Good day and thank you for standing by. Welcome to the 908 Devices Third Quarter 2022 Financial Results Conference Call. I would now like to hand the conference over to your speaker today, Kelly Gura, Investor Relations. Please go ahead..

Thank you. This morning, 908 Devices released financial results for the third quarter ended September 30, 2022. If you've not received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to IR@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 devices issued today.

For a more complete list and discussion, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31, 2021, and in its other filings with the Securities and Exchange Commission.

Except as required by law and 908 devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, November 14, 2022.

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

Thanks, Kelly. Good morning, and thank you for joining our third quarter 2022 earnings call. I'd like to start off by thanking our entire team for their tremendous effort in bringing the third quarter to a successful close. I'm really proud of their continued focus and dedication to support our customers' critical to life application.

We are operating in a challenging macro environment, and our team is going above and beyond. We delivered strong growth during the third quarter with revenue increasing 26% over the prior year period to $15.8 million. About 20% of third quarter revenue was from the remaining U.S. Army device shipments and 80% was from new business and other customers.

While we are pleased with our third quarter results and year-to-date performance, we have begun to see a slowdown in our funnel with prolonged purchasing cycles over the summer months and into the fall. We believe this is largely due to the adverse impact of macroeconomic factors across the markets we serve.

We expect these headwinds and impairment to continue over the next couple of quarters. Given this impact, we now expect full year 2022 revenue to be in the range of $46 million to $49 million, representing annual growth of 13% at the midpoint of the range.

As discussed on our last earnings call, progression of a few larger handheld opportunities would be required to achieve our previous full year guidance, and we've seen protracted cycles in test trials to pilots to enterprise conversion.

Despite this near-term pressure, we firmly believe the opportunity for rapid and robust analytics at the point of need as strong as ever. This positive view was reinforced at our user meeting in September, Critical Mass 2022, which covered the full breadth of our product platforms and their applications.

This event brought together more than 175 customers, both virtually and in person to share their success using our mass spec devices to provide rapid and robust actionable information at the point of need.

We heard from customers serving and spanning industry academia and government, including Boehringer-Ingelheim, MIT, Clemson University, Ohio Bureau of Criminal Investigation and the Fresno, California Police Department. It was truly inspiring to hear the impact that our technology is having to advance bio-therapeutics and combat the Opioid crisis.

Now I'd like to provide a brief update on our progress across the 5 focus areas we set for 2022 to drive growth over the longer term. Starting with our first objective of driving customer adoption. For our desktops, we are continuing to see underlying demand for more advanced therapeutics.

The need for more process control and the steady increase in proteomics and Metabolomics Research, all of which fuel the biopharmaceutical industry's long-term growth.

However, the shift in the macro environment has begun to flow some near-term demand for our desktop devices, particularly in cell and gene therapy application, where technology is being adopted to support the process development preclinical space.

The Alliance Regenerative Medicine recently issued its first half 2022 report on advanced therapies, which noted that 2022 has already been a record year for the approval of new cell and gene therapies with several other therapies on track for regulatory decisions in late 2022 and 2023.

However, the number of ongoing clinical trials globally decreased by 13% from the end of 2021 and investment levels have slowed after 2 record-breaking years. Across our desktop, we continue to see orders from a fairly even split between new and existing customers.

With the REBEL device, we continue to see traction with additional units in several of the top 20 pharma companies and with some of these companies ordering their second or even fourth device.

With our ZIP chip device, Genentech concurred its fourth unit during the quarter in a paper published in September in analytical chemistry Genentech researchers noted the device's ability to quantify a peptide exchange at high throughput and a high sensitivity in a CAR-T cell therapy application.

Overall, we believe that our penetrate and radiate strategy in which we work to penetrate new accounts, create a foothold and then radiate across these enterprise accounts will continue to drive broader adoption and acceptance over the long term. Turning now to our handhelds. The Opioid crisis shows no signs of abating.

In August, the National Center for Health Statistics a division of the CDC announced that U.S. life expectancy decreased last year to its lowest level since 1996. While COVID-19 was the primary cause of the decline, another leading cause was unintentional death, mainly comprised of overdoses.

This crisis continues to be a major driver of customer adoption. There are several recent news reports to highlight the severity of the ongoing crisis. In September, new report highlighted a shortage of Adderall used to treat ADHD and noted the dangers of sourcing the drug on the street as these counterfeits contain Fentanyl and other drug.

