Hello, everyone. Thank you for joining us and welcome to the 908 Devices second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Barbara Russo in Investor Relations. Barbara, please go ahead.

Thank you, and good morning. On this call, we will be discussing our financial results for the second quarter ending June 30th, 2026, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopf, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial Officer. During today's call, we will make 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. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release, as well as in our most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, August 11, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to, and not a substitute for, GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available in the Investor Relations section of our website. With that, I now turn the call over to Kevin.

Thanks, Barbara. Good morning, and thank you for joining our second quarter 2026 earnings call. I'm pleased to report that we delivered strong results this quarter, demonstrating the power of our strategy and dedication of our team. In the second quarter, we generated $16.1 million in revenue, representing 23% growth year over year. Our momentum with U.S. state and local customers remained particularly strong, with these customers representing more than half of our revenues in the second quarter. We're seeing continued funding support at the state and local level, driven by the urgent need to modernize detection capabilities in response to evolving threats, from the ongoing fentanyl crisis to emergent synthetic drugs and chemical hazards. This funding momentum, combined with strong customer demand, gives us confidence in the durability of this growth trajectory. From a profitability standpoint, we are making meaningful progress. The cost structure initiatives we implemented last year are delivering results. Our adjusted EBITDA loss was less than $2 million in the second quarter, which is a 50% improvement year-over-year. These improvements demonstrate our commitment to scale efficiently while investing in growth. As announced on May 6th, we acquired NeerLab, expanding our narcotics detection portfolio. We now have an AI-powered, subscription-based, cloud-connected, near-infrared spectroscopy platform that enables point-and-click analysis of common drugs in seconds. Along with our Viper and MX908 devices, we provide a comprehensive narcotics workflow for law enforcement, from fast screening to confirmatory analysis. Overall, I'm very pleased with our execution this quarter. we are delivering against our strategy on multiple fronts, expanding our market presence both organically and through strategic M&A, while building a stronger foundation for longer-term value creation. This execution maps directly to our three focus areas for 2026, scaling proven platforms, extending platform leadership, and strengthening revenue durability. Let me walk through the progress we made in each. First, scale our proven platforms. Our objective is to accelerate growth by modernizing legacy detection equipment, especially FTIR, across global fire, law enforcement, and defense enterprise accounts. We've made tangible progress in these areas in 2026. Start with our scale. Over the past 24 months, we've shipped more than 750 FTIR devices, converting this opportunity is real, substantial, and one we're capturing. Viper, our newest FTR device, is leading that modernization push. We shipped more than 35 units in Q2, and we believe we will achieve our goal of shipping more than 100 Viper devices this year. Two wins this quarter show why. A major South Asian law enforcement agency displaced an incumbent competitive product after a trial, purchasing more than 15 units, and the Bureau of International Narcotics and Law Enforcement Affairs ordered its first Viper unit to support Mexico's narcotic interdiction mission using U.S. State Department funding, a mechanism we believe can extend to other partner nations. Together, these show Viper winning on two key fronts, capturing competitive share and capturing funding. Our flagship MX908 plays the same role for trace level analysis as it enables our customers to keep pace as the modern illicit drug landscape evolves from fentanyl to nitazines and now to orphans. Clear evidence of the modernization cycle in motion is our Texas Department of Criminal Justice when 15 MX908 devices for corrections facilities statewide were purchased in Q2, converting from a successful two-device trial with the Texas Office of Inspector General. We expect more orders to follow as that program's success becomes visible across the state. That's our playbook working exactly as designed. Engage early, prove value, delight the customer, and expand. We also attained a high visibility proof point this summer. MX908 Beacon, Viper, and Explorer devices were part of the security toolkit at several stadiums during the FIFA World Cup. Deployments at major international events are exactly the kind of field validation that builds confidence across the first responder community, raising awareness of our solution. Finally, this momentum is being carried into the third quarter. We are pleased to announce that in July, we secured a $6 million protector order for corrections agency in the Asia-Pacific region. This progress validates the three dynamics underpinning our platform scaling focus. Governments