Hi everyone, good afternoon. My name is Austin Moeller . I'm an Aerospace and Defense Analyst here at Canaccord Genuity. Today we are joined by, oh, it's making a noise. You did say that was happening. We're joined by Kevin Knopp, CEO, and Joseph Griffith, CFO of 908 Devices, [takers mass]. I think just to start off, you wanted to go through a presentation just to begin, and then I guess we can play with that and get to some Q&A.
Sounds perfect. Yeah, thanks so much for having us. Joe brought one of our mass specs, adding a little security to the room here today. Yeah, thanks Austin for having us and letting us introduce 908 Devices to you and your defense tech following that's out there. First, just a moment to take a look at our forward-looking non-GAAP statement. What I'm excited to tell you about today is a journey we've been on, and since about five months ago, we really have been working on a transition of 908 Devices from a more broad instrumentation provider into a more innovative public safety and defense tech company. We call this the launch of 908 Devices 2.0, and we're really excited to kind of walk through this next chapter with you in the minutes that we have following. What we've done is it's more than a restructuring.
It's really been a refocusing and a transformation of the company, and we've really redefined and focused the company around purpose-built handheld devices for chemical detection in the public health, safety, and defense markets. 908 Devices 2.0 really brings a much sharper focus, stronger financials, and a more clear operational alignment. There are four areas, four themes that I'd like to touch on as we go through the following slides. One is that this transformation is now complete, and we are focused on our growth market area. We divested a set of products of a desktop business that did have exposure to NIH and biopharma and academia, and we no longer have that as part of 908. We are now really streamlined around a set of handheld detection technologies that provide rapid field-based analysis for higher impact applications.
With demand accelerating across the opioid crisis response, defense modernization, and cross-border security, we think we're well positioned in a good place right now. Number two I want to hit on is acceleration. Backed by those secular tailwinds, we have a pretty strong innovation pipeline of new handheld devices, and we have a rather large DoD program of record. We're projecting 13%- 17% growth this year and projecting that that accelerates to 20%+ next. Number third I'd like to touch on is our execution. We had a great H1, and we do remain on track to hit our adjusted EBITDA profitability target in Q4 of this year, as really powered by some gross margin improvements, operational streamlining.
In the quarter, we did a lot of work to consolidate our manufacturing into one Connecticut location post divestiture, and now we've reduced our footprint of square footage by about 44%, and we reduced our employees' year-over-year headcount by about 39%. Number four is that we are pursuing a platform technology. It's a platform technology that's focused on our handheld devices at the core, but we absolutely have the ability to scale into additional markets and opportunities. These are OEM and funded partnerships where we do have efforts today in pharma and industrial QA/QC, but these are also collaborations and integrations with drones, UAVs, and other autonomous platforms. In fact, our products, mass spec products, have actually flown on 40 successful trial missions on UAS class Is, and we've also been integrated onto multiple different quadrupeds, including the Boston Dynamics Spot robot.
We've got a much sharpened focus, but we really haven't narrowed that longer-term opportunity for us. We really see that we've set up a nice foundation and a clear runway for growth. The handheld market that we're working on, we've pegged at about $2.5 billion TAM by 2027. It's large, it's expanding. Our handheld revenue has grown at about a 23% CAGR since the time of our IPO, and we really believe we're still in the early parts of market penetration. Second, we have a pretty comprehensive product portfolio now. About eight months ago, we had one handheld device, and we now have five. All these are designed for points of need chemical analysis in critical health and safety applications, very complementary, based on two platforms of mass spec and spectroscopy. They're really lab-grade analytical technologies that we're bringing out of the lab and to that point of need location.
They're driven by the fentanyl and opioid crisis where we serve frontline responders, law enforcement, and interdiction teams, as well as toxic material identification and detection. That's thinking of like measuring VOCs, measuring carcinogens, helping emergency personnel avoid exposure. The third I'd like to touch on there is our fortified balance sheet. Post our divestiture, our balance sheet is now $119 million at the end of Q2, which does give us the capacity to pursue new opportunities. We feel that now the company is quite well capitalized. We're built to scale, and we've got some high conviction markets in front of us. We're tackling some of what we think are the world's greatest challenge and urgent challenge for public health and safety, and we believe that really demands a set of modern detection tools.
Starting first with the opioid crisis, we've seen a dramatic evolution of that crisis in both its scale and complexity. You hear a lot in the news about fentanyl, but it's really not just about fentanyl anymore. You hear now about nitazines, xylazine, pink cocaine, many unprotectible precursors. Some of these are actually much more potent, 100x or more than morphine. Overdose deaths, as you probably have seen in the news, have exceeded 100,000 per year. They have prompted a public health emergency. There's absolutely a priority here to modernize our devices, and our devices are very much aligned with that mission. The other area I would touch on is that consumer goods, battery fires, industrial processes, those are expanding. They're each releasing VOCs. In fact, now the leading contributor to occupational cancer and firefighter deaths is exposure to such compounds.
