Good morning, everyone. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink. And my pleasure to be hosting our first session of the day, 908 Devices team, Kevin Knopp, CEO, and CFO, Joe Griffith, joining us. Wonderful to have you guys here.
Yeah, thanks for having us.
Thanks.
Okay.
Awesome.
Kick it off here.
Yeah.
It's awesome.
So, maybe, you know, Kevin, I was just looking back from the time of the IPO, correct me if I'm wrong, two, three years or so. So maybe just set the stage, you know, tell us about the sort of progress you've made on the handheld devices, forensics. You also launched a number of products there, recently acquired RedWave. You have analytical products and bioprocessing. Maybe just tell us, you know, just given Rebel, Maverick, Maven, a number of these products over time, sort of, where do you see the most excitement, and where do you see sort of growth in sort of second half in 2025?
Yeah, sure. Sure. Yeah, again, thanks for having us. You're right. We went public in December of 2020, so a bit over three years now. Really been focused on that same mission to make chemical analysis simple, smart, speedy, very accessible, trying to make actionable answers that people can make swift actions with. And that covers a broad range of people that want to take kind of gold standard lab technologies out into a more, call it, fieldable or less lower complexity environment. We've got really, since that time, really expanded our, our IP and expanded our technology portfolio centered around mass spectrometry in a very differentiated way, as you know, and also now into optical spectroscopy.
We have handheld products and desktop products, and combined, they go across the forensics space, the life sciences space, and the bioprocessing space. As you mentioned, we've seen good progress with our handheld devices in forensics. And those products are really been driving about 29% CAGR over the three years since the IPO in 2020. So strong growth, we've seen for that. A lot of those are used for applications involving, in one way or another, fentanyl and counterfeit pharmaceuticals. So a fair number of applications that surround that. For both our handheld and desktops, really, we joke, but it's absolutely true that our customers go from the FBI to the FDA.
So all people that are trying to accelerate what they do and their workflows. We have about 2,900 total devices out there, certainly led by our flagship handheld device, MX908, which has been doing quite well for us. And then now we've been really working to grow out a process analytical technology base in bioprocessing. So we built out four products now in that space, two of which we just launched last year. So we're very excited for where that can go in the future. About a third of our revenue today is recurring. It was a bit higher for Q1, but on average, it's about a third of our revenue.
Consumables with the PAT portion are certainly contributors there, and as that grows for us as part of our franchise, then we'd expect that to contribute in a more meaningful way. So, we did do an acquisition of RedWave Technology, that we're happy to get into more details. And really, that was a complementary product that fits very well into our handheld portfolio of product and really helps us reach scale with that. And we think it's quite a good time that there seems to be a lot of opportunity, particularly in this notion of kind of taking lab technologies to these lower complexity environments, a lot of global insecurity and uncertainty out there, and then we see these products addressing.
Great. We'll come back to PAT and some of the other products you mentioned, but maybe, you know, when we look at the first quarter, you came in a bit better than what we had expected. You had handheld and AVCAD that sort of drove the beat, maybe just... But then the ramp appears to be more second-half weighted.
Mm-hmm.
So maybe just walk us through the assumptions there, what's baked in that, and why this sort of a higher second-half ramp?
Sure. No, we were pleased with the way we started out of the year with Q1. But with the U.S. government budget, it was a bit of a delay. We did get it passed at the end of March, and a big chunk of our revenue is about three-quarters of our revenue is on the handheld side, the Fed government, military budget, DOD budget, you know, delays. But, you know, it takes a bit of time for those funds, once the budget's approved, to flow through to our end customers' funding program, so it could be 3 months, 4 months. So we're working those opportunities, and here in May, June, into Q3, put some pressure more in the back half, and we're typically back-half loaded anyways with the 9/30 government year-end and typical pharma year-end spending.
The good news is that we have diversified, where it's not just the U.S. government budget that we rely on for our handhelds. We've really built out our state and local opportunities, and international. We see international as a key growth driver here in 2024, and not only the international kind of onesie, twosie order, but we're starting to see more growing into enterprise type accounts, where it could be 5, 10+ opportunities. You know, some of the things worldwide that have become a bit of a concern, whether it's Ukraine or Middle East or over now in Asia with Taiwan. So it creates the conversations. So I think we have more broad-based, not only our state and local, that is more fentanyl-based and a lot of funding coming through, and that continues to be a problem.
But with those trends, we're seeing about 60% of our revenue is likely in the back half, and also a piece of with Red Wave ramping, so our base business and then combined with the Red Wave acquisition.
