Afternoon. I'm Puneet Souda. I cover life science tools and diagnostics here at Leerink. My pleasure to be hosting the 908 Devices team, CEO Kevin Knopp, and also Joe Griffith, CFO joining us today. Welcome to our conference.
Yeah, thank you very much.
Welcome
... having us.
Absolutely. Maybe Kevin, something that's on a lot of investors' mind today, just given the impact we're seeing in the macro, Middle East tensions are there, maybe just tell us, you know, how does 908 Devices fare, how does the demand fare during the times of conflict? Last such conflict was Ukraine war. You know, how are you thinking about... Again, this is just you know, this is a conflict that just started. We don't know how long this is gonna stretch, maybe help us understand you know, what happens when such a conflict start. Obviously, demand doesn't kick in right away, but over time, what's the interest level where the products can be used and what does that mean for your growth?
Yeah, absolutely. As, as you know, 908 makes handheld analytical tools, for chemical identification at trace levels.
Mm-hmm
... all the way to bulk levels. There's essentially three drivers to our business. One side of it is the illicit drug crisis, counterfeit pharmaceuticals, the opioid epidemic. Second segment would really be toxic industrial chemicals, the exposure, the more prevalence of these compounds, the impact on our frontline workers, carcinogen-causing compounds. Then the third is, as you mentioned, it's the more and more global unrest, and it's actually causing the concern that the first two get coupled to the third, meaning we measure powerful opioids in powder form in the air, or on trace surfaces. In the area of a conflict or a conflict zone, people have concerns over chemical weapons or things being used as a chemical weapon.
If you look at our business, we sell to state and local responders, we sell to international responders, and we sell to larger federal and military. If I think about a conflict developing, absolutely there is more spending internationally for preparedness...
Mm
... modernization of tools. We've been seeing that. It's a, it's a driver. There's a macro trend independent of this around NATO spending to increase that to about 5% of GDP by 2035. That's a huge step up from where it's been.
Mm
... and it's a huge target. All that's causing a rising tide in our customers preparing.
Mm.
As you mentioned, now there are real measurable conflicts, obviously Ukraine and now the actions in Iran. In the case of Ukraine, we absolutely saw that rising tide causing people to prioritize along the eastern flank of NATO, prioritize the modernization of those tools. Now, this can be a fire department that's buying tools for broad-based chemical detection that we offer, for unintentional acts, industrial accidents, monitoring type situations, or something intentional that might come across their border. I think, in general, we're seeing it as a lift for our customers, in their prioritization to modernize.
Got it. I'm hearing that it's not something immediate, but this is something that could be a factor. Is it, again, remains to be seen how the conflict evolves.
That's true. I believe so, about 27% of our revenues last year were international.
Yeah.
We think that can be a much higher percentage of our business.
Yeah.
We think the things we've just been speaking of.
Mm
... will drive that adoption. I don't anticipate a bolus reaction, some sort of immediate spike to it.
Yeah.
We did see in the case of Ukraine a $2 million order we announced, publicly.
Mm
... as doing that, you know, kind of in the second phase of the.
Yeah
... of the conflict. We are very active across the Middle East. We have a number of customers there. We have a couple of employees that are driving our distribution channels there. There's definitely projects. Perhaps this accelerates those projects as we go. Right now, it's probably having the opposite effect.
Mm
... in the first phase of the conflict.
Got it. Maybe just on that topic, just tell me about, you know, in terms of, again, if a higher inflation is expected, higher because of higher oil prices, does that obviously, you know, one area shipping cost, but is there anything material that we should consider given-?
Yeah, probably not.
higher prices
... probably not immediate.
Yeah.
I mean, I think it'll affect all folks, right?
Mm.
Customers. Specific as far as a need for the technology, in most cases, the funding has been allocated, the grants have been achieved. For us, a big piece of securing deals is getting that grant funding cycle and, you know, at what point does it trigger through. Hopefully we can continue to push through on that. Yeah, probably nothing specific. Obviously, from a markets perspective, it definitely has an impact. As far as 908 Devices specific, probably nothing to highlight.
