Hello. Thank you for standing by, and welcome to the 908 Devices Second Quarter 2021 Financial Results Conference Call. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead..

Thank you. This morning, 908 Devices released financial results for the quarter ended June 30, 2021. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to IR at 908devices.com.

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 issued today.

For a more complete list and description, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2020, and in its other filings with the Securities and Exchange Commission.

Except as required by law, 908 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 that is accurate only as of the live broadcast, August 4, 2021.

With that, I would like to turn the call over to Kevin..

Thanks, Carrie. Good morning, and thank you for joining our second quarter 2021 earnings call. I'm incredibly proud of our team's progress this quarter as we continue to expand our global presence and strengthen our customer relationships.

We ended the second quarter with $8.3 million in total revenue, up 49% from the first quarter of 2021 and down 26% year-over-year. We placed more than 100 devices during the quarter, bringing our installed base to over 1,500 devices across our 3 products.

I'm pleased with our execution to date and encouraged by the momentum we have headed into the back half of the year. To that end, we are increasing our revenue outlook and now expect total revenue of $40 million to $43 million for 2021, representing growth of 54% at the midpoint of the range.

As we look ahead, we remain focused on growing our sales and commercial teams, driving adoption, and expand the reach of our platform. Starting with our sales channels and commercial team, we added 9 employees during Q2, ended the quarter with 50 employees across sales, marketing and product management.

I'm excited about the caliber of talent we are continuing to attract to 908, and we are well on track towards our goal of reaching 60 commercial employees in Q1 2022. To support our commercial activities, we continue to broaden our reach internationally by expanding our commercial team and adding new distribution partners.

We've added field service, support and sales employees in England, Scotland, France, Germany, Belgium, Denmark, Netherlands, Chile and China. These key hires include subject matter experts in forensics, biopharma and bioprocessing, who will serve as critical resources for our growing customer base.

We have also added a seasoned sales leader to drive the commercial efforts for our desktops across APAC. In addition to expanding our team, we have also brought on new distribution partners in Bolivia, Colombia, Poland, Korea, Israel and China.

Our handheld and desktop devices are now available across 6 continents in more than 40 countries and configured in any of 6 languages. Last year, 20% of our revenue came from outside North America. With these new investments, we will be well positioned to continue to support new growth from our international customers. Moving on to customer traction.

Adoption from existing and new customers across all product lines remain strong. Our products are being used globally across a variety of critical to life applications from responders on the front lines to biopharmaceutical scientists designing life-saving medicines.

We're proud to provide tools to our customers and enable quick decision that ultimately make the world a better place.

With our handhelds, we are continuing to see traction with enterprise-wide adoption by leading agencies battling the flow of illicit drugs, especially the fight against the opioid crisis, drug overdose death were on the rise, and the CDC estimates that the U.S.

saw a 17% increase in drug-related deaths, which was, in part, accelerated by the COVID-19 pandemic. In HBO's recent documentary on the opioid crisis, The Crime of the Century, our MX908 was highlighted in the opening scene showing its crucial impact for front line workers in fighting this world health crisis.

In a recent news press conference, the Broward County shares office in Florida announced the impact that utilizing the MX908 is having on protecting their communities deputies and fire rescue personnel from fentanyl exposure, whether in the field or scanning incoming mail in correctional facilities.

Broward County currently has 4 MX908's and trust the technology to protect the health and safety of the responders in the public. Adoption of our handheld devices is growing not only in the U.S. but around the world, from Canada to New Zealand. We are pleased to announce 2 multiunit international orders.

First, the correctional services of Canada, responsible for preventing illicit drugs from entering Canadian prisons through the mail, purchased 12 MX908 handheld devices.

In addition, the Australian, New Zealand Counterterrorism Committee recently added 8 MX908 devices to their toolkit to protect their citizens and law enforcement agencies against drug and other chemical hazards. Turning now to our desktops.