need better tools to identify unknown substances, we have the relationships and technical credibility to win competitive procurements, and every deployment builds an installed base that opens the door to further expansion, feeding a flywheel. Turning to our second focus area, extend platform leadership. Our objective here is to drive growth through greenfield placements differentiated capabilities and discipline product introductions in markets our existing platforms don't yet reach explorer is the clearest example of that strategy at work explorer represents a genuine breakthrough in gas and vapor detection and the market is responding placements grew nearly 70 percent over the 12 months ending june 30th that growth is being pulled forward by two tailwinds, one, hazmat incidents, and the other, Sberni Defense. Domestically, chemical incidents are rising. A recent Wall Street Journal article noted 131 serious chemical accidents in the U.S. in 2025, up 20% year-over-year, and first responders are feeling that pressure directly. In May, a chemical tank at a jet part manufacturer in California overheated, forcing the evacuation of more than 40,000 residents near Los Angeles. Responders used Explorer on entry to identify and quantify the hazardous vapors and relied on it throughout cleanup. As these incidents rise, so does the case for Explorer. Internationally, we see the same demand from defense customers. The Danish Defense Acquisition and Logistics Organization selected Explorer to enhance long-range chemical detection for defense operations and initial multi-unit procurement paired with the framework agreement for future purchases, a strong signal of the confidence in the platform's differentiated performance. Explorer is exactly what extend platform leadership is supposed to look like. We identified an unmet need, real-time gas and vapor identification and quantification in the field, built differentiated technology to solve it, and now we're capturing a mark opportunity that's growing on its own as chemical incidents rise and customers see what modern detection technology can do. Finally, our third strategic focus area is strengthening revenue durability. Our objective is to build a more predictable revenue mix through recurring revenue from connected services, growth in OEM-based revenue, and longer-term programs. NearLab is the key driver of the Connected Services vision we're building towards. And while OEM revenue and longer-term programs remain important parts of this focus area, I want to spend today's update on NEARLAB and where we see its potential. For decades, presumptive drug identification in the field has relied on colorimetric test kits, cheap, single-use, and disposable with no data trail behind the result. That has created real problems. Innocent substances can trigger false positives, leading to wrongful arrests and legal challenges, and it's becoming a legislative issue. Colorado's legislature voted unanimously this year to ban custodial arrests based solely on color metric results, and reform efforts are underway in at least seven other states. We see that as a durable tailwind, not a one-time event, and it points to where this category is headed, away from disposable chemistry and towards connected technology that produces a defensible, auditable result with the identification, the underlying data, and the chain of custody all captured and retained. That's the model NearLab lets us build towards, the same kind of recurring subscription-based model that has transformed other public safety hardware categories, pairing durable hardware with a cloud-connected software layer that agencies rely on and return to every day. Within the first 60 days post-close, our U.S. commercial team ran in-person and virtual demonstrations and secured field evaluations through our Try Before You Buy program, engaging 30 agencies and hundreds of prospects at the federal, state, and local levels. This includes seven HIDA task force, the multi-agency teams on the front lines of drug trafficking enforcement that tend to set the procurement tone for their regions. Agencies evaluating the platform consistently cite four things, speed, ease of use, an intuitive interface, and accurate identification, exactly the attributes that make the case against colorimetric testing. That commercial motion is already converting. In the roughly two months since close, we sold more than 35 NearLab devices, each with a multi-year software subscription, meeting our expectations for the initial post-acquisition period with shipments to law enforcement agencies in Colorado and California and customs agencies in Morocco and Iceland. Our overall pipeline is strong and growing, and we're starting to see enterprise-scale opportunities develop in that pipeline, both domestically and internationally, a meaningful early signal of NeerLab's longer-term potential. But the real opportunity is bigger than any one product. NeerLab is an example of what our entire business has the potential to become. Durable hardware paired with recurring connected software and the kind of real-time analytical reachback support our customers consistently tell us they value most from 908. We believe that model, hardware, software, and expert support working together can guide how we build and monetize every product in our portfolio for years to come. With that, I will turn it over to Joe to walk through the detailed financial results for the quarter.

