Hello, and welcome to today's 908 Devices Second Quarter 2023 Financial Results Conference Call. My name is Jordan, and I'll be coordinating your call today. I'm now going to hand over to Kelly Gura, Investor Relations, to begin. Kelly, please go ahead.

Thank you. This morning, 908 Devices released financial results for the second quarter ended June 30, 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 email to [email protected]. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial 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 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 31, 2022, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, August 8, 2023. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our second quarter 2023 earnings call. I'd like to start off by thanking our team for their continued dedication and commitment to serving our customers and for bringing our second quarter to a successful close. At 908, we have a broad technology platform with applications across diverse end markets. Our handheld devices are serving critical forensics market applications, including the devastating rise of counterfeit pharmaceuticals, and our growing portfolio of desktop products is serving life science and biopharma applications, including the emergence of multi omics research and the ascent of Bioprocess 4.0. We view our end market diversity as a key advantage, particularly in the current macro environment, and this was reflected in our financial results. Our second quarter revenue increased 9% year-over-year to $12.1 million. We placed 122 devices, bringing our installed base to more than 2,500 devices globally. Once again, we saw continued strength in recurring revenue, which represented 39% growth over the prior year period and comprised one-third of our total revenue. This growth demonstrates that our customers, whether they be in law enforcement, the military, research institutions, or in biopharma, value point of need analysis. Overall, I'm really encouraged by these results. We continue to capture opportunities for handheld chemical detection, both in the U.S. and increasingly more internationally. As Bioprocess 4.0 begins to take hold with advanced modalities of therapeutics, there is a demonstrative need for robust analytics to monitor and control critical process parameters. We are building a solid foundation to take advantage of these developing opportunities. At the American Society for Mass Spectrometry or ASMS Conference in June, the need for technology was abundantly clear. Key mass spec vendors launched large frame instruments with significantly faster processing speeds targeted for proteomics and other omics applications. Our prototype microfluidic chips are well suited to meet this need for fast processing. We have had a record presence at ASMS this year with 19 posters, the majority with collaborators, and a key oral presentation on multi omics. I'll share highlights later in this call. Now I'd like to provide a brief update on the progress we have made across our three 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. In May, the CDC released preliminary data noting that 2022 was the second consecutive year with more than 100,000 Americans dying from drug overdose. Nearly seven out of ten overdoses were attributed to synthetic opioids like fentanyl. Another recent CDC report found that Xylazine was detected in nearly 11% of fentanyl involved deaths. And in July, the Biden administration released a six-point plan to combat the problem of fentanyl being laced with Xylazine. That includes determining where Xylazine is coming from and disrupting the supply. Our MX908 handheld device provides trace chemical detection of fentanyl and its analogs, Xylazine and many other illicit drugs. Customs agencies use our device to prevent illegal narcotics from entering their borders. In June, our work with the U.S. Department of Homeland Security and the Customs and Border Protection Agency was highlighted in the Catch a Smuggler series on the National Geographic channel. The episode showed one of our application specialists training agents on how to use the MX908 to support them with their investigations at a major metropolitan airport. We are proud of the work that our employees do every day in helping our customers stem the flow of counterfeit drugs from entering our country and into our communities. Previously, I have noted the successful MX908 pilot program in Ohio, in which 260 law enforcement officers in 60 counties have now been trained to use our device. As a result, the state central lab has seen a notable reduction in evidence backlogs. Our goal is to replicate this program's success in other states, and I'm excited that we have begun a pilot program with several Tennessee law enforcement agencies and drug taskforces to enhance the speed and efficiency of the state's drug identification process. This pilot program with an initial seed of eight devices will introduce the MX908 to law enforcement agencies across Tennessee with the primary objective of decreasing the quantity of illicit drug samples sent to the central lab for testing, which will also lessen delays in the judicial process. In addition, law enforcement agencies using the MX908 device can now make faster and more informed decisions at the point of need, ultimately leading to safer communities and improved public health outcomes. This is the same playbook we used with success in Ohio. Turning to our desktops, approximately 70% of desktop revenue came from existing customers, including three customers that are in the top 20 list of pharmaceutical companies. Also of note, we renewed our OEM agreement with Sartorius, providing them with our online sampler and sensors for bioreactor monitoring and control. This is a long-standing OEM relationship between Sartorius and the former Trace Analytics, and we are pleased to foster this key partnership. Further, to maximize the potential of each key account, we've developed a support strategy focused on our top pharma customers to drive routine workflows and use. Turning to our second objective, advancing and broadening our product portfolio. Our core focus is to develop devices that are simple to use and connected for improved process understanding in order to provide customers with robust answers at the point of need. In line with this focus, last week, we introduced the MX908 Beacon for remote and continuous air monitoring of toxic aerosol and vapor hazards. Beacon leverages our MX908 device and aero module and adds a cloud-based solution that enables first responders to gather intelligence remotely and continuously while ensuring public safety at large events and at key infrastructure. The MX908 Beacon can be used individually or seamlessly integrated with other beacons for widespread area coverage. The systems can be easily set up and monitored in real time through the MX908 Beacon portal, which can be accessed through any smartphone, laptop, or mobile device. With over 2,000 MX908 devices in the field, we have a large installed base to offer this additional capability, which is one of the only systems that can remotely and continuously detect and identify aerosol and vapor hazards. For our desktops, we continue to partner with key organizations focused on developing innovative technologies that advance biopharmaceutical manufacturing. One such organization that we have formed an alliance with is the National Institute of Bioprocessing Research and Training, or NIBRT, based in Ireland. For the past 12 years, NIBRT's research focus is to make transformative discoveries that revolutionize the manufacturing of recombinant proteins, vaccines, and cell and gene therapies. At ASMS, we held a well-attended breakfast seminar that featured doctors Jonathan Bones and Josh Smith from NIBRT. Dr. Bones highlighted the use of our ZipChip device for multi-characterization of proteins in different applications such as native impact charge profiling, amino acid analysis of cell culture fluid, and a new peptide mapping workflow. He noted that ZipChip coupled to a mass spectrometer offers a versatile platform method for these applications that's ready to go out of the box. Dr. Smith highlighted the successful use of ZipChip for rapid analysis of various serotypes of the adeno-associated virus, or AAV, which are critical for gene therapy manufacturing. Both speakers touted ZipChip's high sensitivity, short analysis times compared to traditional LC/MS, and the lack of method development. The results of these presentations were also highlighted in three posters at ASMS. In addition, in a recent article published in the Journal of Pharmaceutical and Biomedical Analysis, scientists from NIBRT and Lonza Biologics used our ZipChip CEMS device to characterize a monoclonal antibody for treatment of colorectal cancer. The authors noted that our technology enables fast and highly sensitive intact mass analysis while requiring minimal sample preparation, thus making it a powerful tool for reliable product characterization early in the bioprocessing pipeline. We continue to gain exposure and marketing momentum through speaking opportunities and poster presentations at conferences focused on bioprocessing. After a nearly five-year absence due to the COVID-19 pandemic, the invitation-only Cell Culture Engineering Conference was finally held in-person in April. In this forum, leaders and experts from academic, regulatory, and industrial backgrounds convene to discuss cell culture and related advancements that impact the growing spectrum of modalities, including recombinant biologics, cell and gene therapies, and viral vaccines. Three of our application scientists were invited to participate and each presented a poster on research using our REBEL cell culture analyzer. We gained valuable insights and learnings from the conference presentation, along with the opportunity to network with key opinion leaders. Lastly, our team is preparing for the launch of our new desktop device next month at the Bioprocess International Conference in Boston, just up the street from our headquarters. We believe this device will further transform the monitoring of key process parameters and it is an exciting addition to our suite of bioprocess products that includes our REBEL and MAVEN devices. And finally, turning to our third objective, lay an omics foundation. We see a clear and emerging need for accelerating mass spec-based workflows to address proteomics and metabolomics opportunities. This was evident at this year's ASMS conference, where we had a strong technical showing with one oral presentation and 19 posters, the majority with collaborators from academic and research institutions as well as industry partners. Dr. Will Thompson, principal scientist at 908 Devices, gave an oral presentation on its collaboration with Professor Mark Foster from Duke University on unifying the multi-omics world with microchip capillary electrophoresis. Dr. Thompson described the workflow using our prototype microfluidic chips in our ZipChip device, which allowed independent metabolomic, peptidomic, top-down and bottom-up proteomics from a single sample containing 20 microliters of dried blood. Speed was a definitive theme at ASMS. Scientists conducting proteomics, metabolomics and other multi-omics research want to process a significantly large number of sample sets and are demanding mass spec instruments and tools for faster workflows. We believe our ZipChip device, along with our prototype chips, can meet this need for speed. This was exemplified by one of our poster collaborators, Ling Ge, Professor of Cell and Regenerative Biology and Chemistry at the University of Wisconsin-Madison. Professor Ge's poster highlighted multi-omics analysis, specifically metabolomics and top-down and bottom-up proteomics of human heart protein extract. She noted that traditional LCMS has long separation times. A ZipChip can provide separation in minutes, so speed is a significant advantage, along with the device's ease of use. At ASMS, we also hosted a meeting of our Proteomic Scientific Advisory Board, where key opinion leaders provided enthusiastic support of our growing presence at this conference for customer and R&D-related content as well as feedback on emerging R&D efforts in multi-omics. Our scientific advisory board members were particularly interested in the capability of ZipChip for multi-omics studies under unified analysis conditions, including using the developmental on-chip peptide pre-concentration approach for analysis of very large native peptides from biofluids. We are fortunate to have this remarkable group of thought leaders share their insights as we advance our development efforts in this area. Overall, I'm really pleased with the progress we made during the second quarter on our stated objectives, and I look forward to an exciting product launch next month. With that, I'll now turn the call over to Joe for more details on our financials.

