908 Devices Inc. Q2 2025 earnings call

Thank you. This morning, 908 Devices released financial results for the second quarter ended June 30th, 2025. 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 email 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, our commentary today will include the presentation of some non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most direct comparable GAAP financial measures can be found in today's earnings press release, which is available in the investor relations section of our website. Additionally, 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 description, please see the Risk Factors section of the company's annual report on Form 10-K for the year ended December 31st, 2024, and in its other filings with the Securities and Exchange Commission. Except as required by law, 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, August 5th, 2025. With that, I would like to turn the call over to Kevin.

Thanks, Kelly. Good morning, and thank you for joining our Second Quarter 2025 Earnings Call. I'm really proud of our team's performance and execution in the second quarter. We delivered strong growth ahead of internal expectations while undertaking initiatives to meaningfully reduce our OpEx and spending to march towards profitability with the goal of being adjusted EBITDA positive by Q4 of this year. Revenue from continuing operations was $13 million, an increase of 14% over the prior year period. Growth was driven by strong device sales, with our mass spec devices again this quarter accounting for roughly 60% of revenue and our FTR products making up the other 40%. Our adjusted EBITDA loss was $3.9 million for the quarter, an improvement of more than 45% year-over-year compared to our previously disclosed adjusted EBITDA for Q2 2024 prior to our transformation.

Importantly, the adjusted EBITDA loss reduced by 15% quarter-over-quarter. We are advancing with urgency and discipline towards the 908 Devices 2.0 vision outlined earlier this year, positioning the company for sustained growth and impact. To realize this, we've established three strategic focus areas for 2025, targeting marketing expansion, advancing innovation, and reinforcing financial discipline. I'll walk through the progress we've made across each area in the second quarter. Our first focus is to increase adoption of our devices to address global threats to public health and safety. We equip frontline responders with rapid, reliable chemical identification tools that require minimal training and perform when it matters most. Our aim is to define the benchmark for advanced chemical detection in the field. We delivered another strong quarter in Q2, placing 164 devices, including a record number of XplorlR units.

This marks our highest quarterly performance for XplorlR and underscores its impact in filling a critical gap in hazardous gas identification. Our results in the first half and our pipeline give us confidence in meeting our full-year targets. As we look towards 2026, we are encouraged by recent legislative actions that strengthen the funding landscape and will support customer procurement of our devices, bolstering our ability to achieve our previously articulated goal of 20%+ growth. First is the newly passed U.S. budget FY 2026 reconciliation bill, dubbed the One Big Beautiful Bill. This bill and related appropriations include over $760 million in combined funding for the COPS and Byrne-JAG grant programs to support local law enforcement in combating fentanyl and other illicit drugs.

Additional funding includes $615 million for the Urban Area Security Initiative, which addresses terrorism and other threats, and $370 million for the Assistant to Firefighters Grant for critical equipment, such as our XplorlR device. In Q2, the majority of XplorlR orders were funded through this Firefighters Assistance Grant. Combined, these grant funding levels exceed $1.7 billion, representing an approximate 11% increase from 2024 levels. The bill also includes a 7% year-over-year increase to the Department of Homeland Security budget, which opens broader procurement opportunities across its many agencies and includes $900 million to secure large-scale events like the 2026 FIFA World Cup and the 2028 Los Angeles Olympics. Our devices have been used to secure public safety at several large sporting events, such as a Super Bowl and more recently at the Indianapolis 500 in May.

Our interceptor device, which is a version of our XplorlR gas detection product specifically for unmanned systems, was coupled with the Asylon robotics drone dog for remote and continuous air monitoring throughout the speedway, including the tunnels underneath the track. While we remain focused on the massive handheld opportunities in front of us, over time, autonomous robot and drone platforms can further expand use cases for our technology as they develop and become adopted. Lastly, provisions in the One Big Beautiful Bill and other recent legislative action strengthen the foundation for deploying modern, portable detection solutions like our MX908 device. While the DETECT Fentanyl and Xylazine Act, passed in December 2024, provides the statutory authority to support the use of commercial off-the-shelf solutions to improve drug detection, the funding priorities being planned create a clear procurement pathway for these tools.

Further, last month's passage of the HALT Fentanyl Act reinforces the federal government's aggressive posture on synthetic opioids by permanently scheduling fentanyl-related substances as Schedule I drugs. This legislative action broadens enforcement capabilities and places added emphasis on detection technologies that can stay ahead of rapidly evolving analogs. The MX908 handheld mass spec device is uniquely positioned to support this mission. With its trace detection and machine learning capabilities, the MX908 can identify over 2,000 fentanyl analogs, giving law enforcement and other first responders unmatched confidence in real time. This differentiation is particularly important as the threat landscape grows more complex and detection tools with limited libraries struggle to keep pace. Taken together, we expect that the recent U.S. legislative outcomes will institutionalize demand, support our addressable market, and clarify a growth path across our core customer segments for 2026 and beyond.

With a renewed focus on modernization, we are well-positioned to benefit from sustained investments in fentanyl interdiction, border security, and chemical threat preparedness. This is setting up not only in the U.S., but globally. In response to mounting global threats, allied nations agreed at the NATO summit in June to significantly increase defense spending, committing to invest 5% of GDP annually by 2035. This historic shift, up from the previous 2% target, is favorable for 908 Devices, as our field-deployable chemical detection solutions are directly aligned with NATO's priorities of deterrence, defense readiness, and civil preparedness. Our technology supports threat identification in critical scenarios such as suburban defense, border security, and special operations, areas likely to see increased procurement activity under the new funding framework. Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company.

We are committed to the relentless pursuit of higher performance, breakthrough capabilities, and greater simplicity. July marked a key milestone in 908 Devices' strategic transformation with the successful launch of VipIR, our new three-in-one handheld chemical analyzer. VipIR was purpose-built for high-stakes environments, particularly global customs organizations that sit at the intersection of security and trade. These agencies face the dual challenge of interdicting dangerous materials like narcotics, explosives, and toxic chemicals, while also ensuring the smooth flow of legitimate commerce. VipIR addresses this critical need by combining FTR and Raman spectroscopy into a single, seamless workflow, enabled by a proprietary smart spectral processing technology. The result is faster, more confident chemical identification in the field without repeated sampling or interpretation delays. Strategically, VipIR fits squarely within our handheld platform approach, extending our capabilities in chemical identification and deepening our relevance with core customers.

It broadens our reach within the existing addressable market, serving customers where we see strong alignment between capability and demand. VipIR supports the long-term growth trajectory we've outlined, while the successful launch and positive early feedback increase our confidence. We are actively engaged with multiple customs agencies for testing and evaluation and see a clear path to future pilot and enterprise opportunities. Adoption is expected to benefit from widespread familiarity with FTR and Raman workflows, which lowers the barrier to entry and supports efficient scaling. From a financial perspective, VipIR is neutral to gross margin and fully aligned with our discipline model. As we look ahead, VipIR strengthens our position in global security markets and sets the stage for future innovation, including the next-generation MX908, which remains on track for release in 2026. Our third focus area is strengthening our financial position and accelerating profitability.

We are continuing to target adjusted EBITDA positive by the fourth quarter of this year. We achieved several key milestones in the second quarter in support of this goal. First, we completed the transfer of all MX908 manufacturing from Boston to our lower-cost facility in Danbury, Connecticut, which also houses our FTR production to enable greater operational efficiency. Second, we completed the physical asset transfer of our bioprocessing portfolio to Repligen. Third, we completed the relocation of our corporate office from Boston to a smaller, more cost-effective site in Burlington, Massachusetts. I want to thank our team for their focus and resourcefulness as we executed these critical projects to lower facility costs, improve margin, and gain efficiency.

Last month, we took steps to strengthen and secure our supply chain of critical FTR components by acquiring the assets of KAF Manufacturing, a precision machining manufacturer based in Stamford, Connecticut, for $2.75 million. KAF is a long-time supplier of key components of our FTR devices. This acquisition provides us with the ability to scale faster and improve quality control, lessening our dependence on external vendors. Last year, we spent approximately $5 million with external precision machine shops, and insourcing enhances protection from tariffs and contributes meaningfully to our margin improvement and profitability goals. Concurrently, we signed a three-year, $6.6 million agreement with an upfront cash payment of $750,000 to supply precision optical components and assemblies to a large analytical instrumentation company that is an existing 908 Devices and KAF customer.

We also believe this supply relationship enhances our visibility into industrial QA/QC and pharma markets, creating new opportunities to expand our technology reach through strategic partnership. Importantly, it also supports and de-risks our previously stated goal of generating $2 million or more annually in OEM revenues. In summary, the alignment of policy, product, and performance is propelling 908 Devices forward, enabling us to expand our impact, extend our market leadership, and deliver on our commitment to profitability. I'll now hand it over to Joe to review our second quarter financial performance.

Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, our financials will be reporting continuing operations only, with any current and past activity related to our desktops, including the gain on sale, on one line item within discontinued operations in our financial statements. Total revenue was $13 million for the second quarter 2025, up 14% from $11.5 million in the prior year period, primarily driven by an increase in handheld product and service revenue. Handheld product and service revenue was $12.5 million for the second quarter 2025, up 13% from $11.1 million for the second quarter 2024. We shipped 164 devices in the second quarter, compared to 143 devices shipped in the second quarter of 2024, bringing our installed base to 3,336. As expected, program product and service revenue was not material in both the second quarter 2025 and 2024.

We are not assuming any meaningful revenue contribution from the AVCAD program in 2025, as we completed the initial low-rate production deliveries in Q3 2024 and are preparing for full-rate production in 2026. OEM and funded partnership revenue was $0.5 million for the second quarter 2025, compared to $0.4 million in the prior year period. This revenue was primarily driven by pharma and industrial QA/QC customers. Recurring revenue, which consists of consumables, accessories, and service revenue, represented 36% of total revenues this quarter and was $4.7 million, a 28% or a $1 million increase over the prior year period, largely driven by service revenues and accessories, including the software quantification module for XplorlR and Aero modules for MX908. Looking ahead, we continue to expect recurring revenue for the full year to be approximately 30% of total revenue, as device placements increase in the second half.

Gross profit was $6.4 million for the second quarter of 2025, compared to $6.2 million for the prior year period. Gross margin was 49% for the second quarter 2025, compared to 54% for the prior year period, with the decrease primarily driven by intangible amortization from the RedWave acquisition, restructuring charges, and an increase in warranty costs related to increasing install base. Adjusted gross profit was $7.3 million for the second quarter of 2025, compared to $6.7 million for the prior year period. Adjusted gross margin was 56%, a decrease of approximately 220 basis points compared to the prior year period. The decrease in adjusted gross margin was driven by an increase in warranty costs, as mentioned. Total operating expenses for the second quarter of 2025 were $21.5 million, compared to $14.7 million in the prior year period.

The increase in operating expenses was driven by a $6.8 million non-cash charge for the change in the fair value of the contingent consideration liability, $1 million in facility shutdown and restructuring charges, and an increase in operating expenses related to our RedWave Technology acquisition, where we have three months of expenses versus two months in the second quarter of 2024. This was offset by $2 million of RedWave-related deal costs in the second quarter of 2024. Over the last few months, we have taken definitive steps to lower our operating expenses going forward, including a 44% reduction in square footage related to our facilities and a 39% reduction in headcount compared to prior year. Net loss from continuing operations for the second quarter of 2025 was $12.9 million, compared to $7.6 million in the prior year period.

This increase was largely driven by the non-cash charge and other factors I just discussed and was additionally offset in part by $1.2 million of income, net of expenses, from our transition services agreement with Repligen. Adjusted EBITDA for the second quarter of 2025 was a loss of $3.9 million, compared to a loss of $3.6 million in the prior year period. We benefited from a favorable gross margin percentage in the second quarter of 2024. We ended the second quarter of 2025 with $118.6 million in cash, cash equivalents, and marketable securities, with no debt outstanding. We consumed approximately $5.7 million of cash in the second quarter of 2025.

As we shared last quarter, the net proceeds from the sale of our desktop portfolio, combined with the streamlined cost structures we implemented in Q4 and our growth drivers for 2025 and beyond, give us confidence we will cross over to break even in 2026 with a healthy cash balance. Looking ahead in 2025, we now expect revenue from continuing operations to be in the range of $54 million-$56 million, representing growth of 13%-17% over full-year 2024 revenue from continuing operations. This compares to our prior range of $53 million-$55 million. Our updated guidance range includes the following assumptions. First, we expect handheld product and service revenue to grow 17%-21% year-over-year, which equates to a range of $52 million-$54 million.

The $1 million increase is driven by second quarter performance and our continued confidence in our second half outlook. Second, we continue to expect OEM and funded partnerships, including contract revenue, to be approximately $2 million. Third, as mentioned, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense AVCAD program in 2025, as we completed the initial low-rate production deliveries in Q3 2024 and are preparing for potential full-rate production in 2026. Fourth, last year, our second half revenue was equally split between Q3 and Q4. Based on our current visibility into the timing and logistics around a few large orders, we expect second half revenue to be closer to a 45% versus 55% split between Q3 and Q4.

We continue to expect total revenue growth to accelerate above 20% in 2026, driven by our three growth catalysts: expanding handheld adoption, launching next-generation products, and scaling our U.S. government programs. Moving down the P&L, we continue to expect adjusted gross margins to increase to the mid to high 50% range for full-year 2025, with further expansion in 2026 with our manufacturing consolidation in Connecticut, which we have now completed. As Kevin discussed, we recently acquired the assets of KAF, which contributes to our ongoing margin improvement in 2026. We are continuing to target adjusted EBITDA positivity in Q4 this year, supported by our Q4 revenue projection of approximately $17 million, anticipated gross margin expansion, and lower operating costs following our portfolio divestiture and facility consolidation. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. To wrap up, Q2 was a strong step forward in our transformation. We delivered top-line growth ahead of expectations, executed key structural initiatives to improve our financial profile, and made solid progress on our path to profitability. With record placements of XplorlR, the successful launch of VipIR, and a funding environment that's improving both in the U.S. and internationally, we're confident in meeting our 2025 targets and building sustained momentum into 2026 and beyond. We're also excited to welcome Dr. Brandi Vann to our Board of Directors. Dr. Vann brings decades of leadership in defense and biodefense, most recently serving as the Principal Deputy Assistant Secretary for the Defense for Nuclear, Chemical, and Biological Defense Programs. Her background aligns squarely with our mission, and her insights will be a strategic asset as we grow our presence across national security and global preparedness markets.

Thanks again for your continued interest in 908 Devices. We look forward to updating you on our progress next quarter. With that, let's open it up to questions.