Our devices are enabling a fast on-site identification of these hazardous gases, supporting better decisions and better protection. Each of those, you can imagine, is quite large of an opportunity and quite large of a problem. When you couple that with the global insecurity and concerns, you create a lot of military and homeland defense problems that require attention. The ease of access of these compounds, the rise of these global tensions, AI-driven chemical synthesis to enable these compounds to be produced at much faster rates, and we've seen drone-based delivery methods for some of these threats. It's really becoming imperative to modernize your solutions, modify your chemical detection capabilities, and have something that you can trigger and expand and capable of being upgraded. The public safety and defense spending has been pretty robust globally, both in the U.S. as well as across the globe.
Police, fire, correctional facilities, homeland security, military are all seeing increased investment during these times. Recent legislative actions, the priorities in the One Big Beautiful Bill and the related appropriations, they're prioritizing domestic spending on border, customs, military, law enforcement, and drug interdiction. This isn't limited to the U.S. You're probably also seeing out there in the news that in June, the NATO members decided to raise their target to a 5% of GDP for defense spending, and that's a significant step up. There was a drive in the past to reach 2%, and now there's a long-term target of 5%. Bottom line to us, that really means that we've got a pretty favorable funding backdrop for the kinds of field deployable detection tools we make, both in the U.S. and internationally. Our first product to address this, what Joe brought over there on the side, is called our MX908.
It's on the bottom left of this plot here. It's our flagship for trace-level analysis. It's a completely new class of product that takes mass spec, which is really the gold standard of chemical detection, usually lives in a large central lab, and it takes it out to the field. It's the first time that it's been done in a handheld form factor like we have here today. You're bringing true lab results, but to the point indeed. Since we introduced that product in 2018, it's grown at about a 21% revenue CAGR, and we've got over 2,800 of those MX908 devices out there across the globe. In the past 18 months, we've added to the portfolio and gone from one to four devices, and we just announced a fifth that I'll tell you about in a moment.
Now we really have a comprehensive portfolio that's a modern set of tools that covers hundreds of trace analytes and then thousands of toxic gases and then tens of thousands of bulk compounds. That's a pretty broad analyte portfolio panel that we can cover from detection to identification, and it's across air and aerosols and surfaces, piles, liquids, anywhere you'd find these substances. Together, they're really providing a much fuller comprehensive workflow for our customer set. Lastly, we're doing more with the data. Each of these is collecting full spectral information about what's in front of them, as well as geolocation, is providing information about the uses, the user of the products, and we're actually starting to aggregate that information better to help our customers identify trends, better manage their fleet of devices, and completely make actionable insights with it. I'm really excited. We've got a pretty in-depth roadmap.
We have a start of something called a team leader that allows some basic functions in this area today, and we're very excited to be continuing to expand that. As we do, we believe it creates just a more sticky ecosystem and a greater pull-through opportunity for us. Our customers are on the front lines of response. They're absolutely depending on us. They're depending on our team to be there 24/7 with reach-back capabilities. We've got over 3,300 devices deployed, 600 different accounts, 15,000 trained users across 55 countries. We're serving fire and hazmat, law enforcement, and federal military professionals worldwide. In July, we launched VipIR. This is our newest product. It's a three-in-one handheld chemical analyzer. It's built for high-stakes environments like global customs agencies, really at the intersection of stopping dangerous materials while keeping the flow of trade moving efficiently.
This combines two spectroscopy technologies, FTIR and Raman, into a single confirmatory workflow, and then combines it all together with our algorithms and machine learning capabilities to give one confident identification. It doesn't require repeated sampling, and it just fits a bit easier into the workflow of these customers and really strengthens our handheld leadership and our relevance to our core customers. We have multiple agencies that are testing this product now, and we see a clear path into pilots and then future enterprise opportunity. Financially, it's neutral to our gross margin and fits in with our discipline profile. In just a minute here, I'd love to explain where our products fit in. There's basically the landscape has two broad categories of these chemical detection and awareness tools. First is a low-tech sensor-based category. These are minimum selective responsive, no identification capabilities, few analytes.
Think more of like a test strip or a colorimetric tube if you're familiar or a smoke alarm style sensor. The second is where we play, which is advanced chemical detection. This is also where other life science tools and analytical instrumentation companies compete. We're playing and winning there because we're competitively positioned with a modern portfolio of products really designed around having not only the hardware, but also the reach-back service, the support these customers need 24/7 for that forensics capability. Our edge really, I would say, comes from our competitive positioning out of our culture. We do a lot of innovation inside the company, and that's enabling us with this to have a setup for accelerated growth because we are seeing multiple catalysts that are clear to us. The first catalyst of these three would be equipment modernization. That portfolio has expanded.
