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908 Devices Inc. (NASDAQ: MASS), a pioneer in handheld and desktop mass spectrometry devices, has reported its financial results for the fourth quarter and full year of 2023. The company saw a 23% increase in fourth-quarter revenue, reaching $14.4 million, and a 7% increase in total revenue for the year, amounting to $50.2 million. This growth was primarily driven by a 28% increase in revenue from handheld devices aimed at the forensics market. Despite a challenging environment in the life science instrumentation and bioprocessing markets, the company ended the year with a strong cash position of over $145 million and no debt. Looking forward to 2024, 908 Devices projects revenue to be between $52 million and $54 million, with a strategic focus on market expansion, leveraging its product portfolio, and executing a growth and profitability framework.

Key Takeaways

• 908 Devices experienced revenue growth in Q4 and full year of 2023, with significant contributions from handheld forensics devices.
• The company launched MAVEN and MAVERICK, new devices aimed at improving real-time analytics in cell therapies.
• 908 Devices ended 2023 with a robust cash position and no debt, planning to achieve profitability using existing cash reserves.
• The company saw an increase in international sales and aims to invest in high-growth areas both domestically and internationally.
• For 2024, 908 Devices anticipates revenue between $52 million and $54 million, focusing on market expansion and sustained growth.

Company Outlook

• Anticipates 2024 revenue to range from $52 million to $54 million.
• Plans to invest in market expansion and leverage product portfolios for growth.
• Expects to return to robust double-digit growth rates in 2025 and reach profitability.

Bearish Highlights

• Desktop product revenue declined by 20%.
• The company reported a net loss of $7.4 million for Q4 and $36.4 million for the full year.

Bullish Highlights

• Handheld device revenue grew by 28% in 2023.
• Secured contracts and collaborations in international markets, including Europe.
• Increased opportunities for handheld devices, with a 25% rise in enterprise potential.

Misses

• Decrease in handheld accessory and consumable revenue, despite growth in service revenue.

Q&A Highlights

• Kevin Knopp highlighted MAVEN and MAVERICK as key drivers for Q4 desktop bookings.
• The company is seeing more diversity in its pipeline, with larger opportunities outside North America.
• Partnerships with Terumo and Cellares are expected to boost MAVEN and MAVERICK sales in the cell and gene therapy market.

In conclusion, 908 Devices has demonstrated resilience in a challenging market, with a clear strategy for sustained growth and profitability. With the introduction of innovative products like MAVEN and MAVERICK and a strong cash position, the company is well-positioned to capitalize on emerging opportunities in the biopharma and forensics markets. Investors and stakeholders will be watching closely as 908 Devices executes its plans for expansion and profitability in the coming year.

InvestingPro Insights

908 Devices Inc. (NASDAQ: MASS) has shown a capacity to navigate through tough market conditions, as reflected in their revenue growth and solid financial position at the end of 2023. Here are some insights based on InvestingPro data and tips that could be valuable for investors considering the company’s potential:

InvestingPro Data:

• The company’s market capitalization stands at $228.27 million, which can offer an indication of the company’s size and market value.

• With a Price to Earnings (P/E) ratio of -6.22 and an adjusted P/E ratio for the last twelve months as of Q4 2023 at -6.29, the company is not currently profitable.

• Revenue for the last twelve months as of Q4 2023 reached $50.23 million, showing a growth of 7.21%, aligning with the company’s reported annual increase.

InvestingPro Tips:

• 908 Devices holds more cash than debt on its balance sheet, which is a positive sign for financial stability and future investments.

• However, analysts have revised their earnings expectations downwards for the upcoming period, and they do not anticipate the company will be profitable this year.

Investors should note that while the company’s cash position is strong, profitability remains a challenge. The market’s valuation of the company implies a poor free cash flow yield, which could influence investment decisions. For those looking deeper into 908 Devices’ financials, InvestingPro offers additional insights, with a total of 8 InvestingPro Tips available. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at Investing.com.

As 908 Devices continues to focus on market expansion and leveraging its product portfolio, these InvestingPro metrics and tips can help investors better understand the company’s current financial health and future challenges.

Full transcript – 908 Devices Inc (MASS) Q4 2023:

Operator: Hello, everyone, and welcome to the 908 Devices Fourth Quarter 2023 Financial Results Conference Call. My name is Seb and I will be the operator for your call today. [Operator Instructions] I will now hand the floor over to Kelly Gura, Invest Relations to begin. Please go ahead.