Thanks, Kevin. Total revenue was $16.1 million for the second quarter, 2026, increasing 23% from $13 million in the prior year period. Handheld product and service revenue was $15.5 million for the second quarter of 2026, up 24% from $12.5 million for the second quarter of 2025. The increase was primarily driven by our FTIR products, including more than 35 VIPER shipments, and near-lab law enforcement revenue. In total, we shipped 198 devices in the second quarter, bringing our install base to 4,101. Recurring revenue represented 31% of total revenues this quarter and was $4.9 million, a 4% increase over the prior year period, primarily related to software and accessories and FTIR service revenue, offset in part by the expected reduction in mass spec service revenue. Gross profit was $8.3 million for the second quarter of 2026, compared to $6.4 million for the prior year period. Gross margin was 52% for the second quarter of 2026, compared to 49% for the prior year period. The increase was driven by higher product revenue volume and decreased facility costs related to the move of our Boston facility in 2025. In addition, in the quarter, we benefited from a shift in channel mix with more U.S. state and local placements that have lower channel costs compared to international placements. These factors were offset in part by a lower service gross margin related to the decreased mass spec service revenue in the second quarter of 2026. Adjusted gross profit was $9.2 million for the second quarter of 2026, compared to $7.3 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 85 basis points compared to the prior year period. The increase in adjusted gross margin was driven by our improved 2026 operating structure, including higher revenues, channel mix, and the reduced facility costs as mentioned above total operating expenses for the second quarter of 2026 were 21.2 million compared to 21.5 million in the prior year period the reduction was primarily due to decreases in the fair value of contingent consideration lower facility costs and a reduction in r d program spending offset by operating costs from near lab and transaction costs incurred with the acquisition. Net loss from continuing operations for the second quarter of 2026 was $11.9 million, compared to a net loss of $12.9 million for the prior year period. This decrease in loss was primarily driven by the $2 million in higher gross profit, net of a $1.2 million reduction in transition services agreement income, and a $0.3 million reduction in non-cash charges for revaluing contingent consideration. Adjusted EBITDA for the second quarter of 2026 was negative $1.9 million, compared to a loss of $3.9 million in the prior year period, representing a $2 million improvement. In the second quarter, we cut our adjusted EBITDA loss by more than 50% due to improved margins and a lower operating cost base. We ended the quarter with $101.5 million in cash, cash equivalents, and marketable securities with no debt outstanding. We consumed $10.2 million of cash in the quarter, which was primarily related to the $13.5 million used for the acquisition in NearLab, net of the $3.5 million received from the release of the escrow from the desktop divestiture to Repligen. Looking ahead in 2026, we have raised the low end of our range and now expect revenue to be 68 to 70 million, representing growth of 21 to 25 percent over full year 2025. Our guidance range includes the following assumptions. First, we now expect handheld product and service revenue to grow 23 to 27 percent year over year, which equates to a range of 65 to 67 million. This increase is supported by our performance to date in the recent $6 million protector order. Second, we continue to expect OEM and funded partnerships, including contract revenue, to be approximately $3 million. And third, given that the AVCAD program is still working through next steps, as Kevin will discuss more in a moment, we're excluding it from our core 2026 guidance. Any AVCAD contribution would represent upside to our stated range. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid to high 50% range for full year 2026. And on the bottom line, we continue to expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, closing the gap on achieving break-even while balancing investments to enable the growth opportunity. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. As Joe mentioned, the U.S. military AVCAD program is continuing to work through next steps, and we fully support that process. The current contract has run its course, and as part of the next steps, the government is also considering our commercially available product due to a broader procurement reform at the Department of War that's prioritizing speed and program flexibility. We expect more clarity soon as the government's fiscal year closes and FY27 begins on October 1st. Overall, we believe we have the best-in-class aerosol and vapor detection technology, which has been extensively government-tested and validated, and can win this opportunity regardless of the chosen path, either in partnerships with misdetection or directly with our commercial MX-908. We remain excited about the long-term potential of this program. Now, stepping back, as I reflect on our second quarter performance and look ahead to the remainder of 2026 and beyond, I'm energized by what we've accomplished and confident in the trajectory we're on. Let me be clear about how I characterize this quarter. Strong execution across the board. We delivered 23% revenue growth, placed 198 devices, and expanded our adjusted gross margin by 85 basis points and cut our adjusted EBITDA loss by more than half, all while successfully integrating a strategic acquisition and continuing to invest in our growth initiatives. This demonstrates the fundamental strength of our business model, and I believe in our ability to meet our near-term and longer-term objectives. Before I close, I want to express my gratitude to those who have supported us through our strategic transformation over the past year and a half, to our customers who trust us to protect their communities, to our employees who execute with excellence every day, to our partners and distributors who extend our reach into markets worldwide, and to our shareholders who continue to back our vision as we build a category-defying company in handheld detection. We're executing our strategy, we're delivering our own results, and we're building momentum. I look forward to updating you on our continued progress when we report third quarter results later this year. With that, let's open it up for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Dan Arias with Stiefel. Your line is open. Please go ahead.

