Hiya, this is Paul Knight, the Life Science Analyst at KeyBanc. It's a pleasure to host 908 Devices here today. We have Kevin Knopp, CEO, and Joe Griffith, CFO. I guess I'll even start it out, Kevin. I remember a long, long time ago I'm at INTERPHEX Conference in New York, the Pharmaceutical Trade Show, and there's this thing called the Niton Analyzer. So I think that must have been you, right?
That was related to my past. Yes. There was a company called Ahura Scientific that had a handheld technology that was in the past used at such conferences and showcased there. Yes.
Sorry. Yeah. But yeah, great background. I appreciate a quick background on 908, your founding of the company. We'll start from there.
Yeah, yeah, we have to, Paul. Thanks for having us here. You hit on a little bit of it, right? We really have a long lineage here of working on point of need chemical detection. And where we've been operating with 908 over the past 10, 11 years now is really trying to make chemical analysis simple, smart, speedy, and empowering people to take swift action in some life-altering applications. Broad differentiated technology platforms is what we strive for, very much centered around Mass Spec trometry. We have handhelds and desktop products that serve the forensics, life science, and the bioprocessing markets. And I joke, but it's true. Our customers literally range from the FBI to the FDA, and we have over 2,800 devices out there now.
The handhelds for the forensics market is really where we started, and it's shown some good growth since late 2020 with the year of our IPO, about 29% CAGR since that time. We've been then working to build out a franchise in the process analytical technology bioprocessing space, and that represents about a quarter of our 2023 revenues of $50 million. Yeah, and so we've been really working to create that portfolio. We've got about a third of our business today that's recurring, and we see that opportunity growing with the PAT space. We sit on a healthy cash balance, about $146 million at year-end and zero debt. We've been pretty disciplined. Yeah, since our founding, we've been very, very excited and fortunate to grow out a very differentiated set of products across those spaces. Thanks again for kicking it off here with us.
Yeah, so it's really a portable Mass Spec , right?
Yeah, our flagship product is a handheld device that's a portable Mass Spec trometer. It's a device that's kind of the size of a child's lunchbox, and that's really the flagship for us. We use that a lot in the detection of fentanyl and counterfeit pharmaceuticals. But we leverage that same technology into the PAT space for bioprocessing, that same engine of microscale Mass Spec trometry. Then we've really been kind of broadening it with a set of products in that PAT space with some complementary technologies.
Can you hear me? Sorry.
Yes.
I understand a Niton or a handheld spectrophotometer. How are you loading samples in the 908 device?
Yeah, and we try to make it as simple and as easy as possible. And we try to really work on any preparation or any steps to be as minimal as possible. So in the case of our handheld devices, we could be sampling just the air or aerosols in an automated fashion, where it's just being pulled into our device and operating a continuous analysis. It could also be done on the blister pack of a suspected counterfeit fentanyl-laced product through a swipe, a small surface wipe, where you're then taking that swipe and then heating it in our device for analysis. On the bioprocessing side, we strive to be as simple as possible there too. We have products that are at-line with very minimal preparation steps required, but then we have fully online and in-line, which means that it's intimately part of the process and providing a continuous readout of a select number of analytes.
What is it detecting in a bioprocess environment?
Yeah, the bioprocess environment we're really looking at as much as we can in the extracellular environment. So we're looking in that bioreactor, we're looking in that growth media, and we're trying to provide customers a very complete set of analytes, a full analytes panel, something they normally would have to send to a centralized lab to get. That includes things like amino acids, which are all the building blocks of protein. That includes the energy source, the sugars, the glucose. That includes some of the toxic metabolites like lactate that could be part of the process. And then we have another adjacent product called ZipChip that can actually even further look at the protein quality that's being expressed, looking for post-translational modifications and really looking at critical quality attributes. So a pretty wide-ranging set now that we have a portfolio of these PAT products for bioprocessing.
What's been market uptake in bioprocess? And what's the pushback? It's new or what happens?
