Good morning, ladies and gentlemen, and welcome to the 908 Devices First Quarter 2023 Financial Results Conference Call. This call is being recorded on Tuesday, May 9, 2023.

Thank you. This morning, 908 Devices released financial results for the first quarter ended March 31, 2023. 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 [email protected]. Joining me today from 908 is Kevin Knopp, Chief Executive Officer. 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 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, 2022, 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 as of the live broadcast, May 9, 2023. With that, I would like to turn the call over to Kevin.

Thanks, Joe. Good morning, and thank you, everyone, for joining our first quarter 2023 earnings call. I'd like to start off by thanking our team for their hard work and dedication as we continue to demonstrate encouraging progress across our business. Our first quarter revenue increased 14% year-over-year to $9.5 million and replaced 78 devices, bringing our installed base to more than 2,400 devices. Notably, we saw continued strength in recurring revenue, which grew 67% over the prior year period. We are pleased to see this increasing need for accessories, consumables, and services as it demonstrates that our customers value analysis at the point of need. Overall, I'm pleased with our execution, given the continuing challenges within the bioprocessing space. Importantly, our technology is broadly extensible with applications across different end markets. Our handheld products are serving critical forensics market applications, including the devastating rise of counterfeit pharmaceuticals. We view the diversity of our end markets as a key advantage. I'm confident in our long-term trajectory and feel we are doing the groundwork needed for both near-term and long-term success. We are uniquely positioned to both capture the bioprocessing opportunity in front of us while executing with our handheld devices. In January, we started the year off with the launch of our first online device, MAVEN, that provides real-time monitoring and control of glucose and lactate in cell culture and fermentation processes. MAVEN is a complement to our REBEL device and a precursor to REBEL online. We are encouraged by the feedback we have been receiving from prospective customers and the increasing opportunities we've seen in the funnel over the past few months, particularly in the cell therapy space. MAVEN adds to our growing portfolio of desktop products for process analytics. Now I'd like to provide you a brief update on the progress we have made across our 3 focus areas for 2023. Starting with our first objective, penetrate and radiate across key accounts. Our focus is to penetrate new accounts to create a foothold and then radiate across these accounts to drive broader enterprise adoption. For our handhelds, we continue to expand our international presence. Last year, we received our NATO stock number, which was a significant step in facilitating the procurement process for our MX908 device. We now have a purchased vehicle in place, which is valid for up to 5 years and provides NATO-member states and 4 additional countries with the ability to purchase up to approximately 80 units in a streamlined fashion. With this in place, we have already seen a handful of units purchased and look forward to growing international adoption. We are proud to receive this designation for the MX908, which is becoming recognized as a standard-bearer for handheld chemical detection and identification. We also received additional MX908 orders through use in Europe and the Middle East during the quarter. The U.S. State Department and existing customers purchased several units intended for use in Ukraine. The customs and border agency in Saudi Arabia purchased multiple units, primarily for narcotics detection and identification. We are pleased with the traction we're gaining internationally, along with the broader adoption within our enterprise accounts. Closer to home, in January, the Ohio Attorney General's Office announced the expansion of the MX908 program in Southeast Ohio. This is the final region in the statewide rollout, which began in October of 2021. In the announcement, Attorney General Dave Yost noted that MX908 has the potential to revolutionize how drug testing is done in Ohio. We value our partnership with the Ohio Attorney General's office, and we are working to replicate the success across other states as the need remains substantial. We believe programs like this would be impactful in every single state across the United States. In fact, today is National Fentanyl Awareness Day, a day dedicated to raising awareness about the dangers of Fentanyl, most often found in counterfeit pharmaceuticals. According to the CDC, Fentanyl is involved in more deaths of Americans under 50 than any other cause of death, including heart disease, cancer, and all other accidents. And just last month, the Biden administration declared Fentanyl mixed with xylazine as an emerging threat in the U.S. Fortunately, as we work closely with first responders who identified xylazine as a growing concern early on, we added this analyte to our MX908 device software nearly 3 years ago, and our customers now have the capability to deal with this issue. This is a great example of how additional value unlocks for our customers with their continuous service and support offerings. We will continue to ensure our handheld device provides our customers with rapid actionable answers and enables them to keep our communities safe as the Fentanyl crisis evolves. For our desktops, we've been working over the quarter to engage potential additional OEM partners in bioreactors, cell expansion systems, and integrated cell therapy platforms, the aim being to add online analytics to their systems for real-time monitoring control of key process parameters such as glucose and lactate throughout the cell therapy process from process development through clinical manufacturing. The value proposition is clear. Online analytics enhance process understanding as well as reduce the risk of contamination and saves operator time as technicians no longer need to enter the clean room to perform manual sampling. Turning to our second objective, advancing and broadening our product portfolio. Our core mission is to develop devices that are simple to use, smart by providing customers with rapid answers at the point of need and connected for improved process understanding. First responders need to be equipped with devices that provide them with answers where and when they need it. To that end, we continually add analytes to our MX908 software. In the first quarter, we released version 3.4 that added 4 additional analyte targets. We also released the core Clear and charge station, a maintenance accessory that improves the device's usability and maximizes its uptime. As previously mentioned, we have created an interface control protocol to make it easy for our handhelds to be integrated into new ecosystems such as robots, drones, and other related workflow equipment. We recently supported dual draws integration of MX908's aerosol and vapor detection capabilities with their down draft technology to enable a male speeding platform that protects operators and allows them to safely perform inspections and packages. This is a great example of how the MX908 can help expand the reach of critical chemical detection and connect to a broader set of users. For our desktops, we released a data analysis tool for our REBEL device that is built on the Jump statistical software package. All data from the REBEL can quickly and easily be visualized in just one click, leveraging the statistical software that many of our customers are using. Users can now more easily access tremendous amounts of information that REBEL provides for improved process understanding by easily visualizing amino acid depletion or accumulation trends over the course of time within a bioreactor and facilitating adjustments to the feed strategy. To that end, as previously noted, we are collaborating with the U.K.-based Center for Process Innovation or CPI, to optimize cell culture media and feeding strategies in small volume fed-batch bioreactors through process scale-up using REBEL and now MAVEN devices. Using REBEL, daily detailed amino acid data was generated for both AMBR15 and 250 runs, and the data was analyzed using REBEL's new data analysis software tool. By adding in depleted essential amino acids along with low levels of feed media, CPI scientists achieved a meaningful tighter increase while keeping toxic metabolites low and maintaining high cell viability. With MAVEN, scientists were able to implement a continuous control strategy for glucose, which is highly desirable to achieve healthy growing conditions. Taken together, REBEL and MAVEN enable process development scientists to optimize titer and cell growth while preventing the accumulation of toxic metabolites that can negatively impact protein quality. Biopharma manufacturing company Resilience has adopted the REBEL analyzer to inform and optimize cell-culture feed strategies in perfusion bioreactors. In a monoclonal antibody expressing cell line, Resilience process engineers demonstrated a 50% increase in titer while reducing the cost of goods by adding back only the nutrients to cells depleted. Cell culture media and feed costs are significant in the perfusion process, while online media analysis allows Resilience to optimize and accelerate biotherapeutic development to reduce the cost of goods and time to submission. Our ZipChip-CEMS aspect, which is a complement to our MAVEN and REBEL devices, is an offline device used for monitoring key process parameters and for rapid characterization of multiple product critical quality attributes. This fast separation method was highlighted in a new paper published in Analyst or Royal Society of Chemistry publication. In this paper, Amgen researchers used our ZipChip device to separate and characterize bio-specific antigen-binding biotherapeutic molecules within 12 minutes or less and with higher resolution and better sensitivity than traditional LCMS methods. Similarly, in a webinar hosted by LCGC, scientists from Ireland's National Institute for Bioprocessing Research and Training, NIBRT, presented on how our ZipChip-CEMS device accelerates peptide mapping workflows for the analysis of mAb critical quality attributes. NIBRT scientists noted that ZipChip provides robust determination of important quality attributes in less than 20 minutes, which provides a faster alternative to more standard LCMS approaches that can take hours. As these examples illustrate, our devices are providing our customers with robust and real-time analytics that enable them to improve product quality and process efficiency. And finally, turning to our third objective, laying an OMX foundation, we see a clear and emerging need for accelerating mass spec-based workflows to address proteomic and metabolomic opportunities. At the U.S. Conference in March, Dr. Will Thompson and Scott Miller from 908 Devices presented a poster and Lightning talk titled, 'Double Your Fun, high-throughput multi-omics using Midici capital electrophoresis,' which utilizes ZipChip for metabolomics and our prototype SPE enabled chips for proteomics on Thermo Scientific Exploris mass spectrometers. Dr. Thompson in collaboration with Duke University researchers will expand on the investigation into multiomics in his oral at the American Society for Mass Spectrometry Conference, or ASMS, in June. This talk will show how our prototype microfluidic chips enabled independent metabolomic, peptidomic plus top-down and bottom-up proteomic from a single sample containing 20 microliters of dried blood. Also at ASMS, we are presenting a record 19 posters with collaborators from key research institutions, biopharmaceutical companies, and mass spectrometry vendors. We look forward to discussing these highlights and takeaways on our next earnings call. With that, I'll turn it back over to Joe for more details on our financials.