Good morning, guys. Thanks for the questions here. Kevin, as we think about this broader portfolio that you now have, can you maybe just talk to the extent that you see bundling opportunities as being higher than they were and more meaningful? Is there an appetite for multi-system orders across applications when you target these customer groups or, you know, is it still sort of siloed from an application standpoint? I'm just trying to make sure that I fully appreciate the benefit of just the different product lines that you have and what that might mean when you when you target some of these government agencies and law enforcement agencies.

Yeah, sure thing, Dan. Happy to touch on that. So I think that's one of the big advantages we've been having as we scale here with the FTIR portfolio now coupled with mass spec and now we have near lab thrown in here we're absolutely seeing and have many examples of bundled orders where they may order a couple of ftr products or a couple of mx products not yet with the near lab because that's very new to us but we absolutely see that pairing well with our mx and i think if you look at it from a high level right we think about law enforcement we think about their workflow we think about what they need to do from screening to confirmation and And if you take, in total, our MX, our NearLab, as well as the Viper, it creates kind of a complete workflow for those customers, so absolutely multi-unit, multi-system across And then similar on the HAZMAT side, so more on the fire services side, with our Explorer, with our FTR, our ThreadID device, absolutely those can be bundled offerings, and we've Okay.

Okay, and then maybe just one on AVCAD. It sounds like there are some alternative courses of action that could come out of the evolution of that opportunity. If something more direct were to be the way that you go, how do you see that impacting a ramp and just the revenue potential that could come out of that in 27 and 28? You've kind of laid out some initial thoughts there. I'm just curious how that would change. Thanks a bunch.

Yeah, absolutely. On AvCAD, it's taking a little bit longer than we in the market expected, but our confidence in winning hasn't moved. Really, the current contracts run its course, and the government's working through those next steps, which we're fully supportive of. We believe we've got really the best-in-class vetted, validated technology in the aerosol vapor detection category and can win this opportunity. Either way, it plays out. And that can be in partnership with Smith Detection, but it also can be through our commercial MX-908. And as we mentioned, and as you probably know, there is a shift underway within the Department of War that's really making sure that they take their moment in time and look at commercial off-the-shelf products and using that in a preferential way to speed up deployments and speed up getting solutions to the warfighter. So at the moment, the government's working through that process. They're looking at both COT solutions like our MX-908, these commercial off-the-shelf solutions, and then, of course, continuing with the program we've been working with Smith on the custom development. From an economic side, yeah, I think it's clear that the more product content we provide, whichever path they choose, is better on the economics for us. From a ramp, as Joe mentioned, we have taken it out of the guide for today and taking it to upside, and we're pleased we're able to do that with the strength of our core business. And as we mentioned, we see this as a $10 million plus opportunity into the future, and I don't think our confidence there has changed and how to ramp to that point is TBD here as we sit today. But I think the program is going to be good for us over the long term.

Your next question comes from the line of Brendan Smith with TD Cowan. Your line is open. Please go ahead.

Great. Thanks for taking the questions, guys. Maybe just first on near lab, I was hoping, can you speak a little bit more to what kind of potential cross-selling opportunities you're now seeing in these first 60 days and maybe even broadly, you know, more qualitatively, how conversations with new customers are going now that you've got this, you know, arguably broader portfolio of products, I guess. Are they coming to you with one in mind? Are they looking for a more comprehensive set of tools? Just trying to understand how kind of demand here is evolving across these different end markets as your catalog growth?

Yeah, sure thing, Brendan. Thanks for the question. We're very happy with how the NearLab integration is going. We've really been working hard to get out there fast. Part of the thesis was bringing this product into the U.S. markets where they've had very, very little to none penetration. And to your point, we can bring that right to the customers of our core flagship MX908, right to those law enforcement customers. And we closed here in early May, but the team's been moving fast, and we really hit that ground running. We've engaged about 30 agencies, hundreds of prospects across about 20 states in those first 60 days. That includes these seven HIDA regions. These are multi-agency task force. These are the ones that really are on the front lines. The illicit drug crisis, they really set kind of the tone for what gets adopted in their regions. So we've been doing a lot of engagement with those groups there, and we're pleased with with where we're at you know absolutely as you mentioned there can be a bundling as we move forward and and there is an analyte compatibility uh complementary compatibility there so if you think on the thc side and and cannabis the near lab is the product in our portfolio that can quantify that um and and we can't do that with our mx so those you can imagine being paired very well um the subscription side we think is is very exciting uh for the near lab products we think that's also a great, great model that we should work to get our other products in over time and making sure that we really provide that excellent service support and doing so on an ongoing recurring basis. And then I'd say the last point on NEARLAB is really excited about a tailwind in the regulations that are changing. And that's really been going away from colimetric kits, which have expiration dates, have usage issues, and have been causing some false pauses and wrongful arrest and starting to get banned in different states. So we're excited to see where that will play out by having a, call it a lower price point offering with our near lab that can help us there. And Colorado is one of the first states to ban such things. And in the quarter, we did receive orders from Colorado and California. So I think overall we're pleased with it and do see a portfolio effect developing.

