter, but that's important as well because we've got good repeat customers there. About 40% of those desktops now are in top 20 biopharma. So those are all good trends from where we see it. We are seeing customers speaking more and sharing more about their successes, which is encouraging. We've mentioned that Bristol-Myers Squibb did a nice talk yesterday, talking about how they see the value proposition of the Rebel in the cell and gene therapy, and Transcenta, a global leader in biopharma in Asia has some of our devices, both ZipChip and Rebel, and they're seeing some encouraging results as they work to optimize their process, which is a perfusion process, by the way. I'll turn it back to Joe.

Sure, some additional color, Puneet, as we think about unit placements and growth across both desktops and handhelds, both grew year-over-year to give a little bit more color on the 66 devices, 53 were MX908, we had nine Rebel devices and four ZipChips. So excited by those 13 desktop deployments; the 53 on the MX was where some of the opportunity to meet a customer request came in Q1.

Got it. That's super helpful, Joe. Thanks for that and Kevin. Kevin, if I could ask around sort of the commercial expansion, which is obviously very important here in the near term and you are on track for that right now, maybe even slightly ahead, if you could give a sense of, in terms of Rebel, what are some of the key priorities? Are there - what are some of the feedbacks from the customers in terms of applications and new product and sentiment that they would like to have? And again, along those lines, what is the pull-through that you have now? And I know you have given a number that is significantly higher by 2023 for pull-through on Rebel. Is that a number that is - are you seeing acceleration in that number with some of your customers using this device for over a year? And then lastly, if I could just ask for any updates on the army contract, is that still the second half? Is that how we should think about that contract and the cadence of that contract? Thank you.

Sure. So from the R&D perspective and Rebel perspective and enhancements, true for handheld, true for desktops, really working to drive that drumbeat as we've talked before around the new capabilities, and that includes things like analyte panel extensions, new software applications, additional assay kits that we've talked about, accessory modules like we've announced a bit here this week. Then, third-party hardware and software integrations and all of those, I think we're doing well and staying connected with the customers to ensure that they're on point for what they need; in particular areas that we're focusing immediately on the Rebel or as in those integrations with third-party software because we do see the value to a customer that now we're giving them 32 analytes that they can measure, that they couldn't readily measure at their fingertips before and that's a wealth of information, a wealth of data, and helping them have an opportunity to mine that and make it easier and easier. We're very much committed to, and outside of that, we're really still working towards that longer-term vision that you alluded to, which is moving it to an online device and moving it more and more to being integrated with the bioreactor itself over the long term. Joe, do you want to comment on the pull-through that we're seeing there?

Sure, absolutely. So for Rebel, we are, as you know still in the early stages, but gaining exposure and traction with our Rebel customers. We're seeing an average of about that one kit per month for active users, and we're continuing to monitor and learn from those customers and their use cases in the range of utilization that we might see over the coming months and years. So, no change in utilization to what we communicated to date. But on the plus side, we are seeing some Rebel customers desiring to get on a regular schedule for their consumables, which is exciting. Maybe to touch a bit on the U.S. Army question and our scale opportunities. So for 2021, our guidance does include some anticipated timing of the US Army purchase order. We're not specifically given the details, and there are some initial shipments in 2021, but the majority will be in the course of 2022. We did not have any here in Q1 related to that new purchase order, but anticipate some to begin going out the door in the second half.

Our next question comes from Dan Arias with Stifel. You may proceed with your question.

I just wanted to ask a couple of market expansion questions of my own if I could. Maybe starting on the MX system, and just thinking about the opportunity in front of that product, obviously, you have the set of forensics applications that you're working on, drugs of abuse, counterfeiting, et cetera. But, during the process last year, you talked about the ability to place systems, excuse me, in the QA/QC environment related to GMP work. Can you touch on that and how we should think about penetration in that portion of the market for the MX systems - the MX device?

Yes, that's right, Dan. Obviously we talk about that; we are still making our steps there. We do believe that the MX is a pretty capable mass spectrometer in a handheld form factor and we do see opportunities in the areas that touch into that QA/QC domain and particularly in the GMP area as you mentioned, areas we've discussed in the past, like cleaning validation and incoming inspection for pharmaceuticals or where we're looking at today. So, we're making those strides, we're making hires in those areas, and today, it's really a development effort for us to work to unlock the capabilities and really design the software, specifically to address those customers and users.

Okay. And then maybe on the Rebel system and then getting at some of the things that I think Puneet was trying to talk to you there. Do you think when we see future versions of that device, we see sort of a phased advancement, so to speak, in that - the analyte panel gets expanded and then that there is a version there and then down the road, you get online monitoring or direct integration with the bioreactor, or is it really we're going to go from Gen 1 to Gen 2 and Gen 2 will have all of the advancements that we're kind of talking about here?

Yes, I really see it as that continuous phased capability that are being added and unlocked with the existing box or future hardware variants of it. So yes, most immediately, it's things like working on the software integration as I previously mentioned here to make it more seamless to get the data out and allow the people to mine it. But then also we're seeing traction into areas like synthetic biology and clean meats and staying close to those customers and optimizing the kit, the consumable kit if it's required or the analyte panel, adding additional analytes that could be interesting to customers through their feedback. But we think it's a pretty comprehensive panel today, but adding additional continues there. So, we'll continue to walk that forward in new software and hardware consumable updates and then working towards the online integration, which may be first through third-party integrations before it becomes something more intimately connected that we've talked about in the long-term vision. So yes, I think that's right to view it as a continuous progression.