The FDA has confirmed the Adderall shortage, noting that several generic forms may not be available until March 2023. And in Rhode Island, DA authority sees more than 660,000 counterfeit Adderall containing methamphetamine.

Also in September, the DAA issued an advisory warning of brightly colored Fentanyl, also known as rainbow or Tandifentanal used to target young children. The DEA has seized multiple forms of Rainbow Fentanyl, including pills, powder and blocks that resemble sidewalk truck.

Finally, in August, the Australian Federal Police in the Australian Border Force announced the seizure of the largest festival shipment detected in Australia, preventing more than 5 million potential legal doses of the drug hitting the street.

While the DA has noted that Fentanyl is the deadliest drug threat facing the U.S., we are seeing more and more evidence of it becoming a global crisis.

These sobering statistics and alarming news reports continue to highlight the need for first responders and other frontline workers to have trace chemical detection at the point of need to combat the spread of highly dangerous drug. A case in point is the increase in drugs coming in personal mail and legal correspondence at correctional facilities.

We've see several orders from regional county jails for MX-908 device throughout the year with another order in the third quarter for 5 devices from a Department of Corrections based in New England. As previously noted, we built a pipeline of testing, trials and pilot programs to drive enterprise adoption of our handheld devices.

In the third quarter, we expanded in the existing enterprise account, the U.S. Army, receiving an order for $3 million for Aero modules compared with their fleet of MX 98 devices. Once last year, the first of its kind Aero module enables users to monitor, detect and identify vapor and aerosol hazards quickly and safely.

Turning to our second objective, accelerating commercialization. As of the end of the third quarter, we now have over 220 employees worldwide and are close to reaching our goal of 80 commercial team members. That said, we continue to be thoughtful reviewing planned commercial expansion across all our regions amidst this uncertain macro backdrop.

Turning to our third objective, developing and advancing our product portfolio, we continue to unlock our platform's capabilities through consistent releases of additional analytics, assay accessories and data integration in order to increase areas of use for our customers and to penetrate our addressable market.

For our handhelds, we expanded the capability of our MX908 device to detect 8 highly toxic and illegal pesticides. These pesticides are being used to grow illegal marijuana primarily on federal land, posing a threat to the environment, water sources, wildlife and people.

The issue is particularly critical in California, where the state is expanding its multi-agency seasonal illegal marijuana eradication program. This will now be a year-round effort with the aim of prosecuting underlying labor and environmental crime.

Previously, federal personnel had no safe and reliable method to conduct pesticide testing at the site of illegal marijuana grows and had to send samples to a central lab, often waiting several weeks to conduct a safe site remediation.

In January of this year, we announced a research collaboration with the United States Forest Service and Agency of the United States Department of Agriculture to extend the capabilities of the MX-908 to detect these illegal pesticides. For our desktops, we continue to develop and refine tips to meet customer needs.

We introduced Version 2.0 of our spent media analysis kit for REBEL, which provided an additional and enhanced calibration for improved accuracy and quantification results.

We are developing another focused REBEL kit to be released in the first half of 2023 that pushes the boundaries of analytical performance for a specific set of immune acids commonly measured in most applications.

In regard to our acquisition of TRACE Analytics in August, we are extremely pleased with how well the TRACE team is integrating with our R&D team to further our online development efforts.

As you may recall, our acquisition of TRACE provided us with online Acceptor Bioreactor sampling and Biosensor Technology, which is a central addition to our micro fluidic technology color and will help us unlock more of our total addressable market.

Their technology and single-use and reusable configuration has been proven in mammalian cell culture and micro-bio fermentation at all levels of the bioprocess chain from research and development to large-scale production.

At our user meeting, Wolfgang Künnecke, Trace Analytics Founder and now the Head of our Bio-analytics R&D presented the benefits of automated control of glucose in lactate in a process development lab, which includes cell-free, sterile and safe sampling with no volume or prep required.

As we have noted, our main focus this year has been to build upon the capabilities of our existing products and expand the reach of our technology platform. In 2023, we plan to shift our focus to releasing 2 new devices. We are excited to share more details early next year as we expect them to be impactful in 2023.