Got it. Okay. Let's switch gears to fourth quarter. You delivered a solid 21% growth. You know, a lot of that was RedWave products contribution as well. Maybe talk to us about sort of how the quarter played out despite the extended government shutdown and, you know, how did just different customer segments and end markets sort of from your perspectives performed?
Yeah. We're pleased with the way the fourth quarter ended up, getting slightly above-
Mm
... you know, the high end of our guidance range, and that was despite the
The government shutdown where we'd prudently, I think, highlighted that there was about $4 million at risk. $1 million was around kind of making sure export licenses got issued for different international customers.
Mm-hmm
... and with the shutdown, that had really stopped. Then about $3 million of orders that need to be secured and worked through the system.
Mm-hmm.
We were able to recover, work right up to the end of the quarter on that. I think where we saw some bright spots as well were on the state and local side.
Mm-hmm
... you know, with our XplorIR product, with our VipIR product. State and local is about 43%.
Mm-hmm
... of our revenues for the full year, which was a step up. We like those 'cause those can be, at times, onesie-twosie orders versus-
Mm-hmm
... the larger 5, 10, you know, 20 plus. More of those gets a little bit more predictability. What we saw some of that come through. I'd say the uptick on VipIR was announced in July, initial shipments in September. Really good traction, mainly, state and local, but also internationally. As far as the quarter coming together to be able to get to the top end of the guide, felt like it wrapped up well and set us up well for 2026.
you know, when you think about Talking about the guide, you're looking at 15%-20% growth, but a slower start in 1Q. Could you talk about, you know, what's driving sort of 1Q conservatism? Maybe, you know, sort of what gets you to the high end of the range versus low end?
Yeah. About, you know, 44% of our revenues will be in the first half.
Mm-hmm.
We do expect Q1 to probably be in that 10%-15% growth range versus the 15%-20%. A big piece of that is partly due to the number of VipIRs that we were able to ship at the end of last year, right?
Mm-hmm.
It was 40+. We had to a certain extent rebuild and restock. It's not a matter of demand, but really just an opportunity to get those units turned around and out the door. Would see some of those falling more in Q2 versus Q1.
Mm-hmm.
Typically Q1 is one of our weaker quarters as a whole. You know, as we build throughout the quarter, each quarter should be a step up. We expect to see those key growth drivers kick in, VipIR, XplorIR, MX in the back half. We did in our different guides, we talked about our OEM being about $3 million, right? That's pretty ratable throughout the year. AVCAD, which was another piece of our guide, $2 million-$3 million, is really back half driven.
Mm-hmm.
It'll be about the core business and our product traction in the first half. A little bit weaker Q1, but overall, you know, see a path to that 15%-20% growth for the year.
Got it. I want to come back to the AVCAD question in a bit, when you talked about your forensics TAM $2.5 billion, given where you are today, just north of $50 million or so, there's significant room for expansion in that marketplace. This is also a question that we've gotten from investors. Maybe just maybe help us understand how much of that TAM is readily addressable for you and how can mass spec, you know, capture that entire share of opportunity?
Yeah. That TAM is through kind of a bottom-up analysis.
Mm-hmm
... of looking at, gas detection, handheld devices-
Mm-hmm
... explosive detectors, chemical detectors, all used by our customers on the front line.
Mm-hmm.
We kind of did a bottom-up analysis, there and working with some third-party reports and the like. Massive opportunity. Certainly do not feel that that is a rate limiter. As Joe mentioned briefly, a lot of our customers rely on grants.
Mm-hmm.
Our state and local customers, which was a big performer for us last year, 43% of the total, as we mentioned, rely on these grants. Those grants, it's about $2 billion annually, for this type of equipment. We further see that more funding is becoming available to that set of customers, so maybe that helps triangulate a different way from the TAM perspective. Definitely not short on sockets. I think with our broader portfolio, it's quite nice now with having five different products, optical spectroscopy as well as mass spec to expand across that TAM space. A lot of it is accessible. We continue to think about innovations.
Mm-hmm
others that we can keep growing. Yeah, we're not short on sockets there.