... Got it. You know, as you said, three-fourths of revenue is in the handheld side, 70%, when I was looking at it from, comes from MX908. Obviously, a flagship product for you in the forensics market. Maybe talk to us about the applications that you have there and how the utilization or sort of the adoption of this product is in the marketplace today versus, you know, two years ago.
Yeah, absolutely. You're right, MX908, flagship of our handheld devices, being used by frontline workers of all types. People that wanna get an immediate answer to take a swift action and move forward with their workflow in a more informed manner. That could be a border agent, that could be a customs agency, it could be law enforcement, a fire emergency response professional of all types, and the international equivalents in the... So U.S., state, and local, federal, and then international agencies.
Again, you know, if you really look back over this time and you think about the growth of our products, there is a lot of change and unrest out there in the global scenarios and uncertainty, and fentanyl is part of it, as Joe mentioned. So if you think back over the last few years, certainly that crisis is not reducing. If anything, it's actually expanding. We'd mentioned on our recent call about Anthony Blinken and that expansion international. So there's a-- it's a growing need, and we say fentanyl, but it's actually much more than that. We're detecting hundreds of compounds at very low trace amounts. There's all sorts of precursors, there's all sorts of related compound.
There's remifentanil, there's carfentanil, there's all sorts of things, nitrazepams. They're being mixed in with this and keeps getting more complicated. This is not unlike the decades prior to this, where the heroin and other drugs and of abuse were part and continued. This is really just considered a third wave of that addiction process. So that's always part of our conversation, but definitely use cases beyond that, there are pesticides that are loaded on the device and things. But really where the MX908 excels is trace chemical detection. So trace means invisible levels, so residues, something in the air, and being able to detect and do it with a mass spec-like robustness. So good selectivity and good sensitivity at the same time.
So from alternate technologies that are out there, not a lot of great options for use at the point of need as we think about it, so that causes a lab workflow, which has turnaround time challenges for that. There are other techniques that are used in the field. Things like bulk detection are widely used to look at more of a larger amount of material. And now with our RedWave acquisition, we're participating in that area and opportunity. But on the trace detection side, not a lot of great options. There's fentanyl test strip, there's like ion mobility technologies, which IMS detection is the king of.
All have some niceties about them, but from a breadth of application, the MX908's really been positioned well over the last few years and participating now.
Yeah, indeed, it is trace detection. I talked to one of your customers, and they did point out that, you know, it is a... the amount of faint powder residues that it can detect is second to none out there.
Yeah.
Coming back to the sort of the sales cycle for MX908, it's been lumpy and, you know, there's some seasonality indeed there. Maybe just outline for us sort of the typical sales cycle. How should we think about just given the government funding you talked about, Joe?
Mm-hmm.
Sort of, you know, what is the funnel of the installs? What's your visibility-
Mm.
-into MX908, you know, order book?
Yeah, from a sales cycle perspective, it can be a bit lengthy at times, you know, but especially with some of the larger opportunities with the fed and military government. We've historically looked at it as initially getting in with a test or a trial, see the technology, can graduate into a pilot program. You know, it could be two or 10 that they're buying and committing, and our application and sales team is working with them on those trials, and then they graduate into what we refer to as enterprise-wide adoption. And, you know, that can be 10, 20, 50, sometimes more than 100. Some of our larger enterprise accounts, folks are probably familiar with our AVCAD program, U.S. Army, more recently U.S. Air Force, as a key adopter. But we have experienced salespeople that are working through that channel.
And whether it's on the state and local side, a lot of that is word of mouth, right? And they're communicating and funding, and as the technology gets out there and the capabilities. To a certain extent, not that it sells itself, but sometimes our good customers are our best customers, where then you have the larger military type account. So, that's how it kind of progresses through, and we continue to monitor. And we've talked about we need kinda 20+ unit opportunities, kind of a handful each year to drive growth. And we've seen that, and it's through that continued discussions and working with our customers to realize those opportunities.
Got it. You acquired RedWave recently. Tell us a little bit about that, how it fits into the forensics business, and how should we think about the FTIR products in the portfolio and how your sales force approaches the sale of these products with the existing forensics?
Yeah, absolutely. So these products are incredibly complementary. They fit extremely well in the same bag of our sales professionals as our MX908. In one way, you can again think about it that the MX908 is looking at the unseen, it's looking at the invisible, very small residues amounts for a focused set of compounds, hundreds of compounds... where the RedWave products are focused on an FTIR technology, which many of our same customers employ for bulk detection. So that's measuring 22,000 items, 22,000 analytes, but in bulk amounts, so you have to have a small pile or a small puddle of it, so something visible that you're detecting. So the two devices are often used in concert by our customers.