We continue to see growth in protein therapeutics, cell and gene therapy and in synthetic biology, specifically in the emerging cultured meat market, we've previously stated, our goal is to create a bioanalytics platform that leverages our versatile technologies from biotherapeutic development through production.

FDA's quality by design initiative has emphasized the importance of understanding, monitoring and controlling process parameters to ensure finished biopharmaceutical products meet proper critical quality attributes, also known as CQAs. Process understanding and control leads to improve yields and predictability.

Our Rebel device enables at-line, quantitative analysis of cell culture media using our microfluidic chip-based CEMS technology for simple, easy and fast monitoring of amino acids and vitamins, which are critical on both process and media development.

Our ZipChip device leverages the same microfluidic technology to address the growing need in the biologics market to measure multiple CQA simultaneously for protein therapeutics.

As previously announced, Amgen published the use of ZipChip MS to measure 15 CQAs for biotherapeutics, while increasing throughput by 20x and providing comparable results to conventional UHPLC.

We were excited to see GlaxoSmithKline's July publication in the Journal of Pharmaceutical and Biomedical analysis on the identification and control of monoclonal antibody critical quality attributes.

In this study, rapid peptide mapping and native intact charge variance analysis were used to comprehensively characterize and monitor mab CQAs with our ZipChip, the ultrafast peptide mapping simultaneously analyze multiple CQAS, including protein primary structure and post-translational modifications compared with conventional LCMS chromatography based method, ZipChip peptide mapping was shown to monitor the same number of CQAs in significantly shorter run times with lower sample consumption.

The native intact analysis was shown to resolve mab charge variance with a comparable resolution as industry-standard capillary isoelectric focusing, or cIEF. And importantly, with the addition of speciation information.

TranSenda, a global biotherapeutics company in Hangzhou, China, confirmed similar findings in their reviewed paper in the Journal of Analytical Biochemistry this July. We're delighted to have a growing number of customers using and validating our products in support of quality by design and CQA analysis.

Bioprocess development for therapeutics remains the key application area for Rebel, and we've added new customers in this space, including Vertex pharmaceuticals. In June, we hosted a roundtable panel discussion on the importance of cell media analysis and upstream bioprocess development with leading industrial panelists. The panel included Dr.

Mike Betenbaugh, Director of the Advanced Mammalian Biomanufacturing Center and Professor at Johns Hopkins University; Dr. Richard Rogers from Bristol Myers Squibb and our own CTO and Co-Founder, Dr. Chris Brown. The panel was an example of our commitment to continue to invest in education to drive awareness of Rebel's impact on bioprocess development.

Beyond this market, we're also pleased to see Rebel devices being adopted by leaders in synthetic biology, specifically in the cultured meat market. The cultured meat market as part of the growing alternative protein sector received approximately $3 billion of investment in 2020.

More than 70 startups are focusing on cultured meat products with many life science companies already announcing that they will help supply and support the industry. During the quarter, we added 2 customers, BlueNalu and Mosa Meat. BlueNalu specializes in cellular aquaculture to deliver sustainable, healthy and safe seafood products.

Mosa Meat is a food technology pioneer that focuses on cultured beef. We look forward to working with both of these companies on fresh and spent media analysis to optimize their culture processes to ensure manufacturing consistency and productivity in this revolutionary product category.

Overall, we are pleased with the solid traction we are seeing in attracting new customers. We saw nearly 1/3 of ZipChip orders in the second quarter come from new customers, and nearly half of Rebel orders were from new customers.

Additionally, we remain encouraged by the pull-through consumable rates we are seeing from active users as our installed base grows. We continue to believe our focus on making measurements easy from sample prep to process data interpretation will drive utilization over the long term.

And finally, moving to expansion of our technology platform, we're continuing to unlock our platform's capability to increase the areas of use for our customers and open up our addressable markets.

To accomplish this, we are continuing to invest in our platform through analyte panel extensions, new software applications, assay kits, accessory models and third-party hardware and software integrations.

During the quarter, we announced updates to our flagship handheld device, MX908, which included an aerosol module accessory to detect and identify aerosol chemical hazards, added targets to allow responders to identify additional priority drug substances, and a Bluetooth capability, which enables seamless data transfer and accelerate support in the field.

These added capabilities are aimed to address gaps in responders' workflows, increase engagement and drive utilization. The initial feedback on these new capabilities has been very favorable. The Aero, our aerosol module accessory, has already generated significant interest from both new and existing customers.

The device has undergone laboratory and field trials, performing exceptionally well in both. In terms of measurable success, a third-party testing laboratory analyzed the Aero's performance against several chemical hazards and found it achieved a greater than 99% alarm rate.

Furthermore, the Aero alarmed at concentrations well behind our outlined goals, making an incredibly sensitive tool for aerosol analysis. The U.S.

Food and Drug Administration published an evaluation in Q2 in the Journal of Pharmaceutical and Biomedical analysis of our handheld MX908 utility for the rapid screening of food and drug products for mitragynine, an alkaloid found in Cranston plant leaves, which poses risk of addiction, abuse and dependence, much like other opioids.

Of the devices tested, the FDA concluded our handheld to be potentially the most portable, having the smallest footprint, lowest weight and requires no supply of compressed gas while offering a true positive rate of detection of 94%.

We remain confident that our handheld MX908 is a broadly capable tool that can bring continued value to our users through expanding analytic capability, available accessories and connectivity. Today, we are primarily focused on bioanalytics as the application for our desktops.

However, we've shared previously, we're excited about the opportunity for our products and technologies in proteomics and diagnostics. Earlier this week, we announced the formation of a scientific advisory board focused on proteomics with world-renowned experts to help guide and shape our efforts. We have also brought on Dr.

Will Thomas from Duke Proteomics core facility to lead our efforts in proteomics as our principal scientist. Dr. Thomas has dedicated his career to developing and applying new separations and mass spectrometric methodologies for use in biological and biomedical research, specifically in proteomics and metabolomics. He received his Ph.D.

in Analytical Chemistry from UNC Chapel Hill and has co-authored over 120 peer reviewed publications, 3 book chapters and holds several patents related to Omics Biomarkers. His extensive experience makes him the perfect addition to our team to lead our product development and roadmap activities in the proteomic space.

We expect to update the scientific community on our efforts and applications of our technology for proteomics and upcoming fall conferences.

In regard to diagnostics, we are encouraged to see Fudan University in Shanghai, China, a prestigious research university using our technology in their quest for new biomarkers, Fudan University recently published in the analytical chemistry journal and investigation to biomarkers of ovarian cancer, which leveraged our ZipChip device as the enabling technology for the rapid screening of clinical serum samples for Glycan fingerprints.

ZipChip was shown to be rapid, low labor, high-resolution analytical technique with importantly, a low sample volume requirement. We are also excited that in June, Marcia Eisenberg, CSO of LabCorp, joined our Board of Directors. Dr. Eisenberg has extensive experience with forensics DNA testing, biotechnology, molecular genetics and molecular oncology.

She's helped lead the development and validation of well over 1,000 clinical assays used for patient care during her more than 30-year tenure at LabCorp. Her experience and guidance will be paramount as our customers increasingly employ our technology for diagnostic assay research.

Overall, I'm really encouraged by the growth of our commercial team, the momentum we are seeing from customers and the technology platform progress we are making. With that, I'll now turn the call to Joe for more details on our financials..

Thanks, Kevin. Revenue for the second quarter 2021 was $8.3 million compared to $5.5 million in the first quarter and $11.1 million in the prior year period. Product and service revenue for the second quarter 2021 was $7.9 million compared to $5.4 million in the first quarter and $10.4 million in the prior year period, a decline of 24%.

In Q2 2020, we had a onetime revenue event related to the shipment of 150 MX908 handheld devices for a single customer, this created an abnormal clump for Q2 2021 and was the primary driver for the year-over-year decline.

Desktop revenue from our Rebel and ZipChip products grew 70% in the second quarter of 2021 and contributed to 1/3 of product and service revenues. Recurring revenues consisting of consumables, accessories and service revenue, grew over 250% in the second quarter of 2021 compared to the second quarter of 2020.

License and contract revenue for the second quarter 2021 was approximately $0.4 million, down $0.4 million from the prior year period. As stated on our last earnings call, we do not expect license and contract revenues to be a significant contributor of revenue on a go-forward basis.

Our installed base grew to 1,530 units with 103 devices shipped during the second quarter. We shipped 84 handheld devices and 19 desktop devices within the quarter. Gross profit was $4.4 million for the second quarter of 2021 compared to $6.4 million for the prior year period.

The decreased gross profit was driven by a $1.8 million reduction in product and service gross profit, which was primarily due to reduced MX908 sales volume, which leveraged our fixed costs related to our manufacturing facility and to a lesser extent, our investments in operations and service personnel.

Gross margin was 53% for the second quarter 2021 as compared to 58% for the prior year period. Total operating expenses for the second quarter of 2021 were $11.8 million compared to $4.3 million in the prior year period.

The increase was driven by headcount expansion across our business, primarily focused on commercial organization, resulting in $3.2 million of the increase, a provision to increase our allowance for doubtful accounts by $1.7 million and increased expenses related to operating as a public company.

Net loss for the second quarter of 2021 was $7.4 million compared to net income of $2.1 million in the prior year period. We ended the second quarter of 2021 with approximately $141 million in cash and cash equivalents. In addition, we also had $15 million of debt outstanding. Turning to our outlook for 2021.

We are raising our revenue to be in the range of $40 million to $43 million, representing growth of 54% at the midpoint over the prior year period. This compares to our previous revenue outlook of $38 million to $40 million.

When we provided this guidance range in the first quarter of this year, we shared that we expected revenue to be more heavily weighted in the back half of this year. We have now achieved approximately $14 million in revenue in the first half of the year.

We're seeing solid traction with new and existing customers on device placements and the contribution of recurring revenue from our installed base. This momentum heading into the back half of the year has made us comfortable to raise our outlook. At this point, I would like to turn the call back to Kevin for closing comments..

Thanks, Joe. This quarter, we made important strides across our business as we continue to execute on our growth strategy. I’m really encouraged by the expansion of our global presence, the momentum we are seeing from customers and the progress we are making with our technology platform.

We look forward to accelerating this momentum into the second half of the year as we remain focused on growing our sales and commercial teams, driving adoption and expanding the reach of our platform. With that, we will now open it up to questions..

Our first question comes from Dan Arias with Stifel..

Kevin, on the Rebel side, can you just maybe talk a little bit to the momentum that you think you're seeing there? And then where you're seeing the most traction when it comes to replacing just an existing workflow. One of the questions that we get fairly frequently is just, where this is a better mousetrap than, so to speak.

So can you maybe comment on the Rebel just as an alternative to existing in-house systems that have been around for a while versus outsourcing to a lab that might be doing LCMS service work.

Kind of curious as where you're kind of hitting your stride relative to what's been done previously or what's been done at this point?.

Yes. Sure, Dan. Rebels are going as expected, largely into the process development labs. That's where we're seeing the predominant number of placements in those labs, as we've discussed before, that they are not rich on analytical capabilities.

They have tools there that can measure a few of the analytes perhaps that the Rebel can analyze and test and measure for. But largely, that panel of analytes needs to be sent out, and it could be sent out to a lab within their building down the hall or upper floor or something, but also out to a third party service.

So where we're seeing the uptake is in enabling that workflow, that would normally be sent to their central lab or to an outside facility and enabling that on the spot and a more frequent number of measurements for it.

So we are compared to HPLC or an LC mass spec technique when our customers are adopting the technology because that's really what they're looking at this as the alternative for at the point of need to measure with more frequency..

Okay. You mentioned both, which we know to be true.

I guess, does that mean that it's pretty balanced between replacing existing sort of legacy systems, I think, from some of the other providers in the space versus outsourcing? Or are you seeing? I guess I'm just trying to understand a little bit more where customers are really kind of gravitating towards your solution?.

Yes. I wouldn't say it's really replacing the existing boxes. They're still using the existing boxes in their central analytical labs or equivalently, an outsourced lab for a plethora of analyses. But the panel that the Rebel does is augmenting those technologies by doing it right there at the point of need.

So we're not seeing a head-to-head competition with, call it, an LC, HPLC type of approach because those aren't really appropriate for being done next to the bioreactor in a process development level..

Yes. Okay. Understood. And then maybe just on the Bioprocess panel that you said you held.

I'm curious what you heard when it comes to just the capabilities that you or the market in general, isn't delivering at this point or aren't delivering at this point? And when and how those things jive with sort of the development trajectory that you have and the timelines that you have for Rebel?.

Yes. It was a good panel with the Johns Hopkins Professor there, Mike Betenbaugh and Rich Rogers from Bristol Myers Squibb as well as one of our own experts in cell culture media and our CTO.

And the dialogue was around cell culture media, the complexities of it, the evolution of the media and the need for measuring it throughout the process and particularly the impact with some of these more complex modalities. I think we're seeing today that Rebel is hitting the mark there that Rebel is addressing the analytes that are required.

But it is a complex problem where there's lots of analytical technologies being brought to bear on it. And we are excited for some of the publications that we announced here in this earnings call, but also in the past, in areas of the culture analysis.

But yes, so it was an informative call, a great way for us to really engage with some of the experts in the space. And yes, we want to stay close to it so that we can evolve our panels, evolve our technologies overtime to make sure we are addressing, the needs..

Yes. Okay. The last one for me and then I'll hop off. Just on the U.S. Army contract.

And apologies if you mentioned this, but I didn't catch it, but any change to the recognition timelines there? Did anything get pulled forward this quarter?.

Dan, no changes. We’ll start shipping in the back half. We did not have any shipments under that contract here in Q2. So we’ll start here over the second half of 2021. And the majority of the opportunity to be realized in 2022. So no change from prior discussions. Excited by the opportunity..

Our next question comes from Brian Weinstein with William Blair..

You obviously highlighted a lot of the more recent additions on the OUS side. Can you talk about your expectation for OUS growth specifically? I think you talked about 20% or some of your revenue right now.

But can you talk more specifically about what you think that contribution can be kind of going forward? And is there any country or countries, in particular, you would highlight? And maybe even highlight how the products might be used differently in markets outside the U.S.?.

Sure. Yes. Thanks, Brian. We really are investing outside the United States. As you know, and we started at the IPO. Most of our sales force was centered in marketing commercial teams really in the United States. A lot of opportunity we see, of course, in North America. But as we broaden out the team, we have been expanding across a number of countries.

We see Europe as an important region for both our handhelds and their desktops. We see APAC as an important region for both handhelds and desktops. And we're getting a growing number of placements in each of those areas. Last year, it was about 20% of our revenues.

We do see that being in the 20% to 25% in the near term, but we do expect it to grow, and we are investing in China, specifically. We are investing there with the number of hires and across the U.K. and Europe.

So in terms of use cases, I would say, in things like our handheld devices, they are largely used the same, abroad versus the United States, but there will be a different set of analytes of interest in particular local regions.

If you think about the drug epidemic that we often talk about that served by our handhelds, that's an example that can change by region. So we do engage with customers with our distribution partner to address that locally. In case of our desktops, we're seeing very analogous applications and interest for the panels that we have.

And I would say the use cases there seem to be very much parallel to what's happening in the United States. TranSenda maybe is a good example of that, where we have highlighted some of the success with them, but it very much paralyzed the uses that we see across the U.S. users..

Great. On synthetic biology, you talked about the cultured meat market. Can you just talk a little more about the opportunity there? And specifically, how those relationships that you highlighted actually manifested themselves.

And I'm curious about kind of the sales and marketing effort that you're pursuing there and how you're kind of driving the awareness in the uptick there?.