Got it. Okay. That's helpful. Then maybe shifting gears to the government, maybe just on the DHS shutdown, is that baked into the guidance? How are you thinking about, you know, the overall customer's ability to get the grant funding in the ongoing, you know, DHS?
Definitely-
... shutdown? Yeah.
... I feel much better where we sit here today than a year ago.
Mm-hmm.
'Cause if you think about in February of this year, we now have 11 of 12 appropriations bills.
Mm-hmm
... through Congress, which is great. You're right, there's one left, DHS, which is in a partial state of a shutdown. A lot of our customers, those state and local, will use grant funding. Could be DHS, could be Department of Justice, could be through other agencies there that they have access to. No immediate impact that we're seeing from that DHS side of things for our state and local customers in particular. I think a lot of that's due to a lot of these are multi-year grants that are given to a state and local organization that they're available. Pretty pleased though that we actually have 11 of 12.
Mm-hmm
... bills here complete, at this time of the year. If you look at our pipeline, for total late-stage opportunities, it's about double it was.
Mm-hmm
... you know, at the end of last year. We're also pleased on the setup of that.
Got it. staying on the U.S. government side-
Mm-hmm
you know, one big beautiful act that was potentially contributing $1.7 billion in grant allocations. Have you started to see any of that money flow through from the state and the local agencies and, you know, there's the? Let me maybe ask this as well. There is now a desire to spend a significantly large amount of capital from the U.S. government, obviously on the defense spending side. How do you capture that opportunity? Maybe going back to the earlier question I asked in terms of with the conflict ongoing.
Mm.
you know, how do you position to capture more of that piece?
Yeah. you're right that I think yearly, there's grant funding that's going to our customers.
Mm.
that total dollar amount. The $1.7 was up a step from the previous year.
Mm-hmm.
I think it was a double-digit step that made that in part of the one big beautiful bill appropriation there. Further, I think it's even increasing more 'cause there's more border.
Mm
accessible funding available to our customers. In December, there was a executive order that moved fentanyl to be classified as a weapon of mass destruction. That further opened some funding vehicles to our customers. Again, think law enforcement, think first line responders.
Mm
... think, an EMS type of a professional in a public safety realm and context. Those are our customer set, on the United States state and local municipality side. On the defense federal areas, you're right. There's been, definitely traffic and news headlines that they're looking to spend all the reconciliation funds in a year.
Yeah
... and now most of that I would say is going for the golden dome warships, you know, things that are outside our purview. You know, where I would expect again is kind of a lift of the sentiment of our customers to procure and modernize-
Mm
They should be seeing the ability to then prioritize the funds that they have been planning more towards other technologies, which we hope to include 908 . We're gonna get to AVCAD, but that's perhaps another area there with more funding be available that we'll be able to, you know, see if there's anything possible on the timeline and quantities as that all plays out. I think in general, right now, it's favorable secular tailwinds and nothing too concretely specific that's gonna be an accelerator for that immediately.
Since you touched on, I mean, AVCAD, let's cover that. I mean, the guide currently is expecting $2 million-$3 million benefit in 2026. You know, how should we think about the ramp reaching to the $10 million annualized benefit that you've talked about? You know, how do you see this benefit and, you know, should it be a run rate or, you know, comes in waves?
Mm
... throughout, you know, sort of 25 and
Mm-hmm
you know, maybe in 2026?
Yeah.
I mean, sorry, 26 and 27. Sorry.
Right. It's a program that we've been touching on, I think 10-plus years.
Yeah
I've been with the company for 12 years. It was early days. No, it's exciting. It's a replacement program, the AVCAD, to replace technology that Smiths is a partner, an old JCAD program. We're moving into that next phase. We expect to hear in early spring on the specific timing, but we're providing the key components to Smiths Detection. They're doing the final kitting and testing and ultimately delivering on to the end customers. We see that as kind of ramping kind of the $2 million-$3 million, as you touched on in the guide this year.
Mm.