Thanks, Kevin. Revenue for the first quarter of 2023 was $9.5 million compared to $8.3 million in the prior year period, representing an increase of 14% over the prior year period. Handheld revenue from our MX908 product for the first quarter 2023 was $6.2 million, an increase of $1.7 million compared to $4.5 million in the prior year period. We shipped 62 MX908 handheld devices during the first quarter. The increase in handheld revenue was primarily driven by an increase in the recurring revenue for our MX908 devices, both service and accessories. Desktop revenue, primarily from our REBEL, ZipChip interface, and MAVEN products for the first quarter of 2023 was $3.1 million, a 13% decrease from $3.6 million in the prior year period. We shipped 4 REBEL, 6 ZipChip interfaces, and 6 MAVEN devices during the quarter. We will continue to break out placements by device in the near term. However, as our portfolio broadens, we will focus more on overall revenue and combined desktop placements as the key metrics for growth. The decline in desktop revenue was primarily due to a decrease of device placements year-over-year. We were encouraged to see the uptick in recurring revenues, demonstrating the value that our devices bring to our customers. Recurring revenues consisting of consumables, accessories, and service revenue for the first quarter 2023 increased 67% to $4.2 million compared to $2.5 million in the prior year period. The increase in recurring revenue was primarily related to higher service revenue and higher handheld accessory and consumable revenue, including the Aero module. Notably, recurring revenue as a percentage of total product and service revenue has increased from 31% in Q1 2022 to 45% in Q1 2023. Gross profit was $4.4 million for the first quarter of 2023 compared to $4.1 million for the prior year period. Gross margin was 46% for the first quarter of 2023 as compared to 50% for the prior year period. The decline in gross margin was largely due to lower device production builds and higher noncash charges for stock-based compensation and intangible amortization during the first quarter of 2023. Total operating expenses for the first quarter of 2023 were $17.4 million compared to $13.7 million in the prior year period. This was driven by an increase in personnel-related costs from the impact of headcount added throughout 2022 as well as a $0.8 million increase in stock-based compensation and a $0.3 million increase in acquisition-related costs for intangible amortization and valuation of contingent milestones. Net loss for the first quarter of 2023 was $12.5 million compared to $9.4 million in the prior year period. We ended the first quarter of 2023 with approximately $161 million in cash and cash equivalents. During the quarter, we paid down $15 million of debt and ended the first quarter with no debt outstanding. Looking ahead for 2023, as of today, we are not seeing meaningful improvement in the capital purchasing cycles within bioprocessing, particularly affecting our REBEL placements. We expect these pressures to persist into at least the third quarter of the year. Our team is working hard to educate existing and potential customers on the value of the technology and broaden adoption across sites. So as funding becomes available, we are a high priority for our customers. Notably, we are seeing strong adoption of our handheld devices that serve the forensics market. In this challenging macro environment, we view it as a competitive advantage that our extensible technology serves the diversity of users and end markets. So that being said, we anticipate second-quarter revenue growth to be centered around our handheld device revenue and recurring revenues, similar to what we experienced in the first quarter. While ongoing pressure in the bioprocessing environment is likely to continue longer than we had previously anticipated, we are seeing very strong adoption of our handheld devices, which we believe will offset this impact. Taken together, we still expect full-year revenues to be in the range of $48 million to $52 million, representing growth of 2% to 11% over the full year 2022. At this point, I would like to turn the call back to Kevin for some closing comments.

Thanks, Joe. In summary, we're pleased with the progress we made towards our goal in the first quarter. Looking ahead, we believe we are uniquely positioned to capture the opportunity in front of us for 3 reasons: First, we have a robust road map and strategy of process analytical technologies beyond the M1 product. We're creating a full portfolio of complementary devices from our current portfolio, including REBEL, ZipChip Interface, and MAVEN, plus our exciting and differentiated road map products that will be announced later this year. Second, we have a diverse offering with our handheld devices in the forensics space. We believe these handhelds will continue to be critical with the rising geopolitical uncertainties and the ongoing fentanyl crisis. And third, we have a strong cash balance with the runway through 2025 as we have remained efficient and thoughtful on spending and headcount while ensuring expenses are not outpacing our revenue growth. With that, I'd like to first thank you for bearing with us through our technical challenges here in the operator call today, but we would like to open it up for questions.

Our first question comes from the line of Dan Arias from Stifel.

Kevin or Joe, maybe just to start on the REBEL. Obviously, a lot going on in the bioprocess market right now. So on system placements is the idea that we really shouldn't expect acceleration in all numbers until 4Q, just given Joe's comment on not seeing any improvement? And then on utilization amongst those that do have a REBEL, can you kind of just talk about the larger versus the smaller company user trends? And are you expecting any improvement there just in terms of utilization for the folks that have gotten over the hump and do have the system and presumably are trying to use it?

Yes, sure. Thanks, Dan. Maybe I'll start it off and pass to Joe for some additional details on it. But yes, as we stated in Q4, we do expect REBEL placements to be muted with some of the bioprocessing pressures that are being seen out there for CapEx in particular. And while our expectations are modest, we are experiencing what others are experiencing in the industry, and it's clear the industry phenomena is not specific to 908. We're just seeing CapEx sales cycles extended and life cycles of existing equipment being paused outright or needing more authority to sign off. But we do look at the fact that we have a growing portfolio of desktops. So we actually replaced 16 desktop devices as a whole for the quarter, and we're really using this time to expand that product portfolio and continue the strategy to build out a set of process analytical technologies that are all interconnected. We're really focused today on that utilization, if you will, and really focused on showing the value of our products to our customers, and that's demonstrating tighter improvements and quality improvements. We were fortunate to be able to announce some of these recently. And to us, it's really a strategy. It's not about a single product called REBEL, but really the portfolio of process analytics technologies. Regarding utilization, specifically, the utilization for our REBEL pull-through has largely been unchanged from Q4. So Q4 is really tracking at a similar amount, around 0.5 kits per month that we're seeing on average, a bit higher perhaps but about that versus our nominal goal of around 1 kit. We have been asked by you and others in the past if we can slice it out as you're suggesting by smaller companies or maybe by therapeutic modality. We're working on that. We do really just have small numbers. It is challenging to slice and have meaningful statistical data there. But we can say we are becoming aware of more MSAT customers using our products. Some of those customers are using it for more like process monitoring applications, and we have examples of where those customers are consuming kind of 3 to 4 times our average. So right now, we've really been focused on driving that utilization.

And maybe to add a few different pieces, Dan, as of today, as I mentioned, we're not seeing meaningful improvement in the capital purchasing cycles within bioprocessing, particularly affecting those REBEL placements. And we do see that expectation we set in our Q4 earnings call, we will likely see the pressures persist into at least Q3. As I mentioned, we did 3 in Q4 of last year, 4 in Q1. We see continued improvement there, but probably not to the levels that we saw in the first 9 months of 2022 until possibly Q4. Our team is working hard to educate existing and potential customers on the value of the technology. And right now, we're notably seeing strong demand for our handheld devices that help to offset some of those current market concerns.

Yes. Okay. Okay. And then maybe just on the handheld side and the sales funnel that you have here. Kevin, you've talked about these enterprise opportunities that you've been working on. I think you've called them 25 to 100 systems or so. How is that group of potential customers tracking just in terms of confidence in orders that can sort of serve to backfill the Army contract that was rolled off? And ultimately, where do you think the handheld business and placement total can go to this year? I know you're not going to be too specific, but just some help on the year-over-year given the Army contract would be helpful.

Yes. Yes. Absolutely. I'll start off and pass it to Joe again here. But we're excited about the pipeline that is where we're at today. And as we know, we're progressing things on these testing and trials onto pilot programs and then turning to enterprise accounts. We're seeing that we've got plenty of funnels to work with and great conversations for this early year in particular with existing customers looking to roll out more devices, and we have factored in the statuses of enterprise accounts into our guidance that we reiterated today. We highlighted things like Ohio, which has been growing quite well for us and seeing continued success there and the value being demonstrated with that program, and we're looking to get pilot programs going in other state and local areas, including Tennessee, where we've made some good progress. So I'd say we've got great progress and pipeline progression across the board for our handhelds, and that's across all our areas, federal military, call it the outside the Army, but then also large opportunities within state and local and international.

So that's right. The U.S. Army is definitely one of our examples. A great example of a large enterprise adoption historically, and there are other customers in the pipeline for 20 to 100-plus devices, which Kevin was alluding to in some of those opportunities. We're working with each as they get a budget allocation and funding for the purchase, seeing very positive momentum on this front. We have over 2,000 devices in the field, but we see more sockets out there, so we don't really feel limited today, and we do see a path to positive unit growth in 2023 for our handheld despite the fulfillment of a U.S. Army device order, which you recall is approximately 100 devices over the first 9 months of 2022.

Our next question comes from the line of Puneet Souda from SVB Securities.

With the REBEL and MAVEN, you are establishing a range of process analytical technologies. I understand the current market conditions, but these instruments are relatively smaller in terms of capital equipment. What steps can you take to encourage adoption in what seems to be a challenging environment? Are you noticing increased interest from customers in the cell therapy area compared to the mAb sector? Please help us understand this further, including what you can do in terms of data collaborations, partnerships, and other initiatives to potentially drive growth for the REBEL and MAVEN products in the process analytical technologies space.

Yes. Yes, sure. Thanks, Puneet. I think you're right. I mean we are focused on building out a platform. I think you're also right in that our CapEx prices are perhaps a little more reasonable than some other tools, but they're still not inexpensive in that our REBEL, the least price is approximately $150,000. So it still requires groups to budget, and it's still considered a CapEx purchase for our growing portfolio here, they would all be in that definition. And as we've talked about at length, right, we've just seen customers become more cautious and discerning in moving forward with their CapEx commitment at this time, and we've seen people that believed they were budgeted have it pushed right on them. I believe the process analytical technologies, the need is growing in importance. I don't think there's much debate about that. I think it's really a matter of timing with how people are looking at recovery and a bit of a reset in the pharma, biopharma area and then bioprocessing in particular, a time we can use to have more intimate engagement with these customers and showcase the value that the whole portfolio can provide. MAVEN in terms of its control of glucose at low levels, REBEL is able to inform feeding strategies, and ZipChip looking at critical quality attributes and a new product we're working on and engaging with key opinion leaders now to get out later this year. So I think there is a lot we can do there. We were happy to see that Resilience was publicly out there with some successes they've had and mirroring what we've been seeing with CPI and working closely with them. So I think there is a lot we can do there. Maybe one bit of data or a factory that also might be helpful to triangulate. The sales process often involves people sending in demos. And when people ask for a demo, generally, you need a material transfer agreement. So quarter-to-date, we've done more material transfer agreements than we have in all of Q1. So we are seeing some engagement and activity. I think it's really around how fast do those close and how fast does that segment, if you will, recover.

Okay. Got it. That's super helpful. Then on the guidance itself. And maybe sort of for Joe, obviously, you're moderating desktop instruments and installed base potentially for that. But what gets you potentially on the sort of the higher end of the guide if things were to recover sort of in the second half? And what are you contemplating and what gets you to the lower end of the guide if things were to get worse? So maybe just talk about those dynamics where you feel that where you think you will have the strength. Is it more on the MX908 side and maybe just where things can potentially be weaker if the environment was to continue?

Sure. We're definitely spending most of our time looking to the midpoint and the high end of that range and making sure we have a path to get there led by strength to the MX908 in our handhelds. There are a few levers that will take us to that high end. First would be stronger adoption of new products than anticipated. We get excited when thinking about where ultimately our new products can go, we need to crawl and walk and then run with those products. We're trying to balance that enthusiasm with the fact that we are in the early stages with both MAVEN and the tube-launched product in the second half. Second, there's the conversation of handheld enterprise accounts that we touched on. We have a number of big swing items in our pipeline, but they do take time to develop, as you know, and get through their procurement processes, sometimes it takes years. But we're continuing to build that pipeline for the opportunity, and we've had some great conversations with our handheld customers and seeing some encouraging early signals for the year to be able to see that path to the top line or top of the range.

Your next question comes from the line of Stephanie Yan from TD Cowen.

Great. You spent some time talking about the macro challenges and extended capital purchasing cycles. Are there any plans to do a reagent rental or lease structure on the REBEL so that customers don't have to pay upfront or capitalize the equipment?

That's a great question and something that we have talked about through the years and are looking at as a potential option in talking to a few customers that we have confirmed that they don't have the capital spending here in 2023. So we are looking at it as a tool in the toolbox to be able to present to specific customers, but ultimately, I want to ensure we see the value of the technology and getting the device in place. But in those unique situations, we will entertain with customers the ability for them to pay a certain amount, make an investment upfront, and then have access to the technology and see the value within their workflows.

So yes, we are working through that. Yes. And I'd add to that that we're trying to be responsive to our customers' needs right now, and we know they're constrained. And as we talked at length, we really want to show them the value of our product, and it is a CapEx. But if we can create an on-ramp to the adoption of that unit by mechanisms like Joe described, that would be great. It's not a wholesale change of our business model. We're not doing anything like that at this time; it's still a CapEx sale, and we think that's the right way to go. But as Joe said, we're listening to our customers and just trying to be responsive in the short term.

Okay. And so if you did decide to go in that direction, I guess, could that be what, like back half of this year or just something not really on the radar?

Yes, I think to be determined, as Kevin said, mostly just being responsive to our customers.

Okay. Got it. And then one more. You talked about penetration into new customers as a key strategy. Of the 78 devices placed in the quarter, could you give us a sense of the percentage of sales to new customers versus existing customers?

Sure. Yes, you're right. We do like to have both new sales to intent. We have, as we said on the Q4 call, we've got 10 accounts now with 6 or more units. We've been adding to that. We have a couple of accounts now with MAVEN added into the mix that now have actually all our products, ZipChip, REBEL, MAVEN, all our desktop products. So we're seeing a good mix, I would say, and if you think of just in our Q1 in particular here, we saw about a 75-25 split with our 16 desktop placements to larger versus smaller biopharma companies, some of those new, and some of those existing. Yes, absolutely. We've been investing across the board in our international assets, and as we reported to you last year. And I think we're pretty pleased with the progress that's now showing up, and we're seeing measurably in the case of our handouts in particular there. And we've seen great progress on that pipeline across the board in Q1 for the handhelds and the federal state and local, but certainly on the international side of things, which gives us confidence in our ability to execute here in 2023. And we have hired sales leaders in the Middle East. We moved a channel manager from the U.S. and we've made other personnel investments there, all centered around driving growth internationally, and we're seeing some return on those investments now. We highlighted the NATO contract vehicle as one example there. For handhelds, the biggest budgets are in the U.S., and that hasn't changed, but there are sizable opportunities internationally, sharing similar concerns with the U.S. counterparts here and for the use of the technology. We do see that as a growth opportunity, especially here in 2023.

Your next question comes from the line of Jacob Johnson from Stephens.

Maybe just one more on the macro. I just said, I think everybody is seeing the elongated sales processes right now, given the macro environment. But I'm just curious if we go kind of level higher in terms of like the funnel of interest, the inbounds you're getting in general, kind of how is that trending? I think you talked about it a little bit in the previous answer, but I figured I'd give you an opportunity to push that out some more.

Yes, absolutely. I mean I think as we discussed in the Q4 call, we anticipated that it was going to be muted over the first half, and now we're seeing signs that likely is extending into Q3 of this year. We're very excited that we've got a broad portfolio of discussions now going on with customers at to Puneet's point, honing a variation of CapEx prices and utility from bread-and-butter analytes that MAVEN provides with glucose and lactate to more forward-leaning optimization tools like our REBEL device. So we are excited to have that. I would say that we've been working to engage prospects, customers, conferences, existing fielded bases, et cetera. So we're really getting out there, including at the more senior levels, and having the leadership team out there and engaging with the key folks in these organizations and our customer base and making sure we can support them there. I wouldn't say that we're seeing a concentrated step-up in activity here in our Q1 activities or Q2 to date. And that’s why it is anticipated that we still see things needed for a bit in the case of our desktops. But you're right, we did put a little tidbit out there at the very forward portion of that demo cycle are those material transfer agreements, which we saw more executed here quarter-to-date than we did in all of Q1. So we take that as a good sign. We think that will take some time to close, but we also in terms of the utilization, we're trying to get these customers, and we are seeing them being active. We also reported in Q4 that it was the second-highest quarter on record of consumable orders blanket orders that are nominally at about 1 kit per month. So we're working with customers to drive that utilization and drive that value and benefit out of it. But we're also very pleased, Jacob, that we've got our handhelds and we've got that diversified position with our handhelds in the forensics market during these times.