Yes. It’s a good question. I mean today, it’s really a bio-processing application. And when we think about our total addressable market, it’s certainly a piece of what we’ve shared in the past, but it is rapidly growing, and it is looking exciting to us. But it’s very much bioprocess. So they’re opting a cell culture media.

They’re trying to get the highest in production of proteins out of that. So very analogous to what happens with our biopharma customers. And so really, we’ve been marketing to the bioprocess industry, of which many of the life science companies we see out there and also beginning to serve this adjacent space of the cultured meat market.

So we are beginning to target some areas of marketing and our channels and outreach, of course, to that. It is a relatively small field still at this moment in time.

There’s been significant investments, billions of dollars that have gone into it, and there’s tens and tens of start-ups there that are working and that are pretty well funded and are looking for new ways to measure and be efficient in their process.

They don’t have a standard in-house laboratory in many cases, and they are looking for things that can be used efficiently at line. So we are excited about that opportunity. We are seeing that the handful of examples we have thus far are moving through our funnel quite quickly from initial contact to opportunity to close..

Our next question comes from Doug Schenkel with Cowen..

First on guidance. You increased full year '21 revenue guidance. I think it's the $40 million to $43 million from 40 -- sorry, from $38 million to $40 million. So it was a good Q2. You beat expectations, but you increased by more than the magnitude of the Q2 beat. So I'm just wondering, in a year that was always expected to be pretty back-end loaded.

You got some nice momentum heading into the second half. But again, you essentially increased full year guide by more than the magnitude of the Q2 beat.

Could you just maybe bridge us to what's driving the increase? And what are the key things that could essentially drive you higher or lower than that target, essentially, kind of how are you thinking about the Aero bars?.

Absolutely. No, we're pleased with the way we finished up the first half at about $14 million, and we are feeling good about the business and expect that higher growth over the second half reflected in that outlook. As we were seeing and are seeing good traction.

Our customer is progressing through kind of tests and trials and pilots into what we refer to as enterprise-wide adoptions.

So as we looked at the back half of the year and seeing that traction, along with the typical seasonality and year-end budget cycles, we're feeling it was prudent and good to put the guidance where we have our philosophies to try to put out guidance that we can meet and achieve. And we're getting more confident in clarity as we move through the year.

So as we sit here, midstream at the various pipeline of opportunity. The growth drivers are across both our handhelds and our desktops. We saw positive momentum on the recurring aspects of our product portfolio that helped with providing that incremental guidance or increase in guidance.

So as we think about it going forward, it's probably seen -- if we see continued progression even at an accelerated level, we might take a further look, but I kind of want to take the midyear purview..

Okay. And then sort of related, but kind of longer term. You've talked about this effort at the company to expand platform capabilities to actually move into adjacent applications for customers.

And there's a number of things you talk about in terms of what you're targeting for the next 12 to 18 months in terms of panel expansion, new software applications, additional assay kits, just going down the line.

I just want to make sure, at this point, our platform expansion capability initiatives, still tracking to plan and are you still feeling the same as always in terms of how these enhancements are going to expand your market opportunity?.

Yes, we do. We do feel they're going well. I think we've been able to show some evidence of that. The accessory module for our handheld, which we view as important is our Aero module for MX handheld. It's been going well. It's been being received by the market in a positive way and through third-party testing, as we highlighted.

Those types of things and the analyte panel expansions, which we've announced for our handheld, and we'll have some more coming over the time here with our desktops and kits as well to both handhelds and desktops coming.

All those things to us really help future-proof the purchase for our customers and help our customers get more and more value out of the products. And we see that driving utilization over time. So yes.

We feel good that we're unlocking those capabilities in the existing boxes and are launching these capabilities that can be deployed on those boxes and that they're adding good value to the customer. So yes, we feel we're tracking on our progress there, and you should continue to see a stride of such releases..

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

Thank you. This concludes our call. We appreciate your time and have a wonderful day..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..