Ideally, we'll be getting visibility into. Hopefully, it's the first of five to seven years where we can see it ramping to maybe $10 million, $10 million+ of opportunity. A lot of it depends on volume and pricing and all that, but excited that we are the only ones in play with Smiths related to this program. Provided it all progresses as we expect that it will, it really does create a bit of predictable, almost pro-program-based revenue in the out years, which we like that, a form of recurring, you could say. So it. Yeah, it's been a lot. We had a lot of hard work to get to where we are, but it's really our core MX technology that's behind it. It hits our sweet spot from an OEM program type opportunity.
On the MX, staying on the MX side, next-gen MX908, what's the latest timeline for that? You know, how significant could be the install base replacement opportunity here?
Our MX908 still remains the only commercial handheld mass spec that's out there. It's about the size of a child lunchbox. We have about 3,100 of those out there. Big mission is in the illicit drugs, counterfeit pharmaceutical drugs of abuse in all formations, that are being impacting the frontline workers of various types. It's very much remained a differentiated product. It's absolutely driving greenfield placements every day with those sales. That all said, it's about 8 years old, and we've done a lot of innovations over that time. We've kept it modern through software updates, but we see we can do so much more from a hardware perspective.
We're looking to make the device about half the size, half the weight, and importantly, take feedback from our customers to just keep trying to make it more simple. iPhones, tablets.
Mm
... that's what people want, right? They're expert at what they do, but they're not experts in mass spec or chromatography and sample preparation. They really want all that as done as simple as possible and no maintenance. That's where we've been focused. I'd say, number one, there's no rush. We wanna make sure we're dialing it in properly. We are on track with the program. We do believe that we can have it here announced later this calendar year with a full year impact next year. Likely, we're selling both products for a time because there's enterprise accounts that have already adopted and wanna keep going with a highly tested and highly proven original MX908 that's available today.
It's a product that again, it can go after the 3,100 units, but I also think it can drive additional opportunity.
Through its size reduction, through its weight reduction, and through the simplicity improvements. Inevitably, we're making it as simple and small as we can.
Yeah
... there's totally groups out there that would say, "I could use a few more in my group, but if I didn't have the training burden that I have today, I could have a few more within my aperture of my organization." I think, we'll have the benefit of both, of both the replacement and expansion.
Got it. Let's touch briefly on the, you know, international sales. You called out sizable revenue benefit from countries in the Eastern flank.
Yeah
... you know, can you talk a little bit about, you know, what's the expectation for international? How should we think about international growing? I think ex-US was about 25% of your revenue in 2025.
Yeah. It was, it was 25% in 2024, and then we increased it slightly-
Yeah
... to 27% in 2025. Slight up tick on a bigger number.
Yeah
... but that number is too small.
Yeah.
You know, we really do believe that there's a lot of opportunity out there. I previously mentioned some of the tide lifting events with GDP spending % increasing for NATO countries, the conflicts as one of the three pillars of growth, that we see out there for our technology set. It's an area that we are selectively investing.
We are, and some of our investments, you know, one we've already invested a bit in APAC, which is a very little bit of our revenues, less than 5% today. We get an extra resource in South Korea there to help build out that international channel. In Europe, I think there's more that we can do, and we have a resource pegged, you know, here in 2026 as well to help drive and increase that. As Kevin said, 27%, 25% are too low. I think can it someday get to 40%, maybe 50/50? I think it could.
Mm.
You know, especially with some of those increasing demands, throughout the marketplace.
And-
... it started in the U.S., but I think there's strength-
Yeah
... and needs throughout the world.
How does the ex-U.S. ASP compare to U.S.?
Mm-hmm
... and, potentially gross margin-
Mm-hmm
... you know, impact that there is and maybe upside, if that improves?
Yeah. From a pure ASP perspective, it's lower internationally. That's because today we go through distribution channels throughout the world.
Yeah.
