Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mikson. I cover life science tools and diagnostics for Canaccord. Pleased to welcome you to the Fireside Chat with 908 Devices. 908 offers a novel, well, you know, approach to mass spectrometry. It's kind of launching into bioprocessing over the past couple of years, really exciting growth driver. With the company, we have Kevin Knopp, the CEO, and Joe Griffith, the CFO. Thanks a lot for joining us today. Appreciate it. Let's start with the second quarter results. If you guys could just walk through how you guys did, and, you know, expectations for second half of the year. Yeah. Start, Joe? Yeah, I think we were pleased with the way the second quarter played out. Key growth driver was our handheld business, which was about 75% of our business. It grew 26%, really, you know, driven by our FTIR products that we purchased within the quarter, but also our service revenue. Yeah. You know, the other part of our business, more on the desktop side, a little bit more, more challenged with some of the CapEx and funding environment more broadly, not just for 908, but across the board. But we have a lot of good products set it up for growth in the future. So as we move forward and look at, you know, kind of getting through the first half and the year ahead, we're excited to... Last week talked about, you know, 6%-9% pro forma growth for the full year, really driven by our handhelds. Got it. Okay. And then the acquisition of RedWave a couple months ago, that's the FTIR you were saying. Mm-hmm. How is that kind of complementary to, I guess, Maverick and the rest of the portfolio? And what does that kind of, how you think as you think about, like, any kind of acceleration that it now allows you to have, as well as the profitability of that business? Yeah, yeah. Yeah, we're really pleased with how the RedWave acquisition is playing out thus far. We're about 90 days into it, and about 60 in, we received our first multi-unit order, and from the same customer. So, really pleased with that. Very complementary, both on the technology and then a lot of synergies that we can speak to and how it fits in. But, very complementary from a technology set to mass spectrometry. So it's a FTIR optical spectroscopy technique. It's really suited to do tens of thousands of analytes at a bulk level, while mass spec is very good at doing a smaller subset, our mass spec, but at trace level. So you can think of it as hundreds with our mass spec, and in bulk now gives us 22,000. So it's the same customer base that we're going to in the handheld side of things. And then they were doing about $13.8 million of revenue last year. $2 million was outside of that handheld space into the industrial QC and the PAT space, so very complementary to our desktop pursuit. So lots of synergies across the board and complementary nature in the tech. Are there areas to, like, expand the, like, the recurring revenue for RedWave or maybe, like, you know, their pipeline or something like that? Recurring revenue for RedWave? Yeah. So on the RedWave side, recurring revenue, right, is probably similar more to our MX908 and our handheld at about 10%. I think there is an opportunity related to, you know, kind of software and, and kind of fleet management and looking across the opportunities. We're just tapping into that. I think that's an opportunity as we move forward. It's referred to as TeamLeader. But primarily, it's the, the service, some minor accessories, but it's about 10% pull-through. But exciting opportunity to plug into our commercial sales channel and really drive and accelerate our devices and more broad, you know, more tools in the toolbox as we get to our customers. Okay, and then how'd the business perform like ex, I guess, RedWave, because that was a pretty nice benefit in the quarter. It was, yeah. It was about $3 million, you know, in the first two months post-acquisition, so excited by the opportunity, and it was good to see that come through. You know, we've reiterated about $11 million for the full year expectation, you know, within the midpoint of our guide, as we talked last week. So, you know, I think the more we can. And we've pretty quickly integrated into our commercial channel, so the more opportunity we have as we go forward, and I think time will play out as we put feet to the street to realize the opportunity. But I think it performed well. We have exciting opportunities, and in the future, you know, with Red Wave, we structured the deal, so actually, aggressive growth gets rewarded in the earn-out, so it's one of our key growth drivers as we move forward. Is that part of it, too? Like, given it was a, I guess, a profitable company, like, if you kind of reinvest now, like, you're not trying to be profitable super soon, I guess? I know it's on the path, obviously, of the company, but you can, like, reinvest in that business and, like, drive growth further past the- Mm ... $14 million or so run rate that they were at last year. Right? Yeah, we can, although we're gonna be pretty disciplined on it, 'cause we do appreciate the accretive on the margins and the top line, as well as the bottom being profitable. And we do see a lot of synergies and $5+ million by 2026 that we're looking at through better leverage as we scale and need more on the production side. They've got a great footprint and facility with capacity in Danbury, Connecticut. A little different than the Boston for manufacturing scale. So definitely an area that's useful for us. So I think there's a lot of synergies we see there. From a product development pipeline, yep, they certainly have some exciting things in their pipeline as well as the core 908 