As that portfolio expanded, we can go after over 15,000 placements that are out there of legacy technology that we believe we can upgrade to our technology. A significant near-term. Second is we have a next generation of the product that Joe brought with you here to show you today. It's about half its size, half its weight, lower cost of goods, and higher pull-through opportunity. If there's 2,800 out there, we do expect to spawn an upgrade cycle. Third is a program we've been partnered with Smiths Detection. This is a DoD program called AVCAD, which is an aerosol vapor chemical identifier program. For 24 months over the past, we delivered 100 component sets to Smiths to support initial low-rate production, and we're looking for notice to proceed to the next phase.
This has a possibility of delivering over $10 million of revenue for us as we ramp into the future years. The takeaway here is we've got really three great catalysts, and they're combined with some powerful secular tailwinds. I want to just take the last few minutes of the talk to walk through the launch of 2.0 in more of a quantifiable way of the business. If you just take a moment and look back where we were in 2023, we had one handheld product. We had a reasonable installed base. We had $38 million of equivalent revenue from our continuing operations, reasonable adjusted margins. While we had solid cash, we were consuming $30 million of cash annually from our operations. If you look forward to today, post our transformation and our 2025 expectations, we've gone from one to four products, and now as of July, a fifth handheld product.
In Q2, we have over 3,300 devices placed, a 27% increase. We have a meaningful step up we anticipate on a full-year basis, targeting 13%- 17% growth. It lands us into the mid-high 50% adjusted gross margins, and we believe we're on track for adjusted EBITDA positivity in Q4 of this year. Dramatic improvement in our minds here. We've secured the cash balance with greater than $110 million anticipated as we did divest that for $70 million, our desktop portfolio. We've expanded our handhelds, we've focused our efforts, and we've improved our margins.
If you think about where we're headed and you look at 2026 and beyond, we're going to be going from one to six plus products of our handheld portfolio, massive opportunity for tens of thousands of placements, top line projected to accelerate to 20%+ with the three catalysts that I just went through: equipment modernization, launch of the next-gen MX, and the production phase of our U.S. DoD AVCAD program. We also further anticipate adjusted gross margin expansion, year-over-year improvement that we've been seeing continuing, and the full-year benefit from the facility consolidation that we just completed in Q2. Importantly, 2026 will be our target for our first year of being full-year profitable. Critical milestone for us, very exciting time for us here at 908 .
In many dimensions, we've really solidified our business, if not created a step change for the better, moving from one to four to five onto a path of six plus products. We have an expansive total addressable market that we're going after. We've dramatically reduced our customer concentration over this period. As we've gone from the majority of our sales being concentrated in one large U.S. federal base to a much more balanced across the accounts of state and local, U.S. federal, and international. We're seeing good expansion across there. Our adjusted gross margin, again, seeing multi-years of stepwise improvement. That's driven by mix, scale, and the new operational efficiencies that we have. Our OpEx has gotten more productive and our adjusted EBITDA positive target for this year, and our cash on hand is projected in 2026 to remain solid. We had a pretty good start to the year.
We had a strong start to the first half, and in Q2, we overachieved our internal expectations. A lot of details out in the public, so I'll just move through this so we got a little time for questions. Really just in closing, the actions we take and really feel we're on a much, much more improved trajectory, much tighter trajectory. We really feel we've fortified the investor thesis for where we're going behind 908 Devices. We've gone from this broader multi-segment platform to a much more focused high-impact company, and we've really got clear target markets now in the public safety and defense tech area, stronger margins, simplifying the operating model, and very close to the path to profitability. Thank you very much. Appreciate the quick opportunity to introduce 908 2.0.
All right. I guess just to start off here, what can you tell us about the acquisition of KAF Manufacturing and the FTIR components for your supply chain? Have you been impacted by the China trade war at all from germanium?
Yeah, the KAF acquisition has been an exciting one. We announced and closed it in early July. In many ways, it was to secure the supply chain around our FTIR products, to really bring in an opportunity to improve gross margins, keep production here in the U.S., where the majority of our production is done today. It's in Sanford, Connecticut. We're in Danbury today. Alongside it, we were able to secure a customer relationship. There was an existing customer of 908 , also a customer of KAF, where we can get $6.6 million over a three-year period, really securing one of the key elements of our revenue, about $2 million a year of revenue.
You've already talked about this to some degree, but given the expected step up in NATO European defense spending, which they've now committed to 5% of GDP, how do you view the NATO Europe market relative to the core U.S. market today?