It came about over the fact that we've known some of the founding team there, in some cases for decades, with the crossroads between our company and theirs, and just personnel over careers. We've been talking to them probably about 18 months or so-
Mm-hmm.
Prior to consummating the transaction, and just made a lot of sense. I mean, we'd see them out there at trainings, see them out there at the same conferences, shows. When you do the analysis, about 80% of our international distribution partners carry both of our products. So it's not uncommon that you'd get a photo back of a booth that had both of our products sitting right next to each other, or a training event for a customer where we're talking about both and how they're used in concert. So very, very complementary products. Financially, it's a really great deal for us. It's very compelling. It's accretive on the margin, the gross margin side. Last year, unaudited, they did about $13.7 million in revenue.
Profitable company, about 15% on the operating margin outside. So all accretive to us and helps accelerate us and get us to scale faster, and that race to the $100 million top line, and then having a company that's crossing over that point a little bit steeper, more efficiently because of the accretive nature of their margins. And good cost synergies, we think we can leverage between the two organizations and realize because of those similarities and commonalities, and their lower cost location as well in Connecticut. So yeah, we're super excited about it, and it's just such a natural fit for us.
Joe, you know, tell us about sort of cash flow profitability, how much it aids in that?
Yeah, it does help, most importantly, with scale, right? They did about $13.7 million, growing at 20%+. So I think for us, a big piece is to drive scale, and RedWave does that, and they're already profitable. So as Kevin mentioned, accretive. So, you know, as we plug that in and realize the synergy is $5 million by 2026, about $2 million in 2025, as we scale, and we were going to have to invest in scale as well. So it really helps us get to that kind of 100 million+, which we see as a key lever to getting to profitability. And a big piece of that is that we get there with scalable growth and a few different triggers.
Obviously, scale on the handheld side, which has been growing over the last three years, and a CAGR, you know, 29%, continue to place on the handheld with a broader portfolio. Need some recovery on the desktop side, from a market, the capital markets and life sciences instrumentation to accelerate growth. And AVCAD , I mentioned, is one of our enterprise accounts. You know, we just did, you know, finished up the deliveries on the initial low rate, initial production and full-rate production opportunity. It could be, you know, $10 million or more per year, starting potentially in the second half of 2025. It might be 2026, but excited to be in that program.
You stack all these elements up, I think, you know, RedWave is just an initial building block to drive that scale and drive towards cash flow positive and profitability.
Got it. Okay. I'm glad you touched on AVCAD. That was going to be my next question. So maybe let's switch to, you know, desktops, a bit. You know, desktops in first quarter, obviously facing headwinds in the market. This is the life sciences market for you. I think you had three Rebel installs. But when you look at, you know, sort of the Q2, are you hearing things, differently, from the field? What's sort of the willingness of pharma or maybe cell therapy customers to take on some of this, these products? And sort of maybe talk to us as to how much contribution do you expect from these, the desktop business in second half.
May I start-
Sure.
And add in Joe, but, yeah, I mean, certainly there was a good, good, funding for biotechs out there in, in, in Q1 and, and late last year. I think there's a, a bit of a lag before you'd expect that to, to show across into the, the areas that, that we serve. Is that 6 months, 9 months? Is that a budget cycle? Probably depends on, on the organization there. Yeah, I, I think that, there's, there's headwinds, obviously, in Q1, and, and they, they've certainly been lingering, as we go into Q2. I think there's two elements to, to what you hear about. Obviously, there, there's been some industry news about the destocking and some improvements there, which, which totally makes sense.
We're more driven from the life science, instrumentation, capital equipment side, so we're still looking for signs of that to be opening up. Good news is, I wouldn't say we've seen any new headwinds developing or new concerns arising. A lot of good engagement with customers across a broad portfolio of products. And in the meantime, I mean, we're very excited that again, we've layered in a business that's profitable, growing at 20%, and helps us reach that scale with RedWave, with our handhelds. And oh, by the way, that technology has applications in bioprocessing as we go. About $2 million of their revenue, in fact, is in Raman and PAT probes. So we're excited for that.
Mm-hmm. It's great that it crosses over, right? It's a technology play as well as a scale opportunity with RedWave. So we'll look at opportunities to maybe plug in and drive potentially growth on the desktop side, you know, through those.
... components.