We do very little direct outside the U.S. It could be anywhere from a 20%-30% discount, depending on volume and a few other factors. We might take the hit on the gross margin line, but with that, our distributors are investing in the service side and the selling and marketing channels. You know, the contribution to the bottom line is pretty similar. You know, it's just a different way, but it would take down the gross margin a bit. It's a way for us to scale. Until we see concentrations in certain countries where it makes sense for us to invest more robustly on the service side or selling and local support, we'll probably continue in that distribution channel 'cause we feel it is scalable.
Mm.
We can leverage, you know, kind of our central key resources here in the U.S.
Right. maybe switching gears to the product side again, coming, you talked about a next generation MX908 VipIR. I think you have 40, more than 40 installs there. you know, can you talk a little bit about what cadence of installs do you see in 2026 there? where is this product is helping, you know, getting into new accounts, new store sales versus same stores?
Yeah. It's, it was great first quarter. As I mentioned, we shipped starting in September, got over 40 in Q4. An element to that is the distribution channels. We're just talking to a lot of demo units that were shipped out the door. Maybe half of it.
Mm-hmm
... were the demo units. We like those, and they're already starting to pay some dividends as we, as they place and do demos for end customers, and it drives that demand, right? If we think about that, maybe Q4 was more like the 2025. As I think about 2026, we almost shipped 50 last year. Can we get to two times, three times that here in 2026? I think that helps us get to the higher end of the guide as we think about it. VipIR primarily is to customs and borders. There's local hazmat state and local teams, but it's especially with Team Leader really bringing it to a more recent product version, there's existing technology out there today where we can hopefully provide an advantage to the end customers.
I think they're eager to have a company that's very supportive around the technology and take it to the next level around being able to track where the devices is, what it's seeing.
Mm
and kind of what drugs are out there in the market today.
Just maybe lastly on the product side, you know, XplorIR, that's, you have more than 150 installs, used by firefighters and hazmat groups. Maybe just like, you know, what is the potential placement opportunity there for that product? Kevin, maybe if you can talk about, are you seeing any change in the competitive landscape for these products?
Yeah. The XplorIR has been a greatly performing product.
Yeah
we had its first full year with a quantification-enabled package and in our hands last year. This product, as you said, 150 units, 40% year-over-year growth. We expect that to continue. It's really tapping into some of the larger parts of the gas detection market, if you will. Some of it is summarized within the TAM numbers we've been discussing, 'cause included in there would be things like PID detectors, which are maybe in the more $15,000-$20,000 type of detection side of gas detection. The advanced chemical detection is that TAM that we've been talking about. I think there's a lot of runway and opportunity there.
It really feels a unique, sorry, a unique capability in that does that quantification and detection of 5,000 different gases. Many toxic industrial chemicals, and there's not a lot out there that does that.
Mm-hmm
... and certainly in a handheld format. We really haven't seen a competitive. It's been very complementary, to other more commodity gas detection devices out there. In fact, they can now use this quantified number to then inform the more commodity person-worn gas detector. It's been really interesting product for us that we expect to be a good driver.
In the last few minutes, let me switch to, on some of the questions on financial side. I mean, the, you had adjusted a bit of profitability in the fourth quarter, and then you're expecting profitability in the second half 2026 as well. Correct me if I'm wrong. You know, maybe just, sort of give us your thoughts on sort of that cadence and should we, you know, how are you prioritizing spend within that context? Should we view you as the focus on continued focus on profitability, is that going to continue into, you know, 2027, versus, investing in new product development or more sales?
Yeah, I think it's a balance. It was a nice proof point in Q4.
Yeah
... this past year. We get to positive $700K Adjusted EBITDA.
Yeah.
That was at about $17 million of revenue. We were really looking at, you know, post-divestiture, post-facility move, you know, kinda resourcing, you know, to be able to say, "Hey, with scale, you can get there." As we think about 26, and we thought long and hard about it. You know.
Mm-hmm
... last year we had negative $10 million Adjusted EBITDA, and we see a path with that 15%-20% growth, cutting that in half. You know, could we have been more aggressive on that? Maybe, right? We thought it was important to make sure that we focus on growth first and foremost. We've kind of fixed our balance sheet now with controlled spend. Some of the investments we already touched on the international sales side, I think within state and local with some of the funding opportunities with inside sales and some direct opportunities to get more folks in the field, we can help drive that growth, especially with VipIR and the traction of XplorIR out there as some catalysts.