mass spec pipeline. Okay. How does, like, that acquisition sort of like... you've done some other, like, you know, M&A over the years, Trace Analytics- Yeah ... this one, I guess. What I'm, I mean, what is the— Just taking a step back, like, what's the strategy as it relates to, like, M&A with these sorts of companies? One, I mean, software, and then you have, like, you know, hardware, I guess, too. Yeah, you're right, though. So RedWave is our, is our second acquisition. The first was Trace Analytics, which was in 2022. And 2022, that was really to complement our portfolio in a technology sense. So it was a technology that's been a great acquisition to get us that aseptic sampling, to be able to bring our products online to a bioreactor and be able to stream out these key process parameters, and that enabled our Maven product, and then we're leveraging that with our future product developments, even into Rebel. So that was more technology-driven, although we quickly flipped that technology into a new handheld product, or sorry, new desktop product that we could bring into the biopharma. In the case of RedWave, it was all about, you know, really getting to scale such an overlap and complementary nature of those products, platform that fit really well into to what we already had from a technology perspective and in all the synergies we saw and, and the being accretive. So that was really the driver. So if you think about forward, obviously, we think we've got a lot in our arsenal now. We've got four products in our, in our desktop portfolio and four products in our handheld portfolio, so not a lot we're looking at, immediately. And certainly, we've got a lot of filters to check, like we did on, on RedWave, if we should find something. So, less of a technology acquisition, likely, if you were thinking into the future, but organically, we think we have a lot of growth and runway, so that's our focus. Okay, so, I guess, yeah, you have like, you know, outside of MX908, you have Rebel, you have ZipChip. Now you've got, like, Maverick recently, and that Maven- Yeah. Like, these like kind of newer, I guess, platforms. How are those helping you sort of like refine this, again, like the biopharma, bioprocessing kind of strategy with the company, I guess? Yeah. Yeah, absolutely. I mean, so we just see that there's a lot of opportunity for innovative technologies around that bioprocess. And we were speaking earlier at your panel, that the complexity of the assets in the pipeline are increasing, quite a bit, right? You've gone from small molecules of yesterday, really, right, all the way into cell therapies and CAR T-cell processes. And so you need tools, to keep up with that. So we've really been assembling over the last few years, two of which we launched last year, a portfolio of these four PAT products. And that's really to sit around a bioreactor, connect directly, in some cases, to the bioreactor, and stream off these critical process parameters, which are just part of the cell cycle. So like the food, the glucose, the toxic metabolites that they're generating, and then also look and be able to control the critical quality attributes, and try to do all these things as close to real time and at line, and in-line automated as much as we possibly can. So our strategy there is more around that: can we create a multi-parameter scanner, a Star Trek tricorder of sorts, that can really give insights into this process to enable those new modalities? And things like the cell therapies and CAR T-cell is where we're doing a lot of partnerships, really trying to put a foundation there. Okay. I guess you kind of just walked through this, but I touched on this like question, but why the PAT, like process analytical space? Like, is that some kind of like low-hanging fruit or, like, a- Mm ... unmet need that you see in this kind of, like, space of bioprocessing? Yeah, very much an unmet need that we see. So we started with the technology set and built out a nice business franchise in the forensics area. That's been strong. It's been a strong growth, as Joe articulated, over last many years, past three years. Post-IPO, it was growing at, like, 29% CAGR. So good, good growth, lots of opportunity there, and but then you start to look, where else can you win in point-of-need chemical detection with new solutions? In the life sciences, bioprocessing, because the pipelines, as I mentioned, are getting more complex, it just drives that need for innovation, and customers are trying to accelerate what they do. They're also facing increased labor costs and maybe less labor as a result. And so if these solutions can automate that or increase the yield, and lower their cost and maybe get more through a process development lab in a yearly basis, we see a lot of value there. Do you see there being more value in looking at biopharma customers, whether it's kind of larger, even pharma, or like kind of more emerging, smaller, kind of biotech or partnering and, like, kind of, you know, really scaling with, maybe, like a Sartorius, for example- Yeah ... or, like, a processing vendor? Yeah, a bit, a bit of all. We kind of have a strategy here where we're taking direct sales out to the largest biopharmas. We do have all top 20 largest biopharmas using one or more of our desktops. Certainly, have our customers into smaller biotechs, and, and those customers are trying to get to clinical trial as fast as possible with as little investment as possible. So if we can help them remotely monitor a process 'cause they've got fewer workers, they don't want to be sending someone in on the weekend, great win, for them. But then, thirdly, as you mentioned, we do see with the rise of