Turning to our fourth objective, broadening our bio-analytics platform as more advanced therapies enter the pipeline, biopharma manufacturers need to identify and understand critical process parameters and their impact on critical quality product attributes during process development and the entire bio-manufacturing workflow.

Our devices are well positioned to meet this need. We continue to collaborate with key industry partners and academic institutions to demonstrate the value of our technology in providing rapid and robust information that enables manufacturers to accelerate bio-therapeutic workflow.

This value has been highlighted at a number of industry events over the past few months. Our collaboration with the Center for Process Innovation and Independent Innovation Organization in the U.K. demonstrated the value of at-line cell culture media analysis to inform feeding strategies for improved cell growth.

CPI process engineers use real-time data from the REBEL to optimize nutrients, resulting in an increase Tier by up to 40% and a reduction in toxic metabolite accumulation and a significant reduction in design of experiment times.

These results were recently presented in a webinar hosted by BioPharma International Magazine and a poster at the CE Pharma Symposium in mid-September. Independent data from our REBEL analyzers such as this is key to demonstrating our value proposition, enabling broader adoption as process engineers conduct amino acid analysis more regularly.

There were several other posters presented by our collaborators at the CE Farm Symposium and the Cash Mass Spec Conference, including Bio-Techne, Cogen, Thermo Fisher Scientific and Protein metric.

These posters highlighted the use of our ZipChip device for several applications, including characterizing Oligonucleotides, peptide mapping of recombinant AAVs and charge varying analysis of small molecules.

ZipChip benefit highlighted in these costs included high resolution and high sensitivity comparable to LCMS method but much faster separations with minimal sample volumes. And in the case of Oligos, no harsh in pairing reagents.

At the Bioprocess International show, part of Boston Biotech Wheat, our collaborators at John Hopkins University gave a presentation on leveraging the power of at-line immunoacid measurement with the REBEL to enable complex bioprocess modeling.

Also at the show, a principal scientist from Cypogen, a biotech company presented on mass spec-based characterization workflows in biopharmaceuticals development labs and noted ZipChip capability to perform high-resolution separations, while minimizing sample prep burden.

Finally, at our user meeting, scientists from Boehringer-Ingelheim towed ZipChip very fast separations in high-sense city characterizing product quality attributes in the Oligonucleotide and monoclonal antibodies.

Additionally, MIT researchers underscored REBEL's value and their ability to rapidly monitor and profile nutrient consumption of recombinant AAV producing cells in the perfusion process.

We are delighted to hear our collaborators and biopharma customers highlight the value of their desktop devices to characterize multiple product quality attributes and control key process parameters, which ultimately leads to improved efficiency and robust product quality.

And finally, turning to our longest-term objective, laying an Omaxe Foundation, we see a clear and emerging need for accelerating mass spec-based workflows to address proteomics and metabolomics opportunities.

We continue to foster cadence and publications, technology and research with proteomics academic institutions and research partners to support future product launches and workflow specific to the Omaxe domain.

In the areas of metabolomics and academic research paper in the journal, metabolite focused on characterizing cell-to-cell signaling molecule levels in healthy versus Type 2 diabetes affected human pancreatic angle.

Researchers used ZipChip with a broker mass spectrometer and noted its fast separation time of within 3 minutes, along with a high confidence of identification. As previously shared, we are advancing our microfluidic chips to address emerging proteomic and metabolomic opportunities.

Last month, we hosted a meeting of our Proteomic Scientific Advisory Board, where key opinion leaders provided guidance and feedback on the direction of our Omaxe facing research and development efforts.

Our Scientific Advisory Board members were enthusiastic about our continued development of on-chip peptide pre-concentration from the ZipChip platform, providing feedback on throughput and robustness requirements to address emerging low input proteomics market.

We are fortunate to have this remarkable group of thought leaders share their insights as we advance our development efforts. In summary, we remain encouraged by the value our technology platform is providing to our customers to break mass-spec out of the confines of a centralized laboratory and bring it to the point of need.

While we face some near-term macro pressure, we continue to focus on serving our customers, expanding our user base and making our technology even more accessible to broader audiences, which open stores for new users and applications. With that, I'll now turn the call over to Joe for more details on our financials..