I think it's a great area that we see a lot of growth happening over the first half. We had seen some key wins there. We were fortunate to place a multi-million dollar order, over $1 million, with Ukraine, the Ministry of Interior. We've got several others in the pipeline. We have been part of some of the NATO stockpile programs. We do see that growing. Last year, outside of North America, it was about 25% of our sales was outside North America. Absolutely an area we can continue to invest and drive growth with those positive macros.
How do you view yourself from a competitive perspective relative to like Teledyne FLIR?
Yeah, great company. Many great companies out there. I think what you'd find from 908 is that we've got quite a portfolio now, in many cases, broader than large-cap tool companies in this space, with the set of handhelds, the set of advanced chemical detection capabilities. What we do, again, this is the only handheld mass spec that's out there. If you look at the innovations that are occurring in the modernization that's occurring with our FTIR platforms, it stands apart. It stands apart in its size and weight compared to competitive offerings. Importantly, as I mentioned, that service component and having that workflow solution where they can call you 24/7 is also quite highly valued.
You touched on this a little bit in the presentation, but can you just go into a little bit more detail on the current opportunities you see before you, both in UAVs and unmanned ground robots?
Yeah, it's a great thing. We're absolutely focused on handheld devices, but as I did briefly mention in the presentation, there's a host of other areas that we can continue to take these modernized tools and technologies. That mass spec, again, being the only handheld, all equivalent lab systems are much larger. I don't know this for a fact, but I'm pretty darn sure it's the only mass spec that has been flying around in a UAS system that has crashed into a tree on their test trial. It's great to have it be a consumable, right? It's great to be simplifying our devices down. I think what you'd find is that the handheld is great, but as we go forward into the future, a lot of opportunity with autonomous platforms, whether they be ground vehicles, whether they be ocean-going vehicles, or whether they be in the air.
We are participating and collaborating on part of the DoD areas at the Indy 500 this past May. We had our device on a quadruped that was going through measuring the tunnels and securing the tunnels and being used by the local law enforcement capabilities there.
Could you just comment? You have a current cash balance of about $119 million. Do you expect to have sufficient cash to support working capital and deployment of new product lines over the next one to two years?
Absolutely, yeah. We're expecting to have $110+ million at year end to support that 20%+ growth opportunity in 2026. We definitely feel we have enough cash and runway and optionality as it makes sense, but definitely focused on getting to our internal target and external of Q4 adjusted EBITDA positive and then full year 2026. Good to have that healthy balance sheet post the divestiture of our desktops.
Can you talk a little bit about the evolution of 908 from being primarily a medical devices business into being a public safety and defense technology product business? How do you view the revenue mix as being between like defense, public safety, and industrial?
Yeah, it's been a shift where historically, you know, a good percent, 75% of our business was in the forensics, was the MX908, was the FTIR products. Now post-divestiture, really doubling down and focusing with a lot of market tailwinds that help us, you know, from a funding perspective. We have a very experienced sales team, you know, both from a state and local, and about half of our revenue in the first half was through state and local opportunities. International, I think we have opportunity where it was only 25% of our revenue last year to maybe get that up to 1/3 or maybe greater in the future. Some of those key federal military, you know, kind of DoD type customers with year-end medical spending, and the spending has increased, you know, with the big beautiful bill and everything alongside.
Excited at what lays ahead in the groundwork that we've done here in 2025.
I guess just the last question here. Can you talk about some of the advantages and applications of VipIR and XplorIR?
Yeah, I'd be happy to touch that one. The advantage of VipIR is that it's a product designed for global customs organizations. It's designed to measure bulk compounds. In a customs situation, something across the border, an unknown solid and liquids, it's designed to measure it with two orthogonal technologies and then tie it together with their proprietary algorithms as the third technology. It takes the guesswork out of it for our customer. It makes a more seamless workflow that's confirmatory. Now XplorIR uses a similar FTIR technology, but geared to gases and very much being used by firefighters. It was our top selling product in Q2. It was a record quarter for us in Q2. It's a small handheld device that's used to measure 5,000 different volatile organic compounds.
Again, concerns with safety of the responders and their exposure to carcinogens, but also being used to detect a leak in a pipe, a gas, a cylinder, a response to a chemical spill. Very differentiated product. The next closest product to that would be a much larger backpack size. It is not widely fielded and developed because of that limitation. Both great, very differentiated products. VipIR just coming out in July. We have a lot of hopes for that and aspirations in 2026.
I would presume the $150 billion appropriated for DHS and Border Patrol in fiscal year 2026 should be incrementally positive for VipIR sales.
I think so. I mean, there's a good chunk of that going into NII, DHS NII, which is non-intrusive inspection, ports of entry, customs locations, Border Patrol, those types of applications. There should be dollars available. Fentanyl is clearly a priority. That's what that indicates. We believe we've got the portfolio set up to attack that.
Fantastic. Thank you so much, Kevin and Joseph, for coming by today and talking to us about 908 Devices. Thank you.
Thanks, love.