Thanks, Kevin. Revenue for the second quarter 2023 was $12.1 million, increasing 9% compared to $11.1 million in the prior year period. Handheld revenue from our MX908 device was $8.8 million, an increase of 27% compared to $6.9 million in the prior year period. During the second quarter, we shipped 107 MX908 handheld devices. The increase in handheld revenue was primarily driven by an increase in device sales as well as service revenue. Desktop revenue, primarily from our REBEL, ZipChip interface and MAVEN products, was $3.1 million, decreasing $0.6 million from $3.7 million in the prior year period and in line with the first quarter 2023 revenue. This year-over-year decline in desktop revenue was primarily due to a decrease in device placements. During the second quarter, we shipped 15 desktop devices, including 5 REBEL, 4 ZipChip interfaces, and 6 MAVEN devices. As a reminder, 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. As Kevin mentioned, we had another strong quarter for recurring revenues, demonstrating the value that our devices bring to our customers. Recurring revenues, which consists of consumables, accessories, and service revenue, increased 39% to $4 million compared to $2.9 million in the prior year period. The increase was primarily driven by a growth in service revenue, mainly from handhelds. Recurring revenue as a percent of total product and service revenue increased again this quarter to 33% in Q2 2023 from 27% in Q2 2022. Notably, the third consecutive quarter, recurring revenue represented at least one-third of total revenue. Looking ahead, we expect recurring revenue to be around 30% for the full year. Gross profit was $5.8 million for the second quarter of 2023 compared to $6.6 million for the prior year period. Gross margin was 48% for the second quarter 2023 as compared to 60% for the prior year period. The decline in gross margin year-over-year was largely due to three factors. First, the timing of production levels for both our handheld and desktop devices, as the prior year period was our highest build quarter ever, resulting in approximately $0.5 million of impact. Second, higher material costs and warranty costs resulting in a difference of approximately $0.5 million. And third, to a lesser extent, higher noncash charges for intangible amortization and stock compensation, impacting our gross margin by approximately $0.2 million. Looking ahead to the second half of 2023, we expect that higher product sales, a favorable shift in product mix, and higher device production levels will positively impact our gross margins and get us to the lower end of our target range of the mid-50s that we stated earlier this year. We continue to expect that as our device mix shifts and we scale up on placements of consumables, we will be able to expand our gross margin further. Total operating expenses for the second quarter of 2023 were $16.7 million compared to $15 million in the prior year period. This increase was driven primarily by a $0.6 million increase in personnel-related costs and the net impact of headcount added throughout 2022 and merit increases for existing personnel as well as a $0.6 million increase in stock-based compensation and a $0.2 million increase in acquisition-related costs for intangible amortization and valuation of contingent milestones. We are committed to being prudent stewards of our cash. As you recall, we reduced headcount in Q1 by 6% to drive efficiency across our organization, and we are continuing to tightly manage our headcount and be extremely thoughtful on any new additions in the second half of the year. Net loss for the second quarter of 2023 was $9.3 million compared to $8.1 million in the prior year period. We ended the second quarter of 2023 with approximately $153 million in cash, cash equivalents and marketable securities and had no debt outstanding. In August, we amended our loan and security agreement with SVB as part of our efforts to diversify our banking relationships. Looking ahead to the remainder of 2023, we now expect full year revenues to be in the range of $49 million to $52 million, representing growth of 4% to 11% over full year 2022. This compares to our previous revenue expectations of $48 million to $52 million for full year 2023. Our guidance range contemplates a few key factors. The first is the ongoing pressures in the bioprocessing space. Like others in the industry, we are continuing to experience a challenging macro environment related to our bioprocessing customers. This is especially impacting our REBEL placements, which is the highest ASP device of our offerings. We expect these pressures to persist for at least the remainder of 2023. Second, we have a key advantage with our diversified and broad technology platform with applications across different end markets. While we are still seeing weakness in the bioprocessing market, this is being offset by strong demand for our handheld devices that serve the forensics market. We expect our revenue growth for the second half of the year to be centered around our handheld revenues, similar to what we experienced in the first half of 2023.