Thanks, Kevin. Revenue for the third quarter 2022 was $15.8 million compared to $12.5 million in the prior year period, representing growth of 26%. This increase was primarily driven by desktop device placements, an increase in handheld recurring revenue and an increase in service revenue across both handheld and desktop devices.

About 20% of our third quarter revenue was from the remaining U.S. Army device shipments, which compares to approximately 40% of the prior year period total revenue. Handheld revenue from our MX-908 product was $11 million, an increase of $1.7 million compared to the prior year period, representing growth of 18%.

Desktop revenue from our REBEL and ZipChip products for the third quarter 2022 was $4.4 million compared to $2.9 million in the prior year period, representing growth of 51%.

Recurring revenues, consisting of consumables, accessories and service revenue for the third quarter 2022 was $4.5 million compared to $2.2 million in the prior year period, representing growth of 105%. The increase in recurring revenues was evenly split between an increase in service revenue and an increase in aero modules.

Our installed base grew to 2,317 units with 175 devices shipped during the third quarter. This included 150 MX-908 handheld devices, 18 REBEL desktop devices and 7 ZipChip interface desktop devices. Gross profit was $9.3 million for the third quarter of 2022 compared to $6.8 million for the prior year period.

The increased gross profit was driven by an increase in product and service revenue. Gross margin was 59% for the third quarter 2022 as compared to 54% for the prior year period. The increase in gross margin was due to higher service revenue and average selling prices for our devices, offset in part by higher personnel and operating costs.

Gross margin was 57% year-to-date. Total operating expenses for the third quarter of 2022 were $16.5 million compared to $12.1 million in the prior year period. This increase was driven by headcount expansion across our business, a $1.2 million increase in stock-based compensation and an increase in marketing activities and travel expenses.

Net loss for the third quarter of 2022 was $6.3 million compared to $5.2 million in the prior year period. We ended the third quarter of 2022 with approximately $194 million in cash and cash equivalents. In addition, we had approximately $15 million of debt outstanding.

Our trailing 12 months of cash used for operating activities was $25 million as of September 30 and was approximately $29 million for the full year 2021.

With approximately $180 million of net cash as of quarter end and our cash utilization, we have multiple years of runway to focus on our product innovation, market penetration and commercialization efforts we have implemented over the last few years.

Now looking ahead for the remainder of 2022, we now expect full year revenue to be in the range of $46 million to $49 million, representing 13% growth year-over-year at the midpoint of the range. There are a few notable impacts to our guidance since our earnings call in early August.

On our Q2 earnings call, we mentioned we are keeping a close eye on potential macroeconomic factors that could impact our execution. Specifically, our team driving strong adoption of our handhelds through the end of the U.S. Government fiscal year, capturing year-end biopharma spending and mitigating continued disruptions in APAC.

Unfortunately, we have seen opportunities push out beyond the end of the U.S. Government fiscal year. As Kevin mentioned, progression of a few larger handheld opportunities would have been required to achieve our previous guidance range, and we have seen protracted cycles in test trials to pilots to enterprise conversion.

We believe in part, this is due to prioritized resources for Ukraine and surrounding regions, the diversion of resources to the southern border to assist with the migrant crisis taking away from drug interdiction and COVID recovery.

In addition, for our desktops, our revised guidance range now assumes desktop revenues to grow by approximately 30% over the prior year.

While this growth rate is 2x the growth rate of the overall business, it reflects some impairments in the fourth quarter from macro factors, including the likely level of year-end capital spending that is prioritized for new technologies.

Specifically, these factors include talent migration across organizations, resulting in delayed adoption and a training, retraining burden, large capital purchases canceled for associated bioreactors, thus delaying priority of our devices and layoffs at small and large biotech’s, resulting in canceling our consumables.

At this point, I would like to turn the call back to Kevin for closing comments..

Thanks, Joe. I am confident in our long-term trajectory and feel we are laying the groundwork for both near-term and long-term success.

In the near term, our team remains focused to progress our handheld opportunities through test trial to pilots and extend to enterprise accounts, catalyze reference desktop accounts across top pharma or our desktop to enable our penetrate and radiate strategy, scale our operations and ensure the highest quality products in the face of ongoing supply chain pressures.

Support our customer’s pre and post to help ensure proficiency on our devices as they face unprecedented employee migration. And Bolster service and support reach, particularly in APAC, in face of continued China lockdown and a limited ability to transit through the region.

As we look ahead to 2023 and beyond, we believe 908 devices is uniquely positioned to capture the opportunity in front of us. We have multiple new product releases slated for 2023 in the bio-processing monitoring space with the first being launched early in Q1 and the neck shortly thereafter.

We have a diversification and defensive position with our handheld offering in the forensic space and have seen order growth of more than 50% year-to-date beyond the U.S. Army device orders. We believe these handhelds will continue to be critical with rising geopolitical uncertainties and the ongoing crisis.

And finally, we have a strong cash balance with the runway into 2025 as we've remained efficient and thoughtful on spend and headcount. With that, we'll now open it up to questions..

Our first question comes from the line of Max Masucci from Cowen..

Maybe just to start, it would be great to hear just based on the trends you're seeing in Biologics preclinical activity also based on any feedback from the critical mass and then -- just if or how we should calibrate our 2023 expectations for REBEL and ZipChip placements and utilization?.

Yes, Max. Sure, happy to. And yes, maybe we can just dive into some of the bits you mentioned on the kind of the spending and those profiles for the desktop customers.

As mentioned in the script there, I think we are just seeing a lower level and slow down a bit across the board for some of the handhelds and desktops and desktops, particularly as mentioned, just seeing some slowdown in the large capital purchases with Pireactors that delays the priority for our devices.

And we're seeing layoffs within our customer base. And we're just, frankly, not seeing the same amount of year-end capital spend at this time for new tech, which is ours. And as we're really not riding a replacement cycle for it, and that gives us less of a visibility than maybe some of the large cap instrument companies.

And we're selling, as you mentioned, really into that preclinical space with these REBEL desktops and dollaring are tightening.

So all of that, we really see that it isn't a 908 specific phenomena, but an industry phoneme and you can dive into that deeper and think about biopharma spending in particular, and you can see a slowdown in that cell and gene therapy space, which we've been trying to gain a foothold in.

We've mentioned in the past about 20% of our levels are in that space. And we're certainly seeing more moderation in Q3 across that space, but our unit numbers are pretty small and modest. We're always trying to slice and dice that. But in general, I would just say that we have seen that slowdown in deal velocity, so....

And Max, you were asking about REBEL and looking forward and contemplating our revised guidance is reduced growth for REBEL, given some of the constraints that Kevin just mentioned on the macro environment, especially with the adoption of the new technology.

As noted earlier, talent migration across the organizations, large capital purchases, cancer associated both bioreactors, layoffs at small and large biotech’s.

And as we look at the delta of how we brought down our guidance, we attribute approximately 2/3 to handhelds and 1/3 to desktops and the change in desktop coming from slower-than-anticipated funnel progression for our REBEL. We are being cautious. We may not see the same year-end budget flush resulting with those new placements.

And we anticipate it could be a couple of quarters of impairment as the volume patterns need to change that preclinical level that you mentioned..

Okay. Great. And then we haven't seen the 10-Q yet, but it would just be great to hear about some of the regional demand trends that you experienced during the quarter.

Just generally, whether you've seen any major uptick or downtick in growth in any of the regions that you break out?.

You'll see our Q hit to file hit the line before market here. But geography, it's about 80% in the Americas to date..

Yes. And if you think specifically in Europe, as we've been really trying to Bolster over this year what we're doing internationally, broadly, mainly in Europe, but some in the Middle East and a bit in APAC. Yes, as Joe said, the EMEA is probably around 15% of our revenues, but we do see that there's additional opportunity there.

And we're selling through distributors today and so less an exchange impact, but we can talk through any dynamics there. So not all downside, I would say, across that Europe region, specifically if you think about some of the pressures from the Ukraine war and U.S.

partner nations and it's causing a bit of a look around to see if they have the best-of-class them detection capabilities. APAC, APAC has been a bit harder for us have been about a small percentage of revenues. It's maybe 5% of our year-to-date revenues.

But we sell through distributors there, but we're not seeing the upside due to those changes that multiple parties have mentioned there out there, say, being able to get our small team to be able to transit and support applications and board our units across the region. So we're we actually have our Head of Commercial in right now as we speak..

That makes sense. One final one for me. The gross margins have delivered solid outperformance versus our expectations over the past few quarters. Like rising ASPs for devices was cited as a contributing factor to the strong gross margins this quarter.

So would just be curious, if you could give us a bit more detail around how pricing has trended maybe both on the devices and the consumables side?.

Happy to have been pleased with the gross margins year-to-date and within the quarter and ASPs have been a piece of that. And an element to... And whether it's to distribute more direct here in the U.S. and with about 80% here in the Americas.

But we did put some price increases in effect at the beginning of the year that started to kick in earnest here in Q3, a bit in Q2 as we elevate as and other consumables where we did not increase that pricing for 2022. So a lot of that ASP benefit is coming through the device themselves.

We'll take a hard look at it going forward based on the different market factors and what we do for '23, but it is good to see our customers see the value of the technology and leaning forward to purchase at that higher price point..

Great, appreciate taking the questions..

Our next question comes from the line of Daniel Arias from Stifel..

Kevin, on the MX side, can you just talk about the services revenue stream that you expect to come out of the Army Trough contract and then be represented in the 2023 revenue base? And then just on overall revenue growth, given the way that we're finishing here on the year, and the roll-off of the Army contract, but also some of the order growth numbers that I think you mentioned.

How should we just think about growth next year? To what extent do you think the additional MX system deals can offset the Army contract? And then when you look at total year-over-year growth, realizing that you're going to guide formally in 4Q, what is the right way to think about the year-over-year there?.

Yes, have a little bit on the Army side. As we mentioned, about 20% of our Q3 revenue was Army and 80% was from other business outside of that. With that said, there is ongoing responsibilities on the service the service side..

That's right Kevin. And about that service contract, there's about $5 million of ongoing service revenue over the period where they committed to technology upfront, and I think I disclosed that it goes through September 2025. So about 3 years of service where that gets recognized on a recurring revenue basis. Within the quarter, we did see the U.S.

Army adopting the Aero capabilities and had about $1 million of recurring revenue ship related to those Aero modules in the third quarter, and the remaining portion of that additional order will be here in Q4. Moving forward... Yes. I mean if we take your question about what does 2023 look like with that as backdrop and... Totally here.

But if we just step back at a high level and think about it, yes, likely more moderate growth that over the first half of the year and particularly as some of the volume patterns need to change on that preclinical level to support our desktops. We certainly don't want to see any more macro impacts that deteriorate earlier.

We are seeing that, as we mentioned, kind of a couple of quarters with a trend there. We really don't believe that, that much that way to commit to what it is we have set up for 2023 in terms of new products, and we're engaging now with KOLs on that. And the first we'll launch in early Q1.

In leveraged business expands our Analyte Panel a bit and many may might provide an on-ramp to further level adopt and made device release slated to follow in short order.

So we're definitely not standing still there as we leverage our R&D machine and -- we really have been impressed with TRACE analytics and where that can go and the great team and great technology that brings.

So yes, based on where we're at, I'd say, more moderate, but incremental from new products, getting that positive feedback that now and thus far really should make us more diversified and give us more opportunity and drive more conversations next year and all very differentiated new products we're contemplating.

So we believe that to be an important contribution for us in 2023..

Okay. Helpful.

And then just maybe following those comments, just on the REBEL side, the macro concerns that you highlighted there, do you expect that to impact pull-through in 4Q for the REBEL relative to 3Q levels? Or is that mainly an instrument placement issue -- and then, Kevin, I hear you on the industry level data for cell and gene, but you guys are still in the pretty early innings of penetrating that market.

So are you saying that the new trial start trajectory is sort of outweighing the overall level of activity taking place that ARM report does put the number of trials globally at over 2,000. And we have your installed base at like 150 or 200 come the end of the year.

So it does seem like there's a lot of opportunity there, a lot of room to play systems. Can you just talk about the selling environment and just how you're finding conversations within a pretty large overall market to be, thanks..

Yes, absolutely. I mean from the selling conversations, you're right, only about 20% of our REBEL's are going into that selling gene. And while it is slowing, you would expect there's additional opportunity to pursue there as well as outside of cell and gene.

I think what we're just generally seeing, down , is that people are slowing down their desire to grab new technology and change the way they're doing it. We've literally had labs that have been good pull-through customers for us, go from having a dozen employees to down to 2 and they're trying to build back again. So there's a lot of training.