Kelly Gura: Thank you. This morning, 908 Devices released financial results for the fourth quarter and full year ended December 31, 2023. If you’ve not received this news release or if you’d like to be added to the company’s distribution list, please send an email to ir@908devices.com. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. Before we begin, I’d like to remind you that management will make statements during this call that are forward-looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward-looking statements in the press release 908 Devices issued today. For a more complete listing description, please see the Risk Factors section of the company’s annual report on Form 10-K for the year ended December 31, 2022, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only after the live broadcast March 5, 2024. With that, I would like to turn the call over to Kevin.

Kevin Knopp: Thanks, Kelly. Good morning, and thank you for joining our fourth quarter 2023 earnings call. We ended the fourth quarter with $14.4 million in revenue, up 23% from the prior year. Total revenue for 2023 was $50.2 million, up 7% from the prior year, with product and service revenue up 12%. I’m very pleased with how our team has continued to execute, stay focused on our customers, and deliver a solid close to the year. The variety in our product portfolio and our presence in multiple markets have been a strength and distinct advantage. Revenue from our handheld devices that serve the forensics market grew 28% in 2023 with consistent year-over-year growth each quarter. This growth significantly offset the macro headwinds that have pressured the life science instrumentation and bioprocessing markets which includes revenue from our desktop devices. While we expect these headwinds to continue in the near term, particularly in the first half of 2024, we are encouraged by three indicators. First, we saw an uptick in fourth quarter bookings, resulting in our best desktop bookings quarter since Q4 2021, helped in part by contributions from our new products, MAVEN and MAVERICK. A second indicator is that we generated 25% more opportunities in the second half of 2023 for our desktop devices compared to the first half of the year, helped in part by our new product launches. And third, we generated 50% more leads in the second half of the year than over the first half, helping us fill the top of our funnel. We saw strong demand for our handheld devices throughout 2023 and expect demand will continue this year as applications for chemical detection and identification at the point of need continued to gain traction in the US and internationally. We ended the year with 16 pilot accounts which have potential for more than 100 unit placements and 22 enterprise accounts which have potential for more than 1,000 unit placements, an increase of 25% year-over-year. Key drivers of handheld adoption continue to be significant level of ongoing geopolitical risk with conflicts in Europe and the Middle East, along with rising tensions in other areas such as in Southeast Asia with Taiwan. The ever-expanding fentanyl crisis is another key driver, including its unfortunate attempted use to disrupt elections with fentanyl being sent in the mail to election centers and officials. Between 2020, the year of our IPO, and 2023, revenues from our handheld portfolio have grown at a 29% CAGR, serving as a consistent contributor to top line growth. We finished 2023 with zero debt and a healthy cash balance of over $145 million. We remain laser focused on balancing prudent cash management with necessary spending to support our top line growth objectives. As mentioned during our call a year ago, we set a target to ensure that our 2023 operating expense growth was paced with our revenue growth, which I’m proud to say we achieved. Entering 2024, we intend to remain good stewards of our cash as we continue our push into underserved handheld and desktop market opportunities. Now I’d like to provide a bit more detail on the progress we have made across our three focus areas during the past year. Starting with our first objective, penetrate and radiate across key accounts. Our focus is to penetrate new accounts to create a foothold and then radiate across these accounts to drive broader enterprise adoption. For our handhelds, we steadily expanded our international presence and our MX908 device is now being deployed in 56 countries, up from 45 countries at the end of 2022. In 2023, 25% of our MX908 device sales were from outside North America, compared to 20% in 2022. We anticipate further growth in our international opportunities. In the fourth quarter of 2023 we were awarded a contract from DrugDetect EU, an innovative procurement project co-funded by the European Union for drug inspection in correctional institutions and prisons. The project requires detection solutions be available 24/7 to prevent delays to internal processes and it also mandates that solutions must be non-invasive and compliant with European data privacy laws. Our MX908 proudly meets these requirements. Our initial contract includes multiple devices for correctional facilities in Greece and Belgium. After personnel were trained on a unit at the Ghent prison, the Belgian Minister of Justice publicly noted that they now can use our device continuously to combat drug use in prison, removing the need to call in a police dog. We look forward to partnering with the Belgian Ministry as they deploy our MX908, as well as supporting the DrugDetect project more broadly across the EU. Closer to home, the ongoing fentanyl crisis shows no signs of abating. The US Drug Enforcement