cell therapies in CAR T, as that gets adopted, those are suffering from lack of access, high cost, and they really need higher yields and throughputs there, and we think analytics makes a lot of sense. But in that case, we're focusing on really partnering with those hardware innovators. We announced a collaboration and working hand-in-hand to get designed in with Solaris. We announced working with Terumo and their Quantum Cell Expansion System. Now, our Maven has a configuration that connects directly to that quantum, and we have about six others that we're working on various stages. Okay. How has, like, the business mix of the company changed in the past, let's say, like, two years or so as you've, again, like, refined the strategy, basically? Yeah, so, you know, as we've diversified on our desktop side, and we see that as a key long-term growth opportunity, whether it's through collaboration or, or direct, you know, the handheld has performed extremely well, our MX908, and it's about 75%-80% of our business, as of today. I think in the future, you know, desktops carry a lot more on the recurring side. You know, here in the first half, about 41% of our revenues was from recurring. About a third on a full year basis is our expectation and, and consistent with prior year. But it's really those desktops that can drive that pull-through opportunity of 20%, maybe as much as 40%, with the REBEL for our active users. You know, so I think evolving, getting more placements as the market recovers, and now with our four products, hopefully in the right place with the right technologies, that gets that recurring kind of razor, razor blade going. So excited by that, but with the RedWave acquisition, financially, it made a lot of sense. You know, our percentage on our handheld, kind of more government-type business is where we're concentrated today. So kind of, there's a high performance and the sizzle of the life sciences bioprocessing side. Yeah. And on the desktop side, how, like, penetrated in the process development labs are you, and how much... Like, is there a lot of white space outside of that, I— kind of? Yeah, we're really just beginning, I would say, in those labs. There's something by our estimations of about 1,800, 1,900 of these process development labs, and there's another, call it, roughly 1,000 of these GMP production facilities. So our placements are de minimis compared to that, and so there's a lot of runway there, is where we're focused. But long term, yes, there could even be areas like downstream. Some of our products are being used in manufacturing. Some are being used in MSAT groups next to manufacturing to support- Mm-hmm ... the line to take data from these MSAT groups, and actually, they take the data along the manufacturing to build them into their models and build them into their own internal efforts and their own AI modeling, type of thing. So you need sensors for that. So some of our customers are using us in later stage along the manufacturing for that purpose. ... Our gross margin is pretty similar for the handhelds and desktops, and honestly, like the OpEx and the- Mm-hmm. Kind of like G&A and R&D investment as well. Like, you know, as you think about, I'm sure, like, once, you know, probably the handheld business will get to a break-even type position first, maybe, 'cause it's more mature, I guess. Mm-hmm. Mm-hmm. Mm-hmm. What are the dynamics there to think about? You know, a lot of good stuff there. You know, we're excited that, you know, we reported, you know, mid-50s% from an adjusted gross margin expectation. We achieved 56% in the first half in the gross margin, so fairly attractive gross margin at the scale that we're at today. Not all that different between handheld and desktop. So I think on the desktop, we're a little bit, you know, under volume or scale, especially in our clean room and from a consumable perspective, so definitely runway from a gross margin contribution there. But yeah, very important to drive, you know, scale on the top line and carry attractive gross margins. So being in the mid-50s today and hopefully being able to expand those as we move forward with additional volumes, important. We try to control our OpEx. You know, we feel like we're well invested on the selling and marketing side, probably capacity on the desktop more so than the handheld side. So, investing innovatively on the R&D, you know, so always different levers as we think about as you piece the puzzle together to our march to profitability. It's important not only to have that strong gross margin, but align our costs. So we've launched some good products over the last two years and, you know, have some other things in the pipe. Okay. Yeah, on the MX908, how do you sort of think about, you know, expanding further beyond forensics as being, like, the main use case? Mm. Is there, like, a lot to go? Yeah, I mean, so we're very excited about the forensics opportunity there, and that's very broad. So it, it's really led by the opioid crisis, counterfeit pharmaceuticals, so small molecule analysis, pretty broadly there, and all forms of where that, that counterfeit, pharmaceutical and fentanyl crisis takes you. It takes you into the U.S., but then now it's also broadening into other compounds. There's other things like xylazine and nitazenes, all sorts of compounds. You say the fentanyl crisis, but there's actually many, many more things. So the power of mass spec and the ability to electronically update it, and keep its assay panel relevant is pretty important, as a, as a growth driver for us. And as that crisis is now expanding internationally, that's also important that you're adjusting for local regions, if someone