Got it. That's great. And maybe if I could just Just a quick follow-up on your point about that kind of recurring revenues here. I appreciate all the color on kind of growing that as a proportional part of the total revs. I guess as we look at our model for maybe the next, I don't know, couple of years, how should we think about that relative proportion of total revenues coming from that recurring bucket? Just that some of the more recent launches scale up. I mean, you're talking about near lab here. So I guess is there like an ideal ratio between core and recurring you guys have in mind as feasible over the medium term? Any color there would be great.

Yeah, give a little bit of color and feel free to chime in, Kevin. But, you know, Brendan, we were about 30%, you know, for the current quarter. You know, we were a little over 30% last year. That's kind of our current baseline. As we drive initial devices, you know, example, the protector order that we talked about doesn't have recurring revenue. So in any given quarter or year, there can be a shift, right? You might end up in the high 20s, low 30s. But over time, I think that's where it gets exciting, especially with NearLab and the subscription model. More and more of a, you know, it carries 50%, you know, of recurring revenue opportunity with those subscriptions. You have the snowball effect of the install base. So I think starting to creep up into the 30s, kind of approaching that 40% is what we aspire to. But it is good to sell those devices and build the opportunity, which we're focused on today.

Your next question comes from the line of Matt LaRue with William Blair. Your line is open. Please go ahead.

Hi, good morning. I just wanted to circle back on AVCAD. If indeed a different path is chosen by the Department of War, would there be another pilot phase where they trial a variety of different technologies? in other words would sort of reopen a different rfp or you know based on the success of the first project where you were a sub and it's the same technology from your standpoint that would it would it be sort of be the immediate opportunity um so just wanted to be curious a little bit more on how you expect things to play out and i guess how that informs uh your perspective on timing thanks yeah absolutely matt you know great great question so you're right we've been performing for a long time now under the AVCAD program in partnership with Smiths.

We've done a lot of testing of the base HVMS, a lot of analytical testing, a lot of rigorous testing of that. But similarly, if you think about our commercial product, our MX908, we have more than 3,000 of those devices out there. We estimate that about 1,200 are within the U.S. federal and military. We have quite an extensive test record for that that also parallels what's been done in the AVCAD program. So I think it's a bifurcated path. I think they can choose to continue with the path we're on and or a hybrid path where potentially they continue with the program and the development or some custom modifications there along the same lines and then use COTS products such as our MX908 to fill the gap. Again, their desire is to move the program faster here.

So I know that you see a a timing delay uh from this lens but their desire is to ultimately move the program faster okay and then um joe just thinking about the the guide implies i think you know sort of high teens or 20 million of revenue reporter in the back half he did 16 and q2 it sounds like avcat has moved out of of the guide um could you talk to us a little bit about what the progression uh will look like and i guess in particular i'm thinking of the large order or six million order you got in July. I don't know if all of that or some of that might be coming in 26 versus perhaps more in 27. Thanks.

Absolutely. You can give a few different data points there. Yeah, last year in H2, we were 45% in Q3, 55% in Q4, a little bit more heavy weighted in Q4 with the Viper ramp up and a little bit of ASCAD revenue. As I think about this year, it's probably a little bit more and Q3 on a percent basis, maybe a few hundred basis points in Q3 versus Q4. Specifically on the $6 million protector order, we do anticipate that to be split over Q3 and Q4. So we'll see some revenues here in Q3 as we build the number of devices and some go out in the fourth quarter. I think more broadly as we think about the guide and our confidence is high and growth levers we feel are performing this year. For H1, as you mentioned, our growth was 19%, 23% in Q2, and we expect that to ramp here in the second half and potentially get to the higher end of 25% for the full year growth. It would imply about 29% at the high end for H2, and we think our growth to date has been impressive and see our key growth barriers and enabling that high 20% growth. We've talked about some of these, I think, over the past two quarters. We expect Viper to be a key contributor to the full year post-launch you know we had 60 plus in each one and see a path where device placements can exceed 100 and maybe approach 150 for the full year you know doubling or tripling our 25 levels explore uh to drive growth um similar to 25 you know as a reminder we opened a broader fire gas detection market with explore which is exciting we shipped over 150 devices in 25 and over the last 12 months it's grown nearly 70 percent uh we talked about protector you know getting you know that six million dollar order it gained us confidence having that order in hand to ship over q3 q4 and in may with the close of near lab we expect approximately a million a quarter in h2 uh contributing to the growth so hopefully that's helpful as you think about the multiple levers and our path to achieving you know the guidance range that we tightened this quarter.

Yeah, very helpful. Thanks, Joe. Thanks, Kevin.

Your next question comes from the line of Puneet Sota with Lyrink. Your line is open. Please go ahead.

Yeah. Hi, guys. Just wanted to clarify on the protect order, the six million. Was that something that you were contemplating in the guide before or is that new? Maybe just give us, you know, some color on that.

Yeah, we do have a level of protector anticipating the second half and in the opportunity but it was good to see that the specific opportunity was upsized a bit from the initial thinking in the first half so i would say it was in our purview was in our pipeline uh but to be able to get it in hand early and be able to ship it all here in 26 uh was a positive um that it definitely gave us confidence and tightening and um you know pushing the avcat opportunity to upside as we've continued to learn more on that opportunity so we like these big orders um on the protector side and it's been a steady product early days from red wave and continued under our our purview from commercial perspective okay um and then on the um cloud

attached side um could you you know kevin could you talk about where your cloud attach rate for devices is today where you would like that to be what is the incremental revenue that you think you know you can achieve by you know integrating these devices into the cloud platform clearly there's uh you know there's a there's a recurring there's a subscription model there i just wanted to understand the approach you're taking here and where you would like to be yeah absolutely you know thanks for that question and so we're very excited about the more connectivity we can have on our products and the more we can connect it to an ecosystem for our customers to add value

to allow them to share results, manage their fleet, do in-depth analysis, reach AI tools for support, all of those types of features we're working on. We have a product called Team Leader that's out there today that connects to our FTR products and will connect in the future to our next generation of our mass spec products. That product has hundreds of users. It's really provided with service and support today. But where we're really going is looking at the model for NearLab. And part of the strategic decision around that M&A was to leverage that model much more broadly across our portfolio over time. So if we zoom into the NearLab model for a moment, NearLab is a purchase where 50% is recurring. So nominally list price around $10,000 for the device and nominally around $5,000 per year for the subscription and being able to support that customer with upgrades, new threat assessments, new drugs, new analytes that can be added over time. So that's a 50% target. They've shown and demonstrated that we're able to achieve annual recurring revenues that are quite high, you know, in obviously early days, but greater than the 90% level. And that comes from the stickiness of the product, right? It really gets designed in with those customers for drug screening applications across a set of very common illicit substances, and people will sign up for one-year subscriptions, two, three, five, and even as many as, say, seven years up front of subscription. We really like that. That's visibility. That's very much a complementary way to what we're selling our MX908. So 50% is an aspiration there on that single product. If you look where Joe mentioned today, we'll call at more in the 30%, and that ebbs and flows a little bit with the size of a number of new placements that are done in a particular quarter. But that's the direction we're going. I mean, I think NearLab is a great example, great model. And if you start looking across the industry of public safety companies, you'll see many of the best in class companies have been quite successful across state and local customers using such a model. Now, all that said, it's going to take a little bit of time as we work through and get all that into our product portfolio.

But we're super happy to have the near lab team uh in place we're super happy to have those software development resources that are coupling with our team leader uh group and uh you know i think good things to come there that we'll keep reporting on got it and then one final one on uh narrow lab i mean um it seems like it helps you get into accounts that you could have you could have you know maybe you've gotten those accounts before but maybe you know maybe some of those accounts were inaccessible just given the price point, just trying to understand sort of what's the upgrade opportunity to more higher-priced devices? How are you thinking about that, just given, you know, the access that you have in the account list there from NeerLab? Thank you.

Yeah, that's also a great question. I think it goes in a few different directions. I mean, absolutely, there are cases, and that's our first job one today, call it 60 days in at the end of the quarter is to get the NearLab device introduced to all of our MX customers that we've got strong partnerships with. And it has complementary analyte capabilities. It also has a different price point, different complexity that can be used to kind of expand the number of sockets that you can reach. So job one is focused on that today. But the flip side is also true. They've got a great presence internationally. They've really been doing some good development there over the last two years. A lot of good validation with the University of Lausanne in Switzerland, the forensics university. So we're looking to do more in that direction internationally, using them as a platform to help us into the reach and validation of our products there too. So I think it's got kind of a bi-directional benefit to us. And as the first question of the day from Dan, as that portfolio grows and we can serve more of the workflow, we see a great efficiencies, both for our customers to have one number for support and service and training contacts, but also from us, from a feed on the street, a really zoomed in, subject matter expert-led organization on the sales side for law enforcement, and then similarly on the HAZMAT fire side. So I think a lot of benefits as we scale with this broader complementary portfolio across the board.

Got it.

Your next question comes from the line of Max Masucci with Roth Capital Partners. Your line is open, please go ahead.

Hi, good morning. Nice quarter. First question on Viper. If you look across the first 110 Viper placements, what trends have you seen in terms of single versus multi-device orders? What percentage of the Viper placements have been to existing FTIR customers versus customers that are new to 908? And more generally, how is the pipeline shaping up ahead of the second half? And is that factoring into the slightly raised expectations on product revenues?

Yeah. Thanks, Max, for the question. I mean, I think Viper is a really successful launch for us. It's the first launch under the red wave with 908 as one here, calling it our Viper product together launched to the market. Super successful thus far. Very pleased with those call it passing 100 units to date. I think we're seeing this take advantage of the modernization cycle that's setting up across the globe, whether it's funded from the state and local and the increase of funding that's available to responders or across NATO entities. And we've certainly seen singles, doubles, tens, even 15-unit type orders coming in one go. Joe, you want to?

Yeah, and it makes a lot of sense as you think about the different sales channels that we're focused in for the Viper, you know, whether it's state and local, you know, kind of one-off agencies and then more broader potential custom opportunities, you know, both domestically but really internationally, I see a decent opportunity as we highlighted the win in Kevin's prepared remarks. So as we think about the back half, you know, it is one of the key growth drivers that I mentioned earlier, and we see that continuing, and at times you might see a big order pop up, but definitely building pipeline.

Yeah, and Max, if you look over the last 24 months, we've shipped more than 750 FTR devices, which includes the Viper, but, you know, really a clear proof point to us that this modernization cycle is really real and that we can capture it. And the FTR is essentially riding three cycles at once. That equipment modernization, hazmat response, and then defense demand. So they're all kind of compounding together.

Great. The second question on gross margins. So it looks like product gross margins expanded nicely in the quarter, you know, about 700 basis points. So, you know, how much of the Q2 product gross margin expansion is, you know, structural versus, you know, volume and mix? And, you know, just curious how the, you know, Viper placement ramp and NERLAB are factoring into your expectations for gross margins for the year.

Yeah, a lot of different factors you can imagine, whether it's channel, product mix, et cetera. but I'd say our margins do remain healthy and the drivers are well understood, different factors there. For reference in 25, our adjusted gross margin was 56.7%. For the second quarter and first half, our adjusted gross margin was 57% overall, a favorable result based upon channel and product mix. Product gross margin has improved a bit as some of our service revenue, you might recall that federal government contract that had some funding lapse this year that we'll go after for next year took down our service margins but as we think about the full year 26 you know we see it at a similar level maybe closer to 56 percent on a full year basis you know the higher product volume and each one lower cost structure are positive drivers as you touched on but there are a few h2 factors including near lab which isn't at scale today it's at a lower gross margin especially on the device you know the protector order that six million dollar order is at a lower gross margin it's an international and high volume discounting opportunity in viper which is our beyond near lab our lowest product gross margin contributor um in timing a bill plan etc so a lot of different factors i think volume helps we have some other things that may temper our adjusted margin expansion but being in that mid to high 50s kind of 56 57 percent you know it's pretty attractive great thanks for taking the questions welcome there are no further questions at this time i will now turn the call back to kevin knopp for closing remarks well thank you thank you very much for your time uh this morning we appreciate uh your uh being on the line and for us to give you an update and look forward to the next one take care this concludes today's call thank you

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