Any sense of the sort of the desktop contribution that you expect in the second half? Because I think that's one of the important questions out there for the core business. I agree that, you know, 70% of the business is still very much for MX, and that continues to grow and is disconnected from the biopharma market.
It will be a key element of our overall portfolio, and as some of those market factors hopefully start to subside, and we haven't seen any visible recovery yet, you know. But as we think about now, we have four products, as Kevin mentioned, you know, in the broader PAT space. I think our newer products that we launched, Maverick, back in September of last year, and Maven January of 2023, enabling a lot of conversations, even at the senior level, with our customers around the different types of technologies. You know, which technology do they initially get in with, to realize the value and then expand across the portfolio? So we see kind of growth in H2 and the full year overall being driven mainly by Maven, Maverick, an element of Rebel with recovery.
But what gets exciting, too, about the desktop size, it has more of a recurring revenue opportunity as well. You know, Rebel, it's been robust, continued to see, you know, a healthy recurring revenue on our installed base for the Rebel. But as we get more and more desktops out there, it can grow, drive 20%, 25%, as much as 40% annual pull-through with the Rebel. But even Maverick can drive 20%, 30%, 35%, you know, when it's being utilized.
What are the sort of the drivers that you would say for that consumable pull-through on these? And how much of that is affected by sort of the pipelines that are building and overall in the market and overall sort of just demand, sort of just trying to understand how this is supported with the consumables is supported versus the capital equipment?
Hmm. Yeah, I mean, the pull-through has been robust. We've been running about a half a kit per month now for about nine quarters.
Nine quarters.
We've been consistent there. And the installed base is growing during that time, modestly, I admit. But we're seeing people using the devices, and if that's our average pull-through there for our customers, that means we've got, you know, 2x-3x that, some customers using 2 kits-3 kits a month. And from an application perspective, when you dig into that, it is people more connected into the manufacturing side of things and supporting the manufacturing science and technology groups. So most of our products, all of our products, get initial placements in process development, so preclinical, very much upstream, whether it's the Maven, the Maverick, Rebel, the whole portfolio now.
But products, we do have applications in the GMP space, but in this area that we're talking about for Rebel and that pull-through, it's this manufacturing science and technology. So these people are supporting manufacturing, they're sitting parallel to manufacturing and are monitoring and measuring, much like SPC charts being made for industrial applications. And some of those higher users for us are actually doing it for data gathering, to mine the data, understand how their key process parameters are accumulating, depleting, how it's changing over time, and then they're putting it into their own in-house models, and they're developing their own in silico models, digital twins, and their own predictive capabilities there.
So that is a, it's a driver there for us, but from a CapEx side, we are paced by the availability of funds in that preclinical upstream environment for new novel technologies and new ways to do it. But, you know, I think there's a great foundation there in this PAT space, and it, and to me, it just seems fundamental, the fact that you have more complicated therapeutics now, right, between cell therapies and gene therapies. And I was in with a top pharma executive just last week, and he traditionally does mAbs, and he's saying, "I own it 20% of what I do now, upstream, is mAbs." And he doesn't do cell and gene therapy, so that's a bispecific, trispecific, all sorts of drug ADCs, right? So he's working on various things.
And so as that complexity increases, we really believe over the long haul that you require PAT, you require analytics to look into that process. So, yeah, I think we're in a unique situation here, but making a good foundation on top of a good growing handheld business.
One area, you know, where you have announced a few deals, and more, I would say, press releases around this closed loop cell therapy products that you have. Maybe talk to us about as we are seeing some automation solutions emerge in the marketplace for cell therapy, how are you thinking about the positioning of the Rebel and Maverick, maybe other products into that?
Yeah, absolutely. It is a very exciting area, I think for society and for 908s and analytics adoption. The cell is the product. It's quite complicated, and to that end, right, having analytics to be able to look at into this process. We've really been establishing a set of products now, a portfolio that's looking at cellular metabolism. So it's trying to look at the inputs, the outputs. So it's looking at carbohydrates that are coming in with our Maven, Maverick. It's looking at, like, toxic waste products with our devices, like things like lactate, and then also things like Rebel, all the building blocks of proteins. And so we've really been trying to make a set of products that has a very nice insight into the process.