Thanks, Joe. We are pleased with the results this quarter as we continued to execute against our strategy. We are revolutionizing chemical detection by bringing it out of the central lab and to the point of need across a diverse set of end markets. We continue to see significant opportunity as we do so for new classes of products. Thus, we remain focused on developing and broadening our product portfolio to address these opportunities with both our handhelds and desktops. We are very much looking forward to launching our new product next month. Following this launch, we are hosting an event at our headquarters in Boston on September 20, where we will provide a deep dive on our bioprocessing product portfolio. Please reach out to [email protected] if you're interested in learning more about the event. It would be great to see you there. With that, we'll now open it up for questions.

Our first question comes from Dan Arias of Stifel.

Kevin, maybe to start on the REBEL, and to Joe's point on just the environment and the remainder of the year looking similar I guess to the first half of the year. I know it's a tough question, but if we were to try and look out to 2024, do you feel like you have some level of visibility into demand next year? And the reason I ask that is because some of what it feels like is taking place in the industry is just related to project and purchase delays. Are you seeing that? Is there a portion of what you thought you might get this year that's maybe falling into next year as maybe somewhat of a relatively high confidence set of orders?

Yes. Thanks, Dan, for the question. I still think, as I said, it's a bit muted here through the remainder of 2023 with the REBEL placements. If you look at Q2, the total number of desktops, because we're starting to think about that broader portfolio beyond the REBEL, there's about 15 devices in Q2 desktop devices. And kind of on par with our Q1, you're right, I think it's clear we're seeing many of the same industry pressures that others have been reporting on and from the capital equipment sales cycle extending. And I think you are right that some of this does go with cycles of funding through our customers and the project pacing of it. We're having really strong conversations with our customers. We're really focused on the value that the products are bringing them. And with that, we do see positivity just over the long term for the whole desktop franchise we're building. And we did raise the bottom of the guidance a bit by $1 million, and that's really on the strength of the handhelds, but that also gives you maybe an indication of where we feel overall.

Yes, that was helpful. Thank you for that. Maybe on the handheld side, can you just add some color to new business generation overall? How are you feeling as we head towards the end of the government's fiscal year here and think about a new budget cycle in the U.S.? And then outside the U.S., last call I was reading the transcript, you had highlighted some pretty good international demand in the first quarter. I'm just curious about whether some of that showed up here and whether you think you start to see some ex-U.S. demand be something that you can kind of reliably count on in the quarters going forward?

Yes, the handheld has performed very well for us this past year. As you know, it's a diverse platform that we've successfully adapted for handhelds and forensics customers, who have also shown strong demand. The forensics team has excelled in the first half of the year, with international sales being a significant contributor during this period. We’ve discussed NATO and other potential opportunities, and we anticipate that international sales will remain a key growth driver in the second half. As you mentioned, the end of the U.S. government fiscal year is in September, and we are monitoring several enterprise deals within the U.S. federal and international sectors, some of which are linked to the fiscal year-end. We have a solid range of opportunities, and we are pleased with our current position as we move through various stages of identification, pipeline approval, and the contracting process as we approach the end of the U.S. fiscal year.