Got it. And then maybe just for Joe on the outlook for FY '23. It seems like the mix of revenue is maybe going to be more handheld this year than previously thought. I know you don't guide to margins, but I think we're targeting kind of mid-50s gross margin this year. Any change in that expectation?

There's not any changes in that expectation. And as we looked at the Q1 margins, I would say the main factors with gross margin variations will continue to be mix and scale. In Q1, it was primarily driven by lower device production builds, where we didn't initiate as many builds in Q1 2023, especially on the desktop side compared to the prior year period, and also that higher noncash charges, as I mentioned, both stock-based compensation and intangibles, so about 200 basis points each impact. So we do see the opportunity to improve gross margin with our new products and our consumables, and we're not at scale today. Our margins overall, as you mentioned, are in the mid-50s, and we expect this to continue on a go-forward basis for the full year 2023.

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

I wanted to follow-up maybe, Kevin, just on the new product side. Obviously, some market weakness is temporarily on the bioprocessing side. But I just want to check in on your plans still for additional product launches in the back half of the year. And if any customer pressures or maybe the customer feedback as they're examining their own budget to influence or the way you're thinking about new product development.

Yes. Thanks, Matt. Yes. I mean, we certainly view innovation and new products as a key component to 908 and our growth strategy. So we're really pleased with the acquisition we did of TRACE Analytics in August of last year and how things are going there and how that's integrating and combining into our product development effort, a great group of talented individuals that got added there and really some awesome technology. So we've got one new product out here in January that integrates the TRACE technology with our MAVEN product, which is a prelude to our REBEL online which we've discussed the ASEPT exampling approach is key. I wouldn't say anything has changed in the priority of building out that portfolio of process analytical technologies and tools and the appetite of customers when we engage select customers on what those new products are going to be, including discussing what the REBEL online will be and working to engage them as we work through our stage gate process for REBEL online. So I don't think there's a change in sentiment with the needs that these customers have. I think there's a bit of a near-term delay in their adoption. But we're trying to take advantage of that time to have this great engagement and build out that complete portfolio and engage in more of a partner discussion we’re finding now because we can talk about that whole portfolio.

That's good to hear. And the final one, maybe just around the sales funnel, it's been asked a couple of times, but you referenced mSAP maybe being a new opportunity and obviously, I presume the conversations on the process development continue to happen. Maybe just you referenced the material transfer today. Is there anything in terms of the mix of the funnel within bioprocessing by sort of location or customer type that you could share of this?

Yes. I would say that as we look at the funnel for our desktops, we're trying to develop things in the U.S. and internationally for that. We're seeing examples there. Again, I would say one great thing is that we're able to take MAVEN out to REBEL customers, and we're picking up new customers with MAVEN that don't have any of our desktop products. While we certainly now have a couple of examples and proof points of customers having all of our desktop products, we now have customers that only have our MAVEN and gives us an opportunity. It's also interesting to us that some of those areas quite of interest would be in the cell and gene therapy application area, some of these integrated technologies that are interested in adding analytics. So we think that opens up possibilities for us here. We had 16 desktop devices, as I previously mentioned, in Q1 that we placed, and they were roughly split between 75-25 between larger and smaller biopharma companies. We have about 1/3 of our desktop devices overall in the top 20 biopharma. It's a meaningful percentage, but we do have a number of units in early-stage biotech. So if we look at what has closed and what's in our pipeline, it's a mix between existing customers, some small biotechs, and some large biopharma coming back. So I don't think any one specific trend in there, but hopefully, a bit of color that's useful.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Kevin Knopp for any closing remarks.

Yes. Thank you. First, I'd like to thank you for bearing with us on our operator call logistics errors, but we're very excited for how the quarter went, and we're pleased to be able to reiterate the guide today and march forward and make progress. So thank you for your time.

Thank you, sir. Thank you so much, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.