Yeah, well, first of all, as you know, there's been some headwinds in that space that we haven't experienced with our handhelds. But we've certainly seen, like others, some headwinds in that space where the people have been a bit more cautionary in their CapEx spending. Our products go particularly in the preclinical end, so the process development, but the early stage process development, preclinical. So we saw a lot of pressures like others over 2023 in that space.
So cautious CapEx, cautious consideration of adoption of new technology, I would say, have been the backdrop or the pushback, as you describe it, in that space. But I think we're fortunate that we have a pretty diverse set of products with our handhelds now as well. And while we saw some negative growth on our desktop devices serving that market, we saw 28% growth for the year with our handhelds. Altogether, we had a positive +7% year-over-year for our 2023. We're pleased with that.
What level of expertise does a user need to have? Is it a Mass Spec PhD or is it somebody else?
Yeah, so again, we try to make these devices as simple as possible. So in the handheld side of our world, that literally could be a frontline worker of all types. Could be someone at a customs location across the globe. Could be a professional in law enforcement, experts at what they do, but not in Mass Spec or chromatography. In the case of our handheld, they may not even fully appreciate there's a Mass Spec inside the box. In the case of what we're doing on our desktop devices, we're always striving to make those as simple as just a push button.
It's not always easy to achieve that, and we continuously work to just sample prep reductions of complexity, just more and more software intricacy and how we do the analysis for them in an automated way and just trying to make that workflow as simple and as robust as possible. So in the biopharma context, those users could be process engineers, could be biologists that are in the upstream process development labs. That's generally who we're dealing with. In the case of our ZipChip, where you're really looking at the intricacies of the critical quality attributes and we're connected and accelerating traditional scale Mass Spec , that may be more of a PhD-level operator or a senior scientist that might be operating that.
As I go through your where you IPO in 2020, I'm assuming, like most in this kind of COVID era and post-COVID era. Numbers probably, revenue expectations may not have been met somewhere along the way. What were the dynamics behind that if you were like the rest of the world?
Yeah, great question. It's been a, I wouldn't say a rollercoaster ride, but yeah, we went public in December of 2020. Despite some tough funding environment, launching our REBEL, saw a lot of good traction in placements and really have broadened our portfolio since then. So since our IPO, the business has grown at a compound annual growth rate of 29%. So excited by that, the diversification, I would say the handheld and the growth profile there has really been resilient and continued at a healthy pace.
We've seen the need for fentanyl detection across the board, but with some of the pullback over the last 18-24 months and the challenges on the funding environment, mainly within bioprocessing. We spent the time to continue to invest and launch two new products last year with the MAVERICK and the MAVEN. I'd say we'd love to be further along the growth profile, but excited to deliver $50 million of revenue in 2023 and see attractive growth, especially getting back to double-digit growth as we get to 2025 and beyond with our portfolio.
What's guiding 2024 on growth rate?
Sure, yeah, it's the 4%-8% range is what we talked to earlier this month. And a piece of that is that we see opportunity as our U.S. government budget passes and the bioprocessing market recovery in the back half that we see that growth accelerating throughout the year. But we don't get too far ahead of our skis either, so we laid the groundwork of opportunity with the new product launches and continued traction on our handheld side within the forensics business, driving that growth. Thank you. You're on mute, Paul.
My mute is very active this afternoon.
You've been busy today.
Yeah. All the business, I guess you earlier mentioned that you would split the business into what? Forensics, bioprocess, and then what? Security?
The forensics is really any of the security kind of safety applications. We think of that as one and then really the life science bioprocessing nature of our desktops.
On the forensics side, you're doing fentanyl testing. That seems to be an important part of what you're doing, right?