Cell therapy, in particular, gets exciting because it's a mushrooming effect in that each dose is personalized in autologous CAR T processes. And so the number of analytical measurements that are required grows. And there's also challenges there with access, and you mentioned it, you need automation. Automation is driven by sensors, it's driven by analytics, and that's really where we're trying to get a foothold. So you're right, we've announced working with the Terumo and working with Solaris, and we're really working to get design wins in these cases and many others that we haven't announced. In fact, today with Terumo in Vancouver, we're doing a panel discussion and launching a configuration for Maven.
that fits to their cell expansion system at the ISCT in Vancouver today. So a lot going on in that space, and we think we're putting the right foundational elements in play there. And we think that it—this analytics directly address the automation cost of goods, access, and providing insights into that cellular metabolism that they can use, not only for just monitoring, but then ultimately for control. And we're certainly farther along in bioprocessing 4.0 in the mAb space, but using our technologies to control. Control things like glucose, so you can actually keep your cells in a healthy, happy place without exposing them to a diabetic shock of sugar levels throughout that process.
So a lot happening there, and as you pointed out, cell therapy, there's a ton of potential moving forward.
Got it. Just wanted to touch on, very quickly on, on Rebel 2.0. I know that's a product, that is expected to launch. But maybe tell us what are the things you're watching in the marketplace before maybe introducing that product?
Yeah, so to us, it's really been a strategy around creating this set of PAT tools. Rebel's absolutely an incredibly important part to that. We're really just working to meet the market where it's at today, and we have demonstrations of our Rebel running live, connected online, in our own in-house fermenters and bioreactors. We've selectively showcased it to some of the larger companies. Some are asking for it to be brought into their labs for analysis, but we're really just doing... We're really focused on, can we do more incremental launches and keep making products successful? Again, we launched two new products last year.
We think having, as Joe mentioned, the ability to have a portfolio conversation with price points that are lower to higher, with at line to online, and again, Rebel is a part of that, but we don't think that that's pacing the adoption. Rebel being made at line is such a higher throughput option than they have today in turnaround, that it's really not the immediate pacing, and we think complementing it with some of these other varying price points and additional capabilities is the right way to go for now. But all that said, Rebel today in 2024 is a lot different than it was at the time of the IPO.
There's been so much more technology put into there in terms of just always trying to make the workflow easier, making everything from the software and data analysis, robustness, the chips, the sample prep. We're just working every day to make that continuously improve. So it's definitely not standing still, and we'll bring it online when the market demands it, but feel we've got these four products that can go after the near term opportunity.
That's helpful. Just given the time, let me ask Joe about, you know, sort of gross margin.
Mm-hmm.
We were getting questions around that. I mean, you delivered 50% in the first quarter, guiding to low 50s, I believe.
Mm-hmm.
Even though second half, as you said, is more weighted, it appears to have more leverage. Maybe just talk to us about sort of puts and takes to that gross margin-
Hmm.
And how much does RedWave affect that margin, those margins?
Happy. It was good to get out of the gate with an attractive margin. An element of timing, where we're producing at a higher level in the first quarter, but showed 400 basis improvements Q1 over Q1. So a good trend. As we think about the full year, yeah, low fifties, you know, showing improvement year-over-year in gross margin, a slight improvement. You know, Red Wave does help. You know, they're mid-fifties gross margin, you know, when acquired, and we think with scale, opportunity to continue to grow that. I think gross margin as a whole is a key element of driving to ultimately our vision to get to a profitable business, right? To scale up, you know, through the fifties as we go. It'll take some time.
I think an element of puts and takes this year, a big piece is channel mix. We talked about international growth. We use distribution channels to go after our international growth, so not as profitable growth. I think another piece is that with the constrained capital markets and the life sciences tool side, every deal is very competitive, right? And we wanna make sure that we win and get the technology in their hands because we think once they have it, they love it, they buy more. But at the same time, it puts pressure on the top line. So I think whether it's channel mix, you know, customer competitiveness, we'll turn a little cautious on how the margins can expand in 2024, but setting the table for expansion in 2025 and beyond.
Just following up down the sort of P&L-
Mm-hmm.
I mean, when you think about the sales and marketing spend, you have the forensic side of the, the sales channel and then the, on the biopharma and the, on the therapeutic side.
Mm-hmm.
Just, maybe help us understand, as the markets recover on the biotech side, do you expect to... You know, should we expect the more sales and marketing spend there to?
Mm-hmm
... you know, drive that business?
Yeah, I think, whether basic stuff like travel, et cetera, but I think from a headcount perspective on the commercial side, you know, we built up a team post-IPO. We've been thoughtful about how we've expanded or strategized with that team. But I think we're set well to take advantage of what we have and have room to grow.
Mm-hmm.
You know, as we think about a year or two, maybe some additional spend, but it would be with revenue.
Got it. Okay. All right, we're at the time. Thanks, guys.
Great, thanks for having us here. Appreciate it.