Administration, or DEA, seized more than 77 million fentanyl-laced fake prescription pills in 2023, up over 50% from 2021. DEA laboratory testing also showed that seven out of 10 pills tested contained a potential deadly dose of fentanyl, an increase from six out of 10 pills in 2022 and four out of 10 pills in 2021. To meet this overwhelming need, we continue to partner with state and local law enforcement agencies as they grapple with identifying and removing lethal counterfeit pharmaceuticals, often missed with fentanyl, from our communities. In August of 2023, we announced a pilot program with several Tennessee law enforcement agencies and drug task forces to enhance the speed and efficiency of the state’s drug identification process. The program’s primary objective is to decrease the quantity of illicit drug samples sent to central labs for testing, similar to our successful multi-year program in Ohio, which has resulted in significant reduction in evidence testing backlogs. The Tennessee pilot program began with an initial seed of eight MX908 devices, and we recently received an order for three additional devices in January of 2024, with more being planned this year. During 2023, we also made significant progress with a multi-year project for the United States Department of Defense. In conjunction with our partner of the project, Smiths Detection, we were selected to provide initial production of 122 portable aerosol and vapor chemical agent detectors, otherwise known as AVCAD. Our high-pressure mass spectrometry technology enables these next generation chemical detector systems which will support worldwide missions for the U.S. Military. This is also a precursor to a potential full rate production award in 2025 that has the potential of providing over $10 million of revenue per year. Turning to our desktops, we are excited about our progress in cell therapies as tools that provide real-time analytics are pivotal in helping manufacturers develop more robust and reproducible processes. In November we announced a collaboration with Terumo Blood and Cell Technologies to integrate our MAVEN device with Turumo’s Quantum (NASDAQ:) Flex (NASDAQ:) expansion system for real-time monitoring and control of glucose and lactate without the risk of manual sampling and with less labor. With MAVEN, lactate concentrations, which are highly correlated indicator of cell viability, can be continuously monitored to inform feeding strategies and when to harvest, both critical as they can vary patient by patient. Recently, we were thrilled to announce another collaboration with a leading cell therapy developer and manufacturer, Cellares, to integrate inline monitoring of key cell culture parameters. We are partnering with Cellares to adopt our MAVERICK in-line optical analyzer to be compatible with Cellares’ cell shuttle system, which is a fully integrated, scalable cell therapy manufacturing platform. The benefit of real-time monitoring allows for immediate corrective action, while maintaining sample integrity and reducing contamination risk. This collaboration, along with Terumo BCT, demonstrates the complementary nature of our new and existing capabilities when used alongside other cell therapy biomanufacturing enablers. According to recently released data from the American Society of Gene and Cell Therapy, the number of Phase 3 trials increased for the first time in a year. As 2024 is shaping up to be a pivotal year, particularly for CAR-T therapies, we are proud to partner with Terumo BCT and Cellares to further advance the efficiency, safety, and cost effectiveness of these life-saving cell therapies. Turning to our second objective, advancing and broadening our product portfolio. Our product strategy is to develop devices that are simple to use and that provide customers with robust answers at the point of need. We continue to enhance the value of our flagship handheld device with software and hardware accessories that provide our customers with additional capabilities. Last year we introduced the MX908 beacon for remote area monitoring of toxic aerosol and vapor hazards. Beacon leverages our MX908 device and aero module and adds a cloud-based solution that enables first responders to gather intelligence remotely and continuously, while ensuring public safety at large events and a key infrastructure. In November, our MX908 beacon was awarded a Gold Astors Homeland Security Award from the American Security Today for best CBR&E detection solution. In 2023, we significantly advanced and broadened our bioprocess portfolio with the launch of two devices. In January, we launched MAVEN, our first online device that connects directly to the bioreactor, providing real-time monitoring and control of glucose and lactate in cell culture and fermentation processes. With its novel aseptic sampling probe, MAVEN enables cell-free, sterile, and safe sampling with no volume loss or prep required. Later in September, we launched MAVERICK, the first turnkey device that utilizes Raman spectroscopy for real-time in-line monitoring and control of multiple bioprocess parameters, with no modeling or development required. As an in-line device, MAVERICK is directly connected to the bioreactor, enabling scientists to take immediate corrective actions that improve product quality and process efficiency. We were honored that the analytical scientists named MAVERICK one of the top 15 innovations in 2023. MAVEN, MAVERICK, and our REBEL cell culture analyzer enable process scientists to monitor and control critical process parameters and our ZipChip interface enables scientists to measure critical quality attributes. