908 Devices posted a transitional but strategically encouraging third quarter of fiscal 2025, with revenue from continuing operations of $14.0 million down 4% year over year but up 8% sequentially, bringing nine-month revenue to $38.8 million (up 16%). The headline was profitability progress: adjusted EBITDA loss narrowed to just $1.8 million - the lowest since the company's IPO - down 53% sequentially and 32% year over year, driven by aggressive cost actions and the completed Danbury, Connecticut manufacturing consolidation that lifted adjusted gross margin sequentially to 58%. Demand highlights included a record XplorIR quarter (placements up 30% sequentially), a 23-unit MX908 order from the U.S. Coast Guard, 27% year-over-year installed-base growth to more than 3,500 devices, and the first VipIR sale to a Southeast Asian intelligence agency (displacing a competitor), with more than 35 VipIR units secured for Q4. The main overhang was the protracted U.S. government shutdown, which management estimated could delay roughly $4 million of Q4 revenue as larger federal awards slowed; the revenue decline itself reflected fewer multi-unit MX908 federal orders. Management maintained full-year revenue guidance of $54-$56 million and its Q4 adjusted-EBITDA-positive target (assuming the government normalizes contracting), while trimming handheld guidance $0.5 million for a defense service-coverage pause and raising OEM/partnership guidance to ~$2.5 million. With state and local now 47% of nine-month revenue and Team Leader surpassing 700 users, the company emphasized a more diversified, predictable and profitable model heading into 2026.
Thank you. This morning, 908 Devices released financial results for the third quarter ended September 30, 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 directly 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 31, 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, November 10, 2025. With that, I'd like to turn the call over to Kevin.
Thanks, Barbara. Good morning, and thank you for joining our Third Quarter 2025 earnings call. I'm incredibly proud of the momentum we've built and the progress our team is driving. We're executing the plan, sharpening our focus, and setting the stage for a stronger, more profitable 908 Devices. Revenue from continuing operations was $14 million, down 4% year over year and up 8% sequentially. Growth was driven this quarter by our FTIR devices, which accounted for 42% of revenue, as we continue to see very strong demand for our Explorer Gas Identification device. Another revenue highlight was the U.S. Coast Guard's purchase of 23 MX908 devices for narcotics interdiction efforts and hazardous threat detection. In total, we placed 176 devices during the quarter, growing our installed base 27% year over year to over 3,500 devices.
Considering our year-to-date progress, revenues from continuing operations for the first nine months totaled $38.8 million, representing an increase of 16% year over year. Recurring revenue represented 36% of total revenue. Moreover, revenue from our U.S. state and local channel for the first nine months represented 47% of total revenues. Growth in this channel and in our recurring revenues are key parts of our strategy to enhance predictability, as this is more run-rate business versus large enterprise device deals, which can be lumpy. We also made excellent progress towards our adjusted EBITDA target for 2025. Our adjusted EBITDA loss was just $1.8 million for the third quarter, an improvement of more than $5 million year over year compared to our previous disclosed adjusted EBITDA for Q3 2024 prior to our transformation. Importantly, the adjusted EBITDA loss reduced by 53% quarter over quarter.
I'd like to thank our team for their tremendous effort over the past few months as we realized these savings. This is our lowest adjusted EBITDA loss in our public company's history, demonstrating that the structural changes are working and providing a solid foundation for achieving our goal of becoming adjusted EBITDA positive in Q4. Overall, I'm pleased with our execution this quarter as we continue to build momentum towards our growth and profitability goals. While our transform strategy is taking hold and our Q4 pipeline remains healthy, we continue to gauge the effects from the protracted U.S. government shutdown in three areas of our business. First, demand from state and local customers remains strong, supported by multi-year federal grant programs that remain active. Second, international engagement and order flow remain solid. However, U.S. export licensing requirements may extend delivery timing in some cases.
Third, while smaller federal and defense orders have continued to move forward, larger awards have experienced delays due to constrained staffing and contracting authorities. We estimate that approximately $4 million of our Q4 revenue could be potentially impacted by delays in these areas. However, our base case remains that we are on track to achieve our full-year guidance, and we view any near-term impact as a timing issue as our strategic alignment remains strong. We believe we are well-positioned as appropriations advance and contracting activities stabilize as we address mission-critical priorities such as fentanyl interdiction, border security, and chemical threat preparedness. With that context, I'd like to turn to our progress on the three strategic focus areas that are propelling us forward and bringing our 908 Devices 2.0 vision to life. 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. A clear example is our Explorer device, which is setting the benchmark for advanced chemical detection of over 5,000 gases and vapors. Q3 was another record-setting quarter for Explorer shipments, achieving a 30% quarter-over-quarter increase in placements. We see Explorer as a strong supporter of our 2026 growth goals as it fills a critical gap in the market for hazardous material response. Firefighters and hazmat response teams have long used a photoionization detector, or PID, to detect the presence of a subset of gases and vapors. Knowing a gas is present is helpful but limited. Teams must then rely on their experience and educated guesswork to coordinate a response. Explorer changes the game.
With Explorer, first responders can not only detect presence, but more importantly, identify and quantify thousands of unknown gases in seconds, informing decision-making and accelerating action. After encountering unknown gases in several recent incidents, the Contra Costa County hazmat team in California purchased four Explorer devices, helping to improve their on-scene response. Facing similar situations, the Kansas State Fire Marshal's Office purchased three Explorer devices, and the U.S. Marine Corps CBRE installation and protection program purchased 17 Explorer devices in the third quarter for potential hazmat incidents and military installations. While a majority of Explorer shipments in Q3 were in the U.S., the need is global. We are seeing early traction internationally in countries such as Italy, Finland, Poland, Taiwan, Korea, and Azerbaijan.
We are excited to see the continued growth of this game-changing device as the hazmat teams around the world modernize their toolkit with advanced chemical detection and identification. Civilian hazmat response and military submarine defense missions are distinct but closely related, and our portfolio is purpose-built to serve both markets. As the future of incident response shifts towards autonomous ground robots and unmanned aerial system drones, we are extending our analytical platforms to operate on these emerging frontline technologies. To that end, we are collaborating with multiple partners to demonstrate capability, including most recently the Thales Group, a global leader in aerospace, defense, and security, on a next-generation unmanned ground vehicle UGV integration to enhance mission safety and improve situational awareness for operators in the field.
As we build momentum with emerging autonomous defense tech integrations, we continue to advance key initiatives with our established partners, including our collaboration with Smiths Detection on DoD's AVCAD program. We completed low-rate initial production in late 2024, delivering over 100 component sets to support system builds and government testing in 2025. The program is now concluding a final field validation event, which, if successful, is expected to trigger an RFP for a next phase. While timelines have become affected by program changes and the government shutdown, we continue to expect clarity on next steps by year-end. We stand ready to support Smiths Detection in the next phase of this important national defense effort. Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company. We're committed to the relentless pursuit of higher performance, breakthrough capabilities, and greater simplicity.
In July, we announced the launch of VipIR, our handheld chemical analyzer that uniquely combines FTIR and Raman spectroscopy into a single, seamless workflow powered by our smart spectral processing technology. During the quarter, we shipped one of our first VipIR units to government intelligence agencies in Southeast Asia. They selected VipIR to modernize their counter-narcotic and counter-terrorism capabilities, upgrading from a competitor product. This initial unit serves as a pilot and has the potential to extend into a broader deployment across the country, establishing a new enterprise account. We also shipped several purchased VipIR units during the quarter to our channel partners, feeding awareness and engagement in the field. Last month, I attended our EMEA channel partner summit, where we had gathered more than 25 partners from across the region to review our latest innovations and compare notes on pipeline opportunities.
The enthusiasm for VipIR was unmistakable, fueled by a clear shift in NATO preparedness and increased spending among nations along the alliance's eastern flank. We are encouraged that VipIR, like Explorer, will become a ramping contributor through 2026 and a key beneficiary of recent funding improvements. One of VipIR's differentiated capabilities garnering interest is its integration with our Team Leader software. Using VipIR's built-in cellular connectivity, or Wi-Fi, first responders can upload sample data on unknown solids and liquids in real time. Using the Team Leader app, incident command and leaders outside the hot zone can view this data to make rapid, informed decisions on the response based on a clear understanding of the chemical threat. Team Leader is currently integrated with all of our FTIR devices and is on the roadmap for our mass spec devices.
We already have more than 700 users on the Team Leader platform, and over the next year, we plan to add additional compelling functionality. Finally, our third focus area is strengthening our financial position and accelerating profitability. Under our 908 Devices 2.0 transformation, we set an ambitious target to achieve positive adjusted EBITDA by Q4 of this year, a goal we've been laser-focused on. As I covered at the outset, and as Joe will detail shortly, we're making meaningful progress toward that target. Our facility consolidation and operational scale-up in Danbury, Connecticut, are delivering improved productivity and cost structure. For example, our gross margin increased quarter over quarter and reached 58% on an adjusted basis, reflecting the first benefits of those efforts. Over the long term, we expect further margin uplift as we insource precision machining following our acquisition of the assets of KAF Manufacturing.
Importantly, our products continue to command premium pricing due to their innovation and market differentiation, a trend we expect to maintain. As we build more value in our Team Leader offering, we intend for it to become an incremental contributor to recurring revenue. Further, we concluded the quarter with approximately $112 million in cash and marketable securities with no debt, providing a strong financial position and optionality as we scale. I'll now hand it over to Joe to review our third quarter financial performance.
Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, the financials we are reporting today are for continuing operations only. All current and historical activity related to our desktops, including the gain on sale, are captured in a single discontinued operations line in our financial statements.
Total revenue was $14 million for the third quarter 2025, down 4% from $14.5 million in the prior year period, primarily driven by a smaller number of multi-unit MX908 device orders to U.S. federal and defense customers, offset by continued momentum in our state and local end users. Handheld product and service revenue was $13.2 million for the third quarter 2025, down 5% from $13.9 million for the third quarter 2024. We shipped 176 devices in the third quarter compared to 178 devices shipped in the third quarter of 2024, bringing our install base to 3,512. As a reminder, there were approximately 700 FTIR devices placed prior to our acquisition of Red Wave. Including these units, our product install base was greater than 4,200 exiting the third quarter. As expected, program product and service revenue was not material in either the third quarter of 2025 or in 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 the next phase and potential ramp in 2026. OEM and funded partnership revenue was $0.8 million for the third quarter 2025, compared to $0.5 million in the prior year period. Revenue growth was led by pharma and industrial QA/QC customers, with an additional lift from component sales tied to our new precision machining capabilities from the KAF asset acquisition. Recurring revenue, which consists of consumables, accessories, and service revenue, represented 35% of total revenues this quarter and was $4.8 million, a 10% increase over the prior year period. Looking ahead, we expect recurring revenue to be approximately 1/3 of total revenue for the full year.
This factors in anticipated higher device placements in the fourth quarter, which naturally brings down our percent recurring, but also a funding-related pause in service coverage by a U.S. defense customer, resulting in a quarterly headwind of approximately $500,000 beginning in the fourth quarter. Gross profit was $7.4 million for the third quarter of 2025, compared to $7.8 million for the prior year period. Gross margin was 53% for the third quarter 2025, compared to 54% for the prior year period. The modest decrease was driven by a less favorable product mix, with material costs representing a higher percent of revenue, as well as unabsorbed costs from our new precision machining operation during the quarter. As production ramps and we do more in-house, we anticipate a benefit to gross margins in future periods.
Adjusted gross profit was $8.1 million for the third quarter of 2025, compared to $8.5 million for the prior year period. Adjusted gross margin was 58%, a decrease of approximately 60 basis points compared to the prior year period. The slight decrease in adjusted gross margin was driven by the product mix and unabsorbed costs, as mentioned above. Total operating expenses for the third quarter of 2025 were $23.7 million, compared to $32.3 million in the prior year period. The decrease in operating expenses was driven by a $30.5 million goodwill impairment charge in the third quarter of 2024, offset in part by a $22.8 million increase in the fair value of the non-cash contingent consideration. Excluding the impact of these two items, operating expenses for the third quarter decreased year over year by $0.9 million, which is a better proxy for trends in cash-based operating expenses.
Net loss from continuing operations for the third quarter of 2025 was $14.9 million, compared to $23.6 million in the prior year period. This decrease was primarily driven by a $7.7 million decrease in non-cash items and was additionally offset in part by $0.4 million of income from our transition services agreement with Rocklegend. Adjusted EBITDA for the third quarter of 2025 was a loss of $1.8 million, compared to a loss of $2.7 million in the prior year period, representing a 32% year-over-year reduction and a 53% quarter-over-quarter reduction. The significant improvement was related to our aggressive cost initiatives, resulting in reduced operating expenses across the board, including facilities, R&D costs, and professional fees. As we enter the fourth quarter, we will continue to leverage these structural changes to drive positive adjusted EBITDA with our scale and projected high teens revenue growth.
We ended the third quarter 2025 with $112.1 million in cash, cash equivalents, and marketable securities, with no debt outstanding. We consumed approximately $6.5 million of cash in the third quarter of 2025. The usage was primarily related to working capital and supporting our operations, but also included the $2 million used for our asset acquisition of KAF. As we noted last quarter, the combination of proceeds from the desktop portfolio sale, disciplined cost actions, and durable growth catalysts for 2025 and beyond reinforces our confidence in sustaining a healthy cash balance through our transition to profitability. Looking ahead in 2025, we continue to expect revenue from continuing operations to be in the range of $54-$56 million, representing growth of 13%-17% over full year 2024 revenue from continuing operations. Our guidance range includes the following assumptions.
First, we expect handheld product and service revenue to grow 16%-20% year over year, which equates to a range of $51.5 million-$53.5 million. The $500,000 decrease reflects the funding-related pause in service coverage for a U.S. defense customer, as previously mentioned. Second, we now expect OEM and funded partnerships, including contract revenue, to be approximately $2.5 million. The $500,000 increase is mainly based on third quarter performance and the inclusion of revenues from the KAF acquisition. Third, as stated all year, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense AVCAD program in 2025, as we are preparing for a potential next phase and ramp in 2026. During the quarter, our commercial team made strong progress in advancing large enterprise opportunities across both U.S. and international accounts.
We were also encouraged by the early momentum with VipIR, where we now have secured more than 35 units for Q4 shipment to state, local, and international customers. Securing a few of the larger 20-plus enterprise opportunities in our pipeline is central to achieving our fourth quarter revenue expectations. Our expectations assume that the government resumes normal contracting and operations this quarter. Our operations are nimble, we build to forecast, we have the inventory, and we are able to fulfill most orders as received right through the last days of the year. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid to high 50% range for full year 2025, with further opportunity to expand in 2026.
With an adjusted gross margin of 56% for the nine months ended September 30, 2025, we remain confident in our ability to deliver on our expectations for the full year. We continue to target adjusted EBITDA positivity in Q4 of this year, supported by our Q4 revenue projection, anticipated mix and resulting gross margin, 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 close, Q3 marked another important step forward in our 908 Devices 2.0 transformation. As planned, we are: one, broadening our customer mix and reducing customer concentration; two, expanding our handheld portfolio from one product to now five; and three, increasing the share of recurring revenue. Together, this strategy reduces our dependency on the timing of larger U.S.
Federal and defense awards and creates a steadier cadence of orders across a more distributed customer base. Further, we delivered our best adjusted EBITDA results since our IPO, reflecting disciplined execution, cost control, and continued progress towards profitability. With a solid balance sheet, strong year-to-date revenue growth, and line of sight to achieving positive adjusted EBITDA in the fourth quarter, we're confident in our trajectory and the foundation we're building for sustained growth in 2026 and beyond. Thank you 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 for questions.