Ladies and gentlemen, thank you for standing by and welcome to the 908 Devices Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to conference call Ms. Carrie Mendivil. You may begin..

Thank you. This morning 908 Devices released financial results for the quarter and full year ended December 31, 2020. If you have not received this news release, or if you’d like to be added to the company’s distribution list, please send an email to ir@908devices.com.

Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Founder; and Joe Griffith, Chief Financial Officer..

Thanks, Carrie, and thank you all for joining us this morning. I’m very pleased to welcome you to our first earnings call as a public company to review our results for the fourth quarter and the full year of 2020.

2020 was an extraordinary difficult year on many levels, but despite all the macro challenges, we made important progress across our business. Over the course of the year, we grew revenue 50% and ended the year with $27 million in revenue. We placed 390 devices during 2020, bringing our installed base to 1,361 units.

These new placements included 33 Rebel units placed during its first full year of commercialization. Our devices are now in use across 34 countries, and we have devices placed at 19 of the top 20 pharmaceutical companies. And at the end of 2020, we completed our initial public offering in December raising approximately $150 million in gross proceeds.

I’d like to take a moment and express my sincere thanks to our amazing team for their hard work and dedication. All of the incredible progress we’ve made is truly a testament to their collective efforts. I’d also like to thank our long-standing investors for their continued support and welcome our new investors.

We really look forward to develop meaningful long-term relationships and working with you to grow the company together. I want to start our call today by giving you a sense of the vision that is driving us at 908 Devices.

History has shown us that that making technology accessible to broader audiences opens doors for new users and applications, which in turn grows markets and even creates new market opportunities. At 908, our goal is to do exactly that with the analytical capabilities of mass spectrometry.

We’re using our broad technology platform to break mass spec out of the confines of a centralized laboratory and bring it to the point of need..

Thanks, Kevin. Revenue for the fourth quarter of 2020 was $5.7 million compared to $8.3 million in the prior year period. Total revenue for the full year 2020 was $26.9 million, up 50% from $18 million in 2019. Product and service revenue for the year was $24.8 million, up 61% from 2019.

This increase was largely due to progress on pilots and deployments with MX908, resulting in an increase of 139 devices along with revenue from Rebel and its first full year since launch.

License and contract revenue for 2020 was $2.1 million, down 19% over 2019, predominantly driven by timing of deliverables under our current contract with the Government customer. License and contracts revenue has been helpful in aligning commercially relevant developments. However, we do not expect revenues to be significant on a go-forward basis.

Our install base grew to 1,361 units in 2020, with 390 devices placed during the year, compared to 248 devices placed in 2019. This increase in placements was driven by continued adoption of our handhelds as well as by growing adoption of Rebel in its first full year of commercialization.

Gross profit was $2.6 million for the fourth quarter of 2020, a 40% decrease from $4.3 million for the prior year period. Gross profit for the full year of 2020 was $14.9 million, an 83% increase from $8.1 million for the prior year. Gross margin was 40% for the fourth quarter 2020 compared to 52% for the prior year period.

Gross margin for 2020 was 55% compared to 45% for the prior year. This increase was mainly due to scale and pacing of investments with COVID uncertainties in 2020. Total operating expenses for the fourth quarter of 2020 were $6.5 million compared to $4.6 million in 2019.

The increase during the quarter was primarily driven by increase in selling and marketing headcount as well as an increase in costs associated with becoming a publicly traded company. Total operating expenses for 2020 were $20.7 million relatively in line with $20.2 million for operating expenses in 2019.

Net loss for the fourth quarter was $10.2 million compared to $0.5 million in the fourth quarter of 2019. Net loss attributable to common stockholders for the full year was $12.9 million compared to $13.5 million in 2019.

The net loss in 2020 includes a non-cash $6.1 million charge from the reevaluation of the preferred stock warrants, immediately prior to the closing of our initial public offering. This charge offset the increased gross profit in 2020. We ended 2020 with approximately $159 million in cash, cash equivalents and marketable securities.

This includes approximately $139 million in net proceeds from our IPO in December of 2020. We also had $15 million of debt outstanding as of December 31, 2020. Looking ahead in 2021, as Kevin mentioned, we expect revenue to be in the range of $38 million to $40 million, representing 45% growth over full year 2020 at the midpoint of the range.