There's a lot of retraining, -- there's a lot of focus on taking the limited dollars they have and applying it to a replacement product or something status quo, and it takes work to adopt the new product, new technology and get across that chasm, if you will, and it takes effort on the customer side on 908 side, and it's just a new way of doing things.

So I'd say across the board with the biopharma spending, we're just seeing more of a reluctancy and a slowdown from that perspective..

On the pull-through. Dan, you're asking about on the pull-through in device versus consumables. And as I noted, definitely an impact on the device side here in Q4 as we look to finish up the year and moving into 2023.

But on the REBEL kits, we are striving for that active users to be at that approximately 1 kit per month on average, and that's that 40% pull-through for those users. We have been seeing some pressures on that. Currently, we require closer to 0.5 kit per month versus 1 kit a month for those active users.

And some of those are the employee turnover that we're seeing within and need to train and retrain the project priority within our customer accounts needs to be clear to kind of drive them to cross the chasm per se on the new technology adoption and getting so it's not the devices but also some on the consumable pull-through as well..

Our next question comes from the line of Puneet Souda from Leerink..

So this is a meaningful reduction in guidance this year. I mean, obviously, the questions are for 2023. I think, Kevin, the question that I have, it really is you have 80 or so folks in the commercial organization today, they were hired last year, they're fully trained and productive right now. So you essentially have a strong sales force.

You are seeing some slowdown in clinical trials. You were still early in this ramp. You have an innovative product that is highly differentiated versus the rest of the market in terms of the accuracy, the ease of use, all of those benefits are there. This is still very much a still process development in clinical trials.

So it's just sort of the challenging to see sort of why that slows down so meaningfully here? And maybe can you talk to us about sort of what's your line of sight there? When do you think this can sort of improve? What are you hearing from the customers on the REBEL side? And then I have a follow-up on 908 MX-908..

Yes, sure, sure. About as you mentioned, about 2/3 of that guidance adjustment of $6 million is we attribute more to the handhelds and about 1/3 to our desktops, which will be led by REBEL there.

And as from a customer sentiment, I would say that it -- as I mentioned a little bit earlier on the Q&A here for Dan, but we're just seeing a general slowdown for people to adopt new technology.

I think you're right, we've got a pretty compelling offering in REBEL in terms of what it can do and the fact that it can do things at line and really speed it up. And we're so excited to showcase things now out with our customers like the CPI data that demonstrates that.

So I think what we're seeing and what we're feeling is that we really have to double down on that type of messaging and making sure that we're explaining that value prop and how this does save time and money and efficiency to those customers. Because as, today, they'll send it out to a central lab, but that's what they do.

And today, we're trying to work with them to adjust their feeding strategies, change how they're approaching their bioreactor monitoring, so they can get better outcomes and better efficiency. So we're working with groups to showcase that. Some of that we've done at our critical mass event, some with the CPI data.

From a rep perspective, you're right, across the world here across handhelds and desktops. We've got 80 people in our sales and marketing team. We are chasing to end around that 80%. Today, we're close to that number. But we do have some ebbs and flows in that number.

So whether we're ending at 75% or 82%, we're really trying to be very thoughtful, planned and making sure we're spreading across the right regions. We are focused on growth there, and we don't want to be too lean or too heavy. And we do see rep churn on occasion, and I don't think we're seeing more than the industry is feeling, but that's not 0.

And we are a small company, so you don't have a lot of redundancy across your different geographies there. But in the normal year, it's a little easier to predict that, as you said, rep productivity and that after a particular period, the top line impact, we've certainly seen reps where our desktops and hand heads contribute big, very new reps to it.

But we've also seen and maybe just after 9 months. But we've also seen other reps that we're sure are going to be great, just not having out of the part success yet this year. So there's definitely a macro overlay there as you work to get new products and get it out and adopt it..

Okay. That's helpful. And actually, a quick follow-up on REBEL. In terms of the new product launch, the online product that is expected to correct me if I'm wrong, till 2023.

What is the timing of that? And what can you tell us about that? I don't know if Chris is on the call, but what can you tell us about that product and how that's setting up?.

Yes. Yes. I'm happy to cover that. We've always said that the REBEL online, if you will, is more of a 2024 situation. What we're really excited though is to offer other online products that can be a prelude for that and leveraging our trace analytics acquisition.