As we move through 2026, you know, with the higher quarters, you'd expect us to get back to positive Adjusted EBITDA in the back half, maybe not the full year. It all depends on how the quarters Q3 and Q4 fall out on the top line. As we get into 2027 and beyond, you know, seeing a path to getting there on a full year, full year positivity on adjusted... We'll always have seasonality, so maybe not every quarter, but at least on a full year basis, being in the nearer term window with that growth, so and balance.
Have you know, already captured the margin benefit from the Danbury consolidation and insourcing or what's left there?
I think there's still some opportunity, right? We're there for a half year, where in the first half last year.
Mm-hmm
... we had some duplicate facility where we were still in Boston. We built that into, you know, some of our 100 basis point improvement in adjusted gross margins for the upcoming year. I think another opportunity is from insourcing. You know, we do have some precision machining capabilities, including a small acquisition we did mid-year to be able to do more and more in-house, control that channel, reduce our cost of sales, improve our margin. I think there's an opportunity there, especially where, you know, working with a lot of government customers, they wanna see U.S. built, U.S. manufactured. With the precision machining, it enables that. I think there's opportunity there. We'll balance that with, you know, some of the channel expansion and products.
VipIR from a gross margin profile is a little bit on the lower end, but that's 'cause it's early days. I think with scale and opportunity on the cost outs and the insourcing, we see an opportunity to see attractive margins with that product as well.
Given the product launches that you already have, I mean, coming this year and maybe even next, maybe just talk about the cadence. How should we think about the cadence of gross margin? I know going back a higher end of the P&L, but just wanted to get your view, how should we think about gross margin improvement? Some of that is recurring revenue and consumables more than just the instrumentation sales, but obviously you have a lot more instrumentation sales compared to when you had the prior products.
We do. You're correct. I mean, we see some margin expansion, you know, about 100 basis points.
Mm-hmm.
I think we continue to see, you know, progress, you know, adjusted gross margin into the high fifties, right? It'll be depend on our product mix and our channel mix as far as how we can go, how much maybe of an OEM opportunity, which might be at a lower margin. I think it is that balance and not only looking at the gross margin expansion.
Mm-hmm
... but that OpEx and contribution margin expansion.
Recurring revenue was up 22%, year-.
Mm-hmm
... over year.
Mm-hmm.
It was about 35% of our totals.
Mm-hmm.
meaningful, but you know, it, we think we can do more there. Joe mentioned other elements that give us predictability.
Mm-hmm
... OEM revenue.
Mm-hmm.
That gives us all predictability. Then we're working on that product mix to drive more of a higher percentage of recurring as well.
Mm-hmm.
We talked briefly about Team Leader, and that's a software that connects the ecosystem, our products.
Mm-hmm.
That has some good opportunity on it to drive more on the recurring side. Definitely an area we're focused on.
This maybe lastly on capital deployment of $100 million+ in cash. How are you know, new product development, how are you thinking about, you know, additional new technologies, maybe just give us a sense of, how is the appetite in the market right now, for forensics detection or technologies that serve this market?
Yeah, I mean, I think right now we're at a unique moment in time here where there's some very much secular trends that are becoming favorable for the technologies that we're offering and to our customers with having record levels of funding available to them. We're very conscious to make sure that we have the broadest set of offerings. We really feel we've invested in the right sales and marketing commercial engine.
Mm-hmm.
Everything that's required to do that. You need everything from the applications, the sales, the support, the service, the 24/7 number to have a chemist on the line to be able to help someone.
Yeah
... with their analysis because they're field-based, they're not in a lab. You know, we're always gonna be looking out there to see if there's more things we can put in that organic, inorganic, we're gonna do that with great filters and we'll be very careful as we make those internal and external trades and...
Great.
Yes.
We're at the time. Thank you again and look forward to further updates as things continue to evolve.
Yeah.
Thank you.
Thanks for having us again.
Yep.
All right. Thank you.