This outlook includes revenue that we expect to recognize from our multi-year U.S. Army purchase order, which Kevin mentioned earlier in his remarks. We expect revenue for 2021 to be more heavily weighted to the back half of the year.

As we progress the opportunities with handheld customers from pilots to enterprise deployments and ramp our commercial team focused on desktops. We are also committed to continuing to invest across our business to realize the massive opportunity in front of us.

With the capital raised from our IPO, we are scaling our organization and investing in our technology platform to lay a strong foundation for long-term growth. At this point, I would like to turn the call back to Kevin for closing comment..

Thanks, Joe. We started 908 with the vision of democratizing mass spec by breaking it out of the confines of the central lab and bringing its power to the point of need. And this vision remains clear today. Our team is focused on executing in 2021 and driving a drumbeat like cadence of momentum across our customers, sales channel and platform.

We look forward to updating you on our future progress. And with that, we’ll now open it up for questions..

Our first question comes from Puneet Souda with SVB Leerink..

All right, great. Thanks, Kevin and congrats on the first quarter. First question on the U.S.

Army release this morning, could you elaborate a bit more on that $25 million contract? How should we think about the placements here in 2021? What sort of cadence we should expect for the MX908 devices and how should we be viewing this in the light of the full year guide, which is $38 million to $40 million consensus is at $39 million, none of that has changed.

So I think you said that this contract is new, but as – and is reflected in the guide.

So wondering if there’s some conservatism in the guide or anything else that we need to be accounting for, because if we look at the Rebel side of the business, clearly a very innovative instrument and a really strong ramp emerging there with the commercial sales force to? So just wondering on the army contract, like how should we think about the cadence and the guide itself?.

Yes. Thanks, Puneet for the question. Yes, we’re super excited that the army has chosen to adopt the MX in a big way and start to roll it out. It’s the next-gen technology solution for them for trace detection.

And as we’ve talked in the past, we really view the sales progression of our handheld devices is going through tests and trials to pilot and then to full enterprise rollouts. And you should view the U.S. Army news this morning as one of those larger enterprise accounts. That’s now pushing it out through their organization.

And as of the end of last year, we’ve got about four accounts that are in that pilot stage. And we’ve got about 11 accounts that are in that enterprise level stage of which there’s about 700 units there about that are represented.

I would say that our guidance that we’ve provided really anticipates the timing of this purchase order, because as we said before, that that sales process of tests and trials to pilot to enterprise gives us very good visibility into the progression.

Because we’re working with the customers hand-in-hand to ensure their success, to ensure it got justification for an enterprise level rollout. And with that said, really at this time, we were anticipating the first shipment to go here as part of our 2021 guidance with the majority of it to come over the course of 2022..

Got it. Yes.

Please?.

I was just going to add there on the U.S. Army opportunity. With competitive dynamics, we won’t be providing sensitivity and privacy, any specifics on the timing. We are excited to have it in hands and to realize the shipments over the next two years. A portion of that $25 million is service revenue.

So about – if you think about that $25 million, about 75% is related to product revenue to be realized in our existing guidance for 2021, and then spill over into 2022..

Okay. That’s very helpful. And then on Rebel, Kevin, this is such an important growth driver for you in a very large bio-processing market. And truly when we look at it, I mean, this is a groundbreaking innovation.

I mean, myself having seen and purchased and operated many of these mass specs in my own lab base, I can say that, this surely doesn’t look like a mass spec, doesn’t operate like a mass spec, but it delivers more than a mass spec in the PD lab.

So given the powerful innovation that you have here, and I appreciate that this, you had the first year of launch though, that was COVID impacted, maybe just walk us through the expectations for Rebel placements this year that you were expecting in terms of the commercial front? You’re expanding marketing efforts that you’re expanding, how should we think about placements this year and the potential improvements and pull through.

And on those two points, Joe, if you could provide the current placements and the Rebel placements in the quarter and current pull through where you’re at with Rebel?.

Yes, sure. I’ll start there, Puneet. So yes, Rebel is absolutely very exciting product for us.

It’s not your father’s mass spectrometer as you described there, it’s a innovative little desktop device and it is exciting for us because we really kind of watched that flywheel effect to begin to turn here as we get those customers that are coming back for multiple units.