It is. It is a big driver for our handhelds. Our handheld devices are trace detectors, so they can detect approximately 150 named compounds and then thousands of variants of fentanyl using machine learning algorithms that are integrated onto the device. So we often talk about the fentanyl crisis, but it manifests itself in so many different ways. It manifests itself in counterfeit drugs, but it manifests itself with also being used as carfentanil, remifentanil, or being a homeland security concern because these compounds are so, so toxic. And I spoke briefly previously that we can detect aerosols or we could detect things on surfaces. So we work with frontline workers of all sorts across state, local, federal, and international organizations. We pursue opportunities that are a single unit device sale on through multiple units within a particular opportunity.
We've talked a lot about penetration that we've done in Ohio, where there are approximately about 40 or so devices today there and have been a strong partner in the fight to increase the safety and stop the flow of fentanyl in our communities. And then we work across the large international organizations. We talked a little bit about NATO and having a contract now with NATO that we're looking to do more internationally. And we saw some growth internationally over 2022. We saw an increase in our international sales and a build of our larger deal pipelines too. But yes, it's all largely driven to fentanyl and all the related toxic trace compounds.
How do you sell your product? Distributors, you probably build up some direct sales. How is that developed?
Yeah, we have a piece related to our forensics business. We have a direct sales force, very experienced sales force. We have a VP that heads up that team. So selling direct mainly here in the U.S. We do use distribution throughout the world. And as we see more going international, it's our healthy growth, as Kevin mentioned, in 2023 and anticipate that to continue to accelerate in 2024. We'll leverage those distributors, and we've started to place folks out in the field, whether it's field service or applications, to help accelerate those opportunities. On the commercial side, which is more of our life sciences, we also have a commercial sales leader. He's former Sartorius, based out of the U.K., and driving that worldwide opportunity. In Europe and the U.S., it's a direct model where we're selling and supporting from an applications and service perspective.
We also use distributors to broaden that channel, especially in APAC, which APAC for us is less than 5% of our business overall. I see it as an opportunity in the future, but not a big piece of our business, whether it's life sciences or forensics today.
And then while you're at it, Joe, can you talk about headcount, cash burn, breakeven point of revenue?
Yeah, absolutely. Happy to. So yeah, headcount, we've really scaled up to we're at 230 people coming into 2024. Really accelerated post our IPO where we've more than doubled the headcount as we build up the infrastructure, really to go after the commercial opportunity in our desktop products, but also operational robustness, etc., to support that growth getting to $50 million. As we think about the business as a whole and forward-looking, we feel that we've done a good job of controlling our cash. Kevin mentioned we have about $146 million in the bank coming into 2024. If you exclude our debt payoff last year and some contingent consideration with a small acquisition, we burned about $27 million for the full year of 2023. So we've been thoughtful about our investments and feel that we have multiple years of runway with the cash on hand.
Thinking about profitability and kind of getting there, I think a lot about that, but multiple years, you really have to be north of $100 million, $100 plus to get to that scale and breakeven opportunity. I think if you look across our space within the life sciences tools, that's not uncommon. Think back to my days at Caliper, etc. So we're really focused on scaling that top line, but being thoughtful around the spend in the near term.
When you're at $100 million of revenue, what portion of that would be consumables?
Yeah, we see the opportunity for our consumables, which are about a third of our business, to continue to accelerate as we see the market with our desktops and bioprocessing pick up because that's where they chew through a lot of the consumables, the recurring. Maybe just pick one of our products, the REBEL, as an example. That could be 40% annual pull-through from the original purchase price. So as you see that snowball effect of having more installed base, more placements, the recurring revenue, both service and consumables increasing. Can we go from a third closer to 40% over the longer term? I think that's reasonable. Our handheld business, about 10% is recurring, mainly service. So whereas that's about 75% of our business today, that's why we're at a third of the business is recurring.
And then on the cell and gene therapy part of the market, the partnership you have with Terumo, could you talk to that and then the one with Cellares, who was using the MAVERICK device?