One more from me on the MX side, and just thinking about the orders from the State Department. One of the individuals that we spoke to had suggested that there is some efforts that are ongoing in the government to sort of standardize and I guess harmonize the approach to adoption and usage in the U.S. government. How much are you finding the siloed nature of the government to be a bottleneck today? And is this effort that you've referenced something that you're seeing or you're hearing about from your seat? If it is in place, do you think that can actually help to speed up the uptake at the federal level anyway, maybe even the state level, but certainly the federal level?

Yes, I think across all sections of the federal government and state and local government, there are definitely efforts to be more of a standard capability, more of that standard of response or standard of care equivalent. We see that internationally as well. Many of these things can be more grassroots, organized within local states or states that work together or a response team within a particular area in the federal government. So, I mean, I wouldn't say there is one theme that we see across the entire United States, but I'd say there definitely are pockets. We mentioned on the call today that the part we're excited for some of the adoptions that we've got is for the State Department specifically, right. They're sharing best practices across the globe for how to stem the tide of these illicit and counterfeit drugs. So getting plugged in there, getting those customers successful, having that become a standard if you will, is impactful. We think long-term. We also mentioned that the LSU National Center for Biomedical Research and Training, which is really a training organization that sets standards and by doing thousands of trainings to be eventually response community across the U.S. and the goal of each year, and that helps customers and future customers get an understanding of what best practices are and what to expect from devices like MX908 and really help ultimately inform buying patterns we believe. So, yes, we think there are many customers there that we're working to ensure the success that will help in the standardization and getting more of that flywheel effect going.

Our next question comes from Brian Weinstein with William Blair. You may proceed with your question.

Good morning and thanks for taking the question. If we could just kind of go back over TAM expansion, it's obviously a critical part of the story. You spent a lot of time today talking about that you spent a lot of time in investor meetings talking about it. One of the questions that I'd like to maybe better understand is when we look at that massive TAM expansion over the next handful of years, how much of that is a function of the internal innovation that you guys are doing in terms of the sophisticated plumbing, as you've called it in the past as well as the analyte addition and software updates versus what you're expecting from the end market cell and gene therapy potentially in other end markets to grow? So, is there any way to kind of tease out how much of that you control versus how much of that TAM expansion is really market-driven?

Yes, so I mean you certainly we've shared TAM expansion in numerous areas, things like mentioned already today, the QA/QC dimension for handhelds, the research dimension for what we're doing with our ZipChip and pushing it into some of these other workflows that we already mentioned today. I think all of those are very well under our control and there is, obviously, that the market is favorable in terms of if you look at the biologics pipelines and biopharma to support that. I think where you see a significant leverage point is our ultimate vision of taking Rebel to be that really that core analytical hub that's sitting next to integrated with the bioreactor, and we see a significant chunk of that TAM in what we shared in the 2025 timeframe, driven by the rising tide of cell therapies and the biologics pipeline shifting over to those modalities, particularly the autologous cell therapies, which drive small batches and high numbers of them. So it's a bit of a mix there. I agree with you. It is sophisticated plumbing if you will, but that's - I answered earlier that we really see this continued progression in the development that continuously unlock that, and we see our ability to bring those enhancements out in our control, but then we see this leverage point that could be significant when we're timing to the cell therapy pipeline. So maybe that gives a little more color, Brian.

Thank you for that. And then as it relates to guidance, can you guys talk about how customers are progressing through testing trial pilot and enterprise adoption? I mean, in the past, I think you've given some numbers of customers that are kind of in various phases there and I'm curious if the slowdown in COVID cases and kind of a return to normal - starting to return to normal a little bit if that's changed the process in how people are moving through those various phases?

Absolutely, so just circling back on guidance as a whole, we did issue our full-year guidance at the very end of Q1. So we had a line of sight to the quarter when it was issued and feel great about the business and the guidance range we put out. And as you saw, we had $5 million for the quarter and/or between $38 million to $40 million in the year. So we have a lot of work ahead of us, but a big piece of that is the assessment and monitoring of that progression through the funnel and the pipeline of the test, the trials, the pilots, ultimately to the deployments. We did provide some specific breakdown at year-end and we'll continue to assess that probably mid-year and definitely annually. So we continue to see good progress. The U.S. Army that we announced in March was a great testament to the progression, custom and our border patrol and that recent announcement that they are in pilots and looking to deploy gives some opportunity for the back half. So I'd say no significant changes and don't see a direct impact to COVID at this point related to that, especially at the federal and kind of military side; a little bit of impact on the international, but that's really in kind of regions like EMEA and others where COVID is more rampant today.

Okay. And the last one from me if I could squeeze one more in here. I can't remember Kevin, if you said it or Joe, you said it in your prepared remarks, but I thought I heard something about how we - the pull-through was trending, starting to trend a little bit better. And then I think in the Q&A answer you guys talked about, not going to sticking kind of to that one kit per month. I just want to kind of make sure that I heard you right that things were starting to trend maybe a little bit better and if I didn't hear it right, then please correct me on that.

Sure. Yes, so on Rebel, yes, we're still seeing that about a kit a month from our active installed base and we're excited that we are seeing units in one or two customers that might be more than that one kit a month; some less but on average, about a kit a month. Part of the color that you heard me talk about was that overall, our recurring revenues were trending positive within the quarter and a piece of that was with ZipChip in some of the consumption with folks being back in the lab field here in the first quarter. So we saw an uptick on the ZipChip size in recurring revenues, and also on service as folks are coming off of warranty for MX and ZipChip. We're seeing the renewal rates and commitments to the customers pick up and we're not seeing a blip coming off of the heels of COVID last year. So that was some of the color on the positive trends. But, specifically on Rebel, that one kit a month, we're seeing that play out at this point.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Kevin Knopp for any further remarks.

Yes, just thank you all. Thank you all for your time today. We are looking forward to giving you further updates and have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.