And at year end, we had six organizations that got multiple units with the largest account, having six that’s up from about three that we reported, three accounts having multiple units in September – at the end of September. So that’s exciting for us. And we see that we’re just scratching the surface internationally.

We’ve got about 25% of those that are outside North America now, and we’re really working to drive that adoption broadly, as you said, really, we’re investing heavily in the commercial organization.

We’ve reported about Steve Davenport joining the team, but then expanding across geographies and that’s driving units across multiple sites and many units within sites and then definitely more internationally as we pushed through that.

Joe?.

And in on placements side, Puneet, we had 15 new placements in Q4 that brings us to 33 for the year and in 46 from inception or launch in Q4 2019. On utilization or pull through in our Rebel, we are still early stages, but we are seeing that approximately one ship per month for our active users.

And we’re continuing to monitor and learn from our customer use cases as we get units being utilized up and running in the customer hands. So no change in utilization to where we’d been thinking, at least over the short-term, which is about that one kit per month that we communicated around the IPO..

Okay, great. And the last one, if I could just squeeze in.

In terms of the commercial organization at 40 today, that’s great to see the progress there, but how should we think about further expansion through the year, I think you pointed to second quarter next year, you would expect to reach 60, but if there – if the organization ready to expand beyond that, if needed, maybe just help us understand.

And then it’s great to see the addition of the Steve to the team..

Yes. For sure, it is absolutely a top priority for us with the use of proceeds, as we’ve discussed before, we do see a very large market opportunity and are having this great early success with the Rebel replacement, so investing in the commercial channels in the U.S.

and internationally is so critically important for our handhelds, but in particular, for our desktop products. So yes, at the end of the year, we had about 30 people in sales and marketing. And today, we’ve got about 40 people in sales and marketing.

50% of those are really quota-carrying field sales staff that are out selling and interacting with the customer each day.

Yes, we are working to grow that and get to a goal of 60 employees about this time next year that are in the sales and marketing side as you know, you have to work across the top of the funnel and building it from the marketing perspective and getting our name out there and then driving it all the way through and then to closing with those field team.

So yes, it’s something we’re continuing to monitor that right level of investment, the right numbers, and we’ll certainly invest more heavily there if deemed. But right now, we’re really on track and confident that we’ll hit that goal of 60 by this time next year..

Okay. That’s great. Thank you, and congrats on the strong first quarter..

Thanks, Puneet..

Thank you..

Our next question comes from Doug Schenkel with Cowen..

Hey, good morning. My first couple of questions are on guidance.

In terms of components of guidance, any chance you’d be willing to share anything in terms of placement expectations maybe delineating by specific products or growth in pull-through, anything like that? And if not, meaning if you don’t want to get that granular could you at least speak qualitatively on expected growth by product line, meaning if you’re guiding overall revenue growth in 2021 to the mid to high 40s.

Do you expect that to be more weighted towards instruments or consumables, however you want to frame it would be helpful. Thank you..

Sure. Give some color and Kevin can fill in some of the pieces, Doug. But at this point, we won’t be guiding to a number for our annual installed base. That said, I think if we kind of work through the math and the revenue range that we provided, you’d see that we begin to approach about 2,000 units by year-end.

From a consideration of handheld and desktop perspective, we see both as key growth drivers here in 2021. And handhelds with deployments like the U.S.

Army that we just talked to and others in the pipeline, but also Rebel, with its opportunity, not only for new device placements, but the building recurring revenue opportunity as we build the installed base and get an increase in our active user base..

That’s great, Joe. Thank you for that. And then very quick on pacing. I know you talked in your prepared remarks about this being a pretty back-end loaded year. I think the Street is assuming like 10% to 11% of sales in Q1, with 70% of sales in the second half. That’s obviously consistent with your qualitative remarks.

Is that too much? Or is that about right, at least as we sit here at the end of Q1?.

I think that’s about right, especially related to kind of the first half, back half split. We do expect the revenues, as we discussed, be heavily related to the back half of the year, which were aligned with some of those historical trends on our government year-end spending in pharma and to your push.

If we look back at 2020, it was the exception with the deployment of some handhelds in Q2 2019 – 2020, where we accelerated the shipment due to COVID uncertainties. And we would expect to return to more traditional trends, which is in those percents that you described..