Yeah. Yeah, absolutely. I mean, I think when we look at the cell therapy area, we believe it's really just beginning. Obviously, there's been some challenges out there in the market, but we really haven't seen that wane in interest. And if you think about the complexity of these new therapeutics, these advanced modalities, if you think about the needs for analytics, just fundamentally that you need to understand these processes much, much closer where it's a living cell in some of these cases, right? And when you think about the potential and particularly autologous cell therapies where one patient is a batch, analytics become very, very important. And there's also kind of a mushrooming, if you will, in the scale of what's required. So we think that the areas of cell therapy is incredibly important and incredibly an opportunity that serves well for the future.
So where we're at as a company is now that we have a broader set of PAT tools that span separate boxes that go from a lower price point, more bread and butter analytes, to something more advanced with a full 30 set of analytes on a Mass Spec platform, we have a full complement of products. So in the cell therapy space, our MAVEN and our MAVERICK products are well positioned to serve that, looking at some of the fundamentals like the energy source with glucose and then looking at lactate, which can be a good indicator of the process and its readiness for harvest and whether you have enough yield, enough cell expansion.
In the case of Terumo and in the case of Cellares, we're very proud to be coupled and working to get designed in and be part of those ecosystems because we see such opportunity there and that we can work to help guide the process. In the case of Terumo, that's a partnership with our MAVEN device and to really have our MAVEN paired up with their Quantum Flex cell expansion systems to provide those analytics, provide insights into the process, allow them to reduce risk by not sending labor and a person into a clean room, provide them with more data, more data frequency so they can make informed decisions around feeding cycles and around, importantly, when to harvest, when to call the expansion complete.
Then likewise, Cellares, we're super excited to work with them on their very innovative, automated, robotics-driven platform for the Cell Shuttle. In that case, we're looking at the integration and working with them on the MAVERICK to get into that Cell Shuttle to be able to look at things like glucose and lactate and biomass. And particularly on that platform, the back end is open. And being that open, all the data is available for our customers to employ their own models, employing their own machine learning, AI, their own sophisticated modeling to actually pull out additional parameters. So both partnerships, super excited about.
It's an area of focus for us to continue to go after these design wins. We do have a partnership in place with Sartorius that has been fruitful for us from an OEM relationship. And in fact, we recently hired a leader for her to take the reins and see if she can work more commercially to get such design wins. So stay tuned. We're very excited about that whole space and the area our PAT tools can impact.
Yeah, it'd be great if that could become an industry standard, right?
That would be great. You know, I think it's so important that you walk around these shows and you see these more closed-loop systems and what they're aspiring to do. Not a lot of analytics you see on these systems. And I often joke, but it is true. There's less sensors than a Toyota Corolla on these integrated cell therapy platforms. So I think there's a lot of room for PAT tools in that space.
Yeah. And then the question from others is, how are the desktop products complementary?
Yeah, so our desktop products have really been designed to be a full suite that can go across a wide number of analytes and really provide a lot of utility. So if I put some specifics on that, our Mass Spec platform with REBEL is really great at measuring amino acids, those building blocks of proteins, but we want to keep it simple. And some folks would really like to zoom in on two important analytes, glucose and lactate, and really have that being a continuous streaming device. So we have our MAVEN and MAVERICK that can look at those analytes and be onboard, inserted in line into the process where something like REBEL is at line and providing a larger comprehensive panel.
In total, you now have four different boxes of products for 908 in this PAT space spanning a lower price point and more directed functionality up to something much more advanced, even like our ZipChip that's accelerating a traditional Mass Spec . Really all working together to look at that extracellular environment and looking at different panels and different integration and different price points.
How many people in bioprocess do you think you really need on the direct sale side? Where are you now?
How many people in the bioprocessing side? So we've built out a commercial team that sells across the products. I think we have the right team in place to sell the products today. They sell the REBEL, the MAVEN, the MAVERICK. I think we've worked hard to get the right supporting folks from an application perspective to support our sales folks. Talking with the customers, really, we're all in sales. Very much so. So I think today, we'll look to add a few pieces here and there, but really don't want to get ahead of the growth curve in recovery on the bioprocessing side. We have a solid team in place. Our leader I mentioned is former Sartorius, so has a good background there and some of the application team as well, working in labs.