Our next question comes from Steven Mah of TD Cowen.

I have a follow-up question based on Dan's earlier discussion. Considering the delays in purchasing cycles and the uncertainty around budget recovery timing, have you been contemplating plans for renting or leasing desktop instruments to facilitate getting these instruments out there given the slowdown in capital purchases?

Yes, Steven, thanks. It's something that we think about, but definitely not changing our focus of selling capital and the opportunity of placements, whether it's on the handheld or the desktop side. But I think specifically on the desktop side, the value over the short and the long term. To the extent that we see an opportunity to secure some operating funds, we'll look at that with some customers, but it's definitely not a focus of driving the growth. It's the longer-term placement and broadening the portfolio across multiple products to be able to tap into the budgets. It's different price points, everything from the REBEL at the high end to the MAVEN at the low end of our U.S. selling prices.

Our next question comes from Matt Larew of William Blair.

In light of the MAVEN from last year and this year, along with the upcoming launch of your new product next month, I am curious about how you plan to balance your commercial resources. All the products in the bioprocessing portfolio still have significant untapped potential. Given that customers are experiencing longer capital purchase cycles, how do you manage the penetration of the legacy products like REBEL or ZipChip while also focusing on educating and promoting the newer products?

Yes. We're excited that we now can have a growing salesforce that has more than one thing to be engaging and talking to the customers about that span a set of ASPs on the low end, our MAVEN, and then our REBEL on the higher end of that and with the new product on its way. I think it's all around having the conversation with the customer and enable to keep that continued engagement and figure out what they need. And these products are all very complementary so that they're not overlapping in that sense. It enables us to really speak to the customers about their process, where they're going. And there are some customers that maybe MAVEN is a better jumping-off point than REBEL. Because if they haven't been doing much online monitoring or haven't been doing much at-line monitoring, something like MAVEN could be a lower lift of adoption and could be a feeder as we see it into REBEL. Certainly, seeing some examples of that. And we've also seen some examples where REBEL customers now are engaging on MAVEN. I think it's a really positive thing, and we don't have a focus issue really because we're really just addressing what the customers' needs are at this point, and it's a very synergistic portfolio we're developing.

Our next question comes from Jacob Johnson of Stephens.

This is Hannah on for Jacob. Thanks for the question. To start, how has the initial customer reception of MX908 Beacon been? Is this driving additional MX908 sales? And is this an add-on offering or can customers buy these standalone?

Yes. Thanks, Hannah, for the question. Yes, Beacon is another great launch for us connected to our handheld product line. It can be bought by itself to an existing MX customer. It's about a $9,000, $9,900 add-in for it, a little bit more like an accessory, a little bit more like our Arrow. We really see that there's an opportunity to take this Beacon to the 2,000 MX908s that are out there and really kind of leverage that installed base and give those customers more capability. But on the flip side, we also see that they could drive additional MX908 placements over time as well because this is really set up as an area monitoring solution. These are done at different nodes to cover a particular geography and area. As we can get people successful with their Beacon, they may then want to have two or three more so that they can have a wider area of coverage. Initial feedback has been good. It's very early days for us on that, and it's a very practical solution that we have high hopes for here. And it probably will start out in the U.S., given that about 80% of our sales there are in the U.S. for that product and probably more on the state and local side as well as the first adopters for it across local towns, municipalities, events, monitoring, and things. Yes, we're excited for where that stands today.

Our next question comes from Puneet Souda of Leerink Partners.

This is Philip on for Puneet. Maybe just a quick question. Can you remind us of your exposure to China and if you're seeing anything there and kind of what your expectations are there for the rest of the year?

On the China front, in APAC, it's not a big piece of the pie today as you look at our geographic sales. We're 80% or thereabout in the Americas, followed by EMEA, so I think China is less than 5% of our sales. We have some folks there working through the opportunity. But really, Americas and Europe focused, not only on our handhelds but also on our desktop side, so limited exposure.

With that, we have no further questions on the line, so I'll hand back to the team for any closing remarks.

Okay. Thank you. Thank you, everyone, for tuning into this and for the thoughtful questions, and have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.