needs a new analyte or something's coming as part of the world. So big growth driver for the foreseeable future on that. And then it also turns into the homeland security-type concerns. With global uncertainty and unrest out there, we're certainly seeing activity from NATO countries and areas of activity in the Middle East that are looking and adopting currently our MX908 for aerosolized threats, for concerns of toxic industrial chemicals. And so there is an ever-expanding, I would say, application or analyte list where it's relevant and targeted, mainly today in forensics. If you remember that the components within the MX908, same components that go into our Rebel desktop device. There's one pump in the MX908. There's two of the exact pump that are in the Rebel. So we have a lot of SKUs and a lot of synergies there, so we kind of look at it as a, as a platform as a result. And then how has, like, international revenue trended recently, like, in recent years? 'Cause I think that Trace had, like, a German business or office or something, and that was like- Yeah, you're right. ... your expansion into- We did. That was kind of our first step into Europe. Yeah ... on more of a direct basis, with the Trace acquisition being in Braunschweig, Germany, and we do go direct in Europe, also leverage some channel partners. Internationally, we haven't invested over the last, I'd say, two years, really, in that channel. See it as an opportunity to growth, whether it's on the handheld or the desktop side. A lot of it is through distribution channels today, so take a little bit of a hit on the margin, but the opportunity, as Kevin alluded to, and the need for our products is there. On an international basis, we see it as a accelerator in the second half, especially in our handheld, handheld side, to see some of those placements come to fruition, so- Yeah. In 2023, we had about 75% North America- Yes ... 25% international, and in 2022, it was about 80% Americas- Wow ... Mm-hmm and, 20%. More. So we're moving in more and more in that direction, and I think it will continue, as Joe said, in the back half. That's good. So the whole kind of like, you know, space... A lot of companies with, like, you know, smaller, you know, tools or, like, instruments are dealing with this, like, CapEx- Yeah ... constrained CapEx environment. Purchasing cycles are elongated, et cetera. What are you guys experiencing, given you have a good amount of instruments, honestly, so which ones are being more heavily impacted, given the ASPs aren't, the list prices aren't that high, honestly? Yeah, right. It doesn't seem to be narrowed down to a particular one. It's really just seems like CapEx conservatism across our desktops. Handhelds are not experiencing these pressures, and it's majority of our business today and the SKU synergies, as I mentioned, but the desktops in the biopharma actually very much are feeling pressure there from the CapEx side. And again, depending, our products range from what, maybe $35,000-$40,000 to- Up to 150 ... to 150- On the Rebel side ... list. Mm-hmm. So, not monstrous in cost, but it's still CapEx. We've seen that conservatism play out across the large pharma, but we've also seen it with biotechs that are looking to equip a lab, and we're on that list, but they're waiting for their funding to get settled before they would do that. I think from a positive side, the demand customer engagement is as high as it ever has been, from conferences, from webinar attendance, things of that. If you look at the top of our funnel, it has grown consecutively quarter-over-quarter over the last 12 months. So we think that's good, especially on the back of new products being launched, 2 of which last year. But we gotta get those to convert, and that's our biggest challenge right now. But we think we've set ourselves up with the right foundation, and the need is there, as the CapEx headwinds reduce. ... Is there a risk that, like, you convert too quickly, basically, and you can't satisfy all that demand, like, in the next year, I guess? Hmm. I would love that problem. Yeah, a high-class problem. I'd welcome that one, but I don't think so. I think we've scaled and flexible in our manufacturing, where the technicians are moving across the product portfolio, and we do build a little bit to plan. You probably saw, I talk a little bit about that on the handheld side, where we're ahead on a production perspective, 'cause we have our plan for the year and being ready for U.S. government year-end. On the desktop side, you know, we always have a handful ready, 'cause we wanna be responsive to the customer, not only with the devices, but on the consumable side. So I welcome that challenge if it comes about. Yeah, okay. Guess that makes sense, and then maybe, on utilization, kind of pull-through, is that still a good way to think about your instruments, and how has that trended in the past couple of years, too? Yeah. Yeah, it is, especially on the desktop side. You know, Rebel being at the high end, you know, about 40%, you know, annual pull-through for our, our, opportunity for our active users, and that's been pretty consistent for the last eight to 10 quarters, even in the challenging market, which they're finding the OpEx, they're staying under our customers are staying under service contract, continuing to consume. Some of their project work may evolve and change, but that's at the high end. But on the desktop, it's anywhere from 20%-40% annual pull-through. Little bit different on the handheld side, it's closer to 10%. A lot of that is service, service and support. It's the software updates, so that is you have new compounds that have been identified as interest