Yeah, and good extension of our reach through some partnerships we just spoke of through our Sartorius relationship and some of the distributors we have internationally.
What's the shelf life of a product? Are they going to be ready to be replaced in 3-4 years due to software or sensitivity? What's your view on that?
Yeah, maybe I can start and chime in here, Joe. So on our handheld devices, we typically are looking at a five to seven y ear life is what someone would expect for a $65,000 piece of CapEx. That said, we're always working on our core innovation. And if we can deliver a step change in some of the parameters they care about, size, weight, power, simplicity, we do expect that to drive upgrade cycles in our handhelds. And that is an area we're actively working on. You want to comment on the bio?
Yeah, and I think from a collective perspective, you're right, kind of ±5 years, right? And on the bioprocessing, the various desktop products, it's not only the initial device, but how we can roll out additional capabilities, whether they're software-enabled or additional accessories or new kits going after specific application areas, using ZipChip as an example, have focused, whether it's metabolite or native kits, to go after key applications is where we're focused. But as we think about the platform, we're always looking at trying to launch, call it every 24 months, an interesting kind of innovative product platform. And then over time, every five, six years, you probably would see some level of replacement or upgrade of technology, whether it is on the bioprocessing side or over on the forensics with our handheld.
You know, I guess in hindsight, it would be interesting to ask the tipping point, like when did one day Thermo says the Niton is doing $250 million in sales. And we know in spectroscopy, instruments there have been miniaturized many, many years ago. So what do we need to have for 908 to get to this tipping point, whether it's in forensics or whether it's in bioprocess? Is it a large customer order? Is it gets specked in by an FDA protocol? Or is it just I get to $100 million and then it starts to just drive itself by reputation? I mean, what are your thoughts on how you get to this kind of critical mass on mass acceptance?
Yeah, yeah, there is a bit of a flywheel that I would say is starting to happen for sure on our handhelds, where really it's being recognized as a gold standard in that trace detection space and one order leads to another. And so I think we've been pleased to see that progression developing and accelerating on those handhelds. We've seen it since the IPO, as we said, really that 29% kind of CAGR . We've seen just one sale lead to the next. We've seen the size of sales increase. We've talked in the past about some large enterprise deals we've done with the U.S. Military, including the U.S. Army and the U.S. Air Force. And when you do that, it's certainly great references across to other such opportunities.
We said it on our call a few weeks ago that the size of those enterprise opportunities, the total number of sockets as we calculate it based on our initial penetration and what's left to penetrate in those counts, has increased 25% year-over-year. We're pleased that there is a bit of a flywheel effect going on there. Now, in the case of our desktops, I think it's very much early innings. It is very clear to us that that PAT space is very ripe. If you look at the advanced therapies and their trajectory, it's just required.
It is really required that you have more insights into this process too, if you think of cell therapies, right, fighting with costs, efficiencies, yield, that's exactly where analytics can deliver value. So I think we're on the ground floor today with getting some of these new devices. Joe mentioned we launched two in the year 2023. And so getting those devices out there, accepted, getting some of these design wins, I think all of that will be very helpful. As some of the headwinds in the market subside, we think we'll be well positioned there.
You're working to I guess you're working with thought leaders like what, Sartorius on bioprocess? Are you getting into some of the leading CDMOs? How do you gain how do you become the standard?
Yeah, we're working every day to crack that code and get our technology out there. From a CDMO side, we had a press release with our relationship with Resilience showing some of the benefits of using our REBEL product to lower cost of goods and increase some of their efficiencies. So we're pleased with that partnership. We do have our products now, at least one or more in all the top 20 largest biopharma accounts. So we have seeded that. And I think what's very interesting to us and is very motivating to us is that now you have that full PAT portfolio. It's allowing a more senior-level conversation. It's allowing more of a partner discussion with these individuals and organizations because now we're not being viewed as a single product company in that PAT space, but a partner that's there for a longer term.