Okay. And obviously, given its late March, if it was going to be drastically different from that, this would probably be a good opportunity to clean that up, and you have pretty good visibility. So that’s helpful. I guess my last one is just a follow-up on some of the comments on the sales force expansion and plans for further expansion.

In terms of incentive structure, are there any changes contemplated? And I guess, really specifically, what I’m trying to get at is, are the new hires prioritizing Rebel, for example? Or is the incentive structure and the motivation structure, much the same as it’s always been?.

Yes. Yes, Doug. So we really think of sales in both government sales to government customers and into our commercial customers. And we do have a sales team that focuses on our government customers, which is primarily, of course, are handheld devices, and then we have a sales team that’s focused more on our desktop devices.

And so in that way, we see that we can maintain focus and build and realize the potential of both product lines, if you will, on the handhelds and the desktops.

In the case of our desktop, our commercial reps out there, they’re compensated on the ZipChip as well as the Rebel and then on the recurring, and they have bookings targets for both devices and that recurring revenue. As you know, Rebel is our most exciting desktop that we’ve got out there, and it’s very critical for us in the bioprocessing area.

But we love ZipChip too because of its strategic importance, and it’s really – it gives us that purview into future market potentials. And as you might recall, ZipChip application is what borne our product called Rebel. But – so we do have two teams focused appropriately on handhelds and desktops..

And presumably, the hiring, given – again, you’re enthused about all your products, but in terms of just building up of what you’ve described on the Rebel side and ZipChip, presumably, a lot of the hiring is tilted to that side.

Is that a fair assumption?.

Yes. That is absolutely fair. Our handheld devices were launched a couple of years earlier than our Rebel, and it has a more mature and that was a second-generation device. And so there’s a more mature sales organization on that side.

So that’s why we’ve been investing more heavily on the commercial sales organization with Steve Davenport and the rest there..

Okay, understood. Thank you..

Sure..

Next question comes from Brian Weinstein with William Blair..

Hey guys, good morning. Thanks for taking the questions..

Good morning, Brian..

Hi, good morning..

So recognizing that we’re still a bit early in the development around Rebel. I still would like to kind of dig in a little bit here because the biggest question that we get is around that TAM expansion and everything that you guys are looking at there and what you’ve outlined.

So can you view a little bit more specific about that TAM expansion? And what specifically you need to add to the system in terms of analytic capabilities in order to unlock that? And how should we be thinking about the timing of some of those additions and keeping tabs on that?.

Yes. For sure, yes, the Rebel is very exciting for us.

It’s largely going into the process development labs today, which we see as a sizable opportunity, and we really see that, that grows further as we as we take the device and connect it more intimately to the bioreactors, particularly in these labs, the smaller volume bioreactors, and that comes through an online connection of the Rebel to a bioreactor and we are working on that.

As we’ve mentioned in the past, that’s plumbing, but it’s sophisticated plumbing. And it will take us three, four years to be getting to that point, but we see a lot of opportunity within our hands today, as well as more incremental improvement.

So I would say over that next 12 to 18 months, you should see really a continued progression of the Rebel product and including analyte panel expansion and new software applications that come out new assay kits that go with it.

We’ve talked before that we’ve been really focused on mammalian cell culture processes, but we also see opportunity in synthetic biology and other cell based products there, clean meat markets and the likes.

So I think what you should expect to see from us is really, while we work on that larger online connectivity, that will take a number of years to get there and full relation in connection to the bioreactor as we’ve talked.

You should see that kind of continued cadence of these kits and chips and software and assays to go with it and build out the TAM..

Great. Thank you for that. And we spent a lot of time on the call talking about sales force and the numbers there, but I’m wondering if we can spend a little bit of time just on the marketing side.

So what are some of the specific initiatives that you guys are deploying this year to really drive awareness of the product? So it’s more than just putting feet on the ground, right.

So what are the specific programs that you have in place and the things that you’re doing to really drive awareness of the products more so on the commercial side than on the handheld side?.

Yes, absolutely. You’re right. There is feet on the street, but then there’s also getting your name out there and getting the product understood and valued and realized that it’s in the marketplace. And we did announce that we added Maura Fitzpatrick, who’s now running our Marketing and Product Management side, formerly with Waters.

So she’s adding a lot of horsepower and really driving that top of the funnel activities. So in that regard, yes, we are working in really amping up our activities with key opinion leaders and working with people on various publications, trade journal publications.