So we're very excited to have the first one of those get out into the market in early Q1 and a second one shortly thereafter.

And so all these efforts are really trying to steer and push us further into that bio-processing 4.0 domain and adding to the offering of our analytes and the process parameters, but also introducing some elements of process control and getting us out there with that online analytics capability that then is more of a 2 step as we see to accelerate our REBEL online efforts, both development and commercially.

So we're very excited about it and getting a strong road map where we've got some of these future products already out with KOLs and are getting some good feedback. I'm happy with that acquisition of TRACE analytics, very differentiated, and it enables online capability for multiple products that we've got on our road map here.

And I think that's a big differentiator from where 908 sits in that we're able to spin new products and adapt because we have a pretty comprehensive set of technologies here. But yes, I'm very excited for that road map to come..

And then just lastly on MX-908, I mean you seem to be expanding the application base there with pesticides, other products and launch release and testing and things like that.

So could you talk to us about sort of as we think about 2023, how diversified can the offering -- product offering be from an applications perspective, obviously, Army and Forensic is a large component right now for you.

But just maybe talk to us sort of what sort of diversification should we expect on the application base there?.

Yes, sure. The handheld, as you mentioned, are largely going into that forensic set of those acquisitions in some way back to fentanyl and the Opioid crisis and whether those are aerosol hazards or counterfeit drugs that people are swabbing on a surface and continuing to see growth there outside of the U.S. Army.

We mentioned good growth in orders year-to-date outside of that U.S. Army work for those. You're right, we are also always trying to expand our analytic panel and capabilities on our handhelds as well, and we did just announce more work we've been doing with the USDA, specifically the U.S. bar service to develop a pesticide library.

It's really for the environmental impact and safety impact around illegal use of pesticides on federal lands. And we do see that, that's a way for us to just get out there, explore have more conversations in that space. But yes, I think we're excited where the handheld will continue to grow, and we now have over 1,800.

And as we mentioned before, we're working on new products there as well that we'll keep shrinking down the form factor, and we think will be compelling driving cycles over the next couple of years as well. So yes, I think it's a good platform for us that we're continuing to invest and really want to own that handheld detection space..

Okay, thanks Kevin..

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

This is Madeline Mollman on for Matt Larew. One quick one for me. I think you said in the past that 1/3 of REBEL users had open blank purchase orders for consumables, meaning they were ordering multiple kits at a time.

Have you seen any impact from these customers who are buying in bulk in terms of destocking? Is that a concern at all that they have now made large purchase orders, and they won't be -- they'll be less pull-through for consumables going forward?.

Yes. We have seen -- you're right, we have picking what we think more of a blanket purchase order where they sign up for a set number of hits, that could be 6, that could be 12 tend to be delivered. Typically, they sign up for nominally 1 kit a month, and then they can call us to pull those in or push those out based on their project schedules.

And we've seen both cases. But we've also seen with some of the macro dynamics, we've also seen some customers having layoffs and then calling us and saying, we need to delay those kits or cancel that order altogether..

Got it.

And then just in general, in terms of the recent election, do you see any change to government spending priorities that would make an impact on investment in your offerings?.

Yes, that's a great question. I mean, we're continuing to monitor that very closely. We do have a legislative effort where we try to work and on the advocacy side as well. Fentanyl is very important.

We've certainly seen some headwinds with what we call a more of a macro level with just limited funding that's been available to some of our customers, particularly ones on the southern border across the board, multiple organizations really hit by the migraine crisis there, where a lot of resources are being taken from technology and needed for humans to help with that problem.

So we'll have to see what transpires here with the elections and near term and longer-term sentiment. But I think we do have good visibility. We shared publicly in the past that Kevin McCarthy has been got a first-hand demo through the Ohio BCI of technology set, and that was all positive.

And so I think there is an awareness that more needs to be done for the Fentanyl and Opioid crisis. Joe and I were just mentioning that there were just articles on our drive in this morning, more about counterfeit drug. So I think the government certainly views as a problem. I think it's also becoming more of a global problem.

And so I think we'll continue to see resources on it, but maybe too early to tell us as a particular change of it..

Thank you..

Thank you. I would now like to turn the conference back to Kevin Kanoff, CEO of 908 for closing remarks..

Yes. Thank you. Thank you all very much for your attendance, and we appreciate your time this morning..

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