It launches into conversations about how we can help them at different scales and stages of their bioprocessing, from the smaller scale to GMP production and even into some unique analytes, which could be very important for their specific processes. I think we've got a lot of good things there and a lot of foundation we built on the bioprocessing side. I've been super excited with the success of the handhelds to date.
With the REBEL giving you such quick turnaround time, why isn't it being so much more rapidly adopted, I guess, is the short answer to the question.
Yeah, I think whether it's the REBEL or other tools out there that are new technologies in this space that's experienced a lot of headwinds. I think there's just the appetite wanes quickly at the top of the funnel post-COVID with a downsizing in a lot of this process development capability, a reduction in some of the assets that are coming in, and some of a tightening of a CapEx belt. So we certainly believe there's that on the backdrop of deploying a new technology. On a technology like REBEL or all our PAT devices, you need people in their jobs. You need people in their locations to adopt new ways to harness such power and change some of the workflows that they do for the better.
I think the good news is that during this time that we've seen some suppression of CapEx funding, our pull-through has remained relatively flat at about a half a kit per month. That's about $2,000 approximately per active user there. And we've seen, and we reported on our earnings call recently, at the end of the year, we've seen some larger $50,000, $100,000 consumable orders where people are saying they're planning to get to work in 2024. And they're asking us to kind of schedule in advance. And they put some orders on the books there. So I think we have some positive signs there. And I think we've set up a good foundation, but it takes a bit of time to grow that.
Are you involved in the GLP-1 fraud?
From a counterfeit perspective or from an equality perspective? No, we are not today. But that said, we're always quite close to our customers, and those being the customs agencies that are worried about counterfeits going across borders. So we do have some inquiries out there to whether we can be of assistance. And we frequently provide software updates to our customers in response to the analytes they want to see. So we're definitely going to be on the it's going to be on our radar.
How frequent are software updates?
Yeah, from a software perspective, it's within the service offering that we have in Endeavor, kind of once, twice a year. It is a level of cadence. It really depends on product. But have a whole team that's working on continuing, whether it's building out the library of analytes of detection or other upgrades or enhancements. It is a continuous process, especially on the forensic side, but across our whole portfolio.
Reason to be under support and service is to look at it.
Good attachment rate.
What does an experienced Mass Spec trometry user who's used to the desk, the traditional Mass Spec , what do they say when they start working with one of your products?
Well, you know generally, those aren't our customers. Generally, our customers are people that would have never used a Mass Spec . They generally would be a customer, like I mentioned, a frontline worker that may send a sample to a lab and never hear the results. Or it's someone in a bioprocessing lab that sent it out to a core lab or a third party and waited a few weeks. So we do have cases, though, where people will bring it in and into an analytical lab near a large-scale Mass Spec . And I think they look at it as a fast Nespresso machine that can help triage samples before they take the time to set up the full Mass Spec large-frame systems.
Yeah, because I'm guessing Mass Spec is what I was learning about many, many, many years ago. And that is, it's a pretty advanced user, right? If not a product in a central lab, right?
Yeah, absolutely. And when our products, as I said, that's not the largest target for us. But when our products do end up in those labs, people look at it as a way to free up labor and capacity of the large-frame Mass Spec s and use their higher horsepower individuals and hardware to do something that's more difficult, more challenging, and keep us being the Nespresso machine in the corner that just kind of cranks out samples. But largely, the presence of our handheld and desktops are with people that would never be in the market for a Mass Spec trometer.
Yeah, you're an application-specific portable Mass Spec .
Yes, that's right. That's a good way to summarize it, I think, Paul.
Yeah. Well, I really appreciate you spending the time with us. It was great to see you at JP Morgan a year and a half ago. But really great to have your time again today.
Yeah, thank you for the time. Appreciate the invite.
Thank you very much.
Sure. Good to see you again.
You too. Talk soon.