We announced that just last week in Europe, we had some good publications or talks, I should say, at the European Bioprocessing Summit. One of our staff is also doing the West Coast Bioprocessing Conference this week.

So a lot of activity I’d say at that top of the funnel, a lot of initiatives in getting the word out, working with customers, increasing the publications and trade journals and the like. So I think you can continue to see that as we move forward..

Great. And then last one for me, with the new administration now, are you seeing any changes or expecting any changes, either positive or negative to the funding environment as it relates to your handheld capabilities and opportunities..

On the handheld side, as we mentioned in the – some of the remarks earlier, unfortunately, a major driver for that is the fentanyl crisis, the fentanyl epidemic. And that continues to grow particularly here as everyone’s been in lockdown for over a year.

So while state budgets and federal budgets certainly have to deal with the priorities of COVID, there is still remains a focus that we see in fighting that fentanyl, fight and crisis.

And so we’re not anticipating any significant change on that side to the negative, and as you know, there has been motions out of the administration to further invest in technologies and in science to get at some of our healthcare needs and we expect that to be favorable over time..

Okay. Thanks guys..

The next question comes from Dan Arias with Stifel..

Good morning guys. Thanks. Kevin, maybe just a couple of questions on the Rebel.

Are there any trends that you’re seeing amongst users there that sort of have one type of therapeutic category likely to drive a higher level of pull through than the others? Just trying to get a sense for whether when you look at what’s going on, at least in the first year, anyways.

We should think about the consumables opportunity being higher, if we stumble upon a CAR-T lab versus a monoclonal lab that might be putting instruments work..

Yes, yes, yes. So today – that’s a great question. I mean, today, our technology Rebel is being adopted across labs that are handling a lot of different modalities of therapeutics.

But as you know, the pipeline is really shifting – the biologics pipeline is really shifting towards cell therapies and/or more complex monoclonal antibodies bispecifics, trispecifics, et cetera. And so as we see that those folks in the process development labs are having to kind of put all their horsepower on developing those processes.

So we do see that as an early trend that people are adopting for some of those more novel modalities, where they’re definitely looking for these insights. So over time, that may prove out to be differentiated, I’d say today, it’s early days.

So we’re kind of seeing that pull through that Joe’s been talking about the kind of kit a month really across the board. And I don’t think we could slice it and dice it very accurately for you at this time to the therapeutic modality..

Okay. But maybe along those lines, if I think about the customer that has the six Rebel units.

Is there anything that’s going on there that is beyond one kit per month per instrument in any period that kind of says, all right, once you embedded further into a lab or a process that leads to higher utilization? I mean, I know it’s early maybe it’s too early to make that call. But I’m just curious about how usage ramp might evolve there..

Great question. I think we will continue to learn as we deployed not only a single unit at sites, but two units at a site or across different organizations. And we are seeing some of the usage cases think through whether they’re – we call them continuous mode or they’re utilizing it on a routine basis of more of an on demand or project basis.

So we get excited at more of those continuous opportunities and we’re continuing to monitor and then have our customer be our best advocate in that area. So it’s a little early stage to try to make a specific assessment on that one customer that’s just kind of coming up to speed and getting active.

We consider our customers, especially on the desktop side is once they’re active and up and running. So we’re starting to see that and should learn over the coming months and especially here in 2021 on the opportunity on a pull through for that customer and others as they have one in multiple units..

Yes. Okay. And then Joe, apologies if I missed it in your prepared remarks, but what kind of gross margin assumption that you’re making for 2021 given where you’re finishing the year here.

And is there a pacing consideration that we should think about over the course of the quarters?.

Sure. Yes. So from a gross margin perspective for 2020, we were at 55%, which was up with volume. And as we think about going forward, kind of being in that mid-50s is probably reasonable. As I look back, over the trends for the year, really volume within individual quarters drove a range in 2020, anywhere from the mid-40s to low-60s.

So a big piece is being able to scale and drive the opportunity. But as we look to continue to invest in our infrastructure and our operations as a whole, I think being in that mid-50s for 2021 is not unreasonable..

Okay. Thank you very much guys..

And ladies and gentlemen, there are no further questions at this time. Since there are no further questions. This also does conclude today’s presentation. You may now disconnect and have a wonderful day..