that you wanna monitor, you can upgrade that, via software in the field. As long as you're under a service plan, you get access to that, so- Yeah. Yeah, and we probably have about $12 million, I believe, right over the next 12 months, that's gonna be- Yeah, about $20 million on our balance sheet, about $12 million that'll be recognized over the next year, and that's from that commitment, and upfront, especially on the handheld, but also on the desktop side, you know, with Rebel and ZipChip, et cetera. Yeah, so. Given the kind of, like, stage of the company, I guess, like, do you think that increasing recurring revenue and consumables revenue is even that important to really focus on? Or is it still just, like, about placing instruments because you're still, you know, sub-$100 million revenue company? Well, placements is absolutely the focus for us, but, but as these metrics are very important to ensure utilization, ensure that we're engaged with the customer, ensuring that they're getting good use and value out of it, which we believe will long term, right, contribute to our ongoing growth. So we're, we're focused on, we've got key account people out there that are continually working and- Yeah ... making sure we're engaged, but, yeah, we're pleased that it's hung in through this period. Okay. I guess on that note, you know, like, how do you-how big is your sales force? What's the plans to increase that? What's the... Is there, is there a reason why it should be more efficient or optimized with RedWave maybe on board as well? Yeah, I mean, coming into the year across our organization, we had about 70 folks within the selling and marketing area. Some of that's shared, right, product management, marketing. But then we do have a commercial sales channel that goes after the desktops and more on the government side, with the handheld side. I would say what we have today is sufficient for our growth expectations this year and probably beyond, especially on the desktop side. You know, we kind of scaled up post-IPO to go after the opportunity. So I think there's opportunity to put more through that channel, and with the RedWave acquisition and having more products in the bag, you know, we brought on four folks, you know, from the RedWave acquisition and have kind of melded that within our sales channel. So I think more products in the bag, more opportunity. In that case, you can have opportunities. There are 20, 50, sometimes 100 units, you know, that one salesperson's pushing through. So I don't think there's any immediate investment needs on the, on the selling and marketing channel. It's really putting it to work to drive the top-line growth more than anything else. Okay. Then on the R&D side, like, the product portfolio, what's next there? Yeah, the product portfolio is pretty healthy, right? We just launched two new products last year in the biopharma desktop side. We are focused on getting a next generation of our handheld MX mass spec out there. We've committed to kind of a cadence of every 18-24 months or so, having a new large product release, so we're - I think we're tracking for that with our next gen handheld. We're excited for that, 'cause it could drive a an upgrade cycle there, and with step change in capability and in different vectors, which we think will be valued and well-received. So we're hard at work at that. On the Rebel, more incremental model year release, if you will, more like a car model year release of the 2024 edition of it. Really kind of hit the streets in early 2020 with our Rebel, so we've learned a lot that we can roll in. So we're doing slight things to just make the user experience more seamless, lower training burden, more automation, more robustness to processes and different workflows, and just kind of the standard things you do there. But I think overall, we're quite pleased with the roadmap and the products we've just released. Okay. And I think, like, prior to, like, 2022, basically, you guys' company's growth was like, you know, pretty good, look, maybe above mid-teens, 20%, et cetera. And then there was like, I think, I think late 2022, there was a little bit of, like, a, a step down, and then, you know, it's been kind of... not flat, but it's been, like, kind of, you know, mid-single digit or single-digit growth. Mm-hmm. Is there a chance to reaccelerate that, to double digits or so? Yeah, we believe there is, especially if you think longer term, right? And you're right, we've been kind of in that mid-single digit growth, and even this year, you know, our current guidance range suggests 6%-9% pro forma growth, considering the RedWave acquisition. I think there's some key levers as we think about our business going forward, whether it's on the desktop, capital spending coming back and getting back to growth, which really kind of depressed our growth, you know, versus handhelds that has done really well. There are a few different program wins, too, that leverages our MX908. You know, the AVCAD program, which is a government program that we're partnered with Smiths, is an opportunity of maybe up to or in excess of $10 million a year, that we've talked about. Yeah, and I think RedWave and the acquisition and plugging in the channel and being able to see that, you know, grow at double-digit growth, it's set up that way from an earn-out perspective, and we'll win along with the original owners if we can see that to fruition. So I think some key levers- Mm-hmm ... as we go forward. Yeah, and one to add to there would be those cell therapy partnerships. Hmm ... that we're working on, that we think, as those hardware innovators win, we look to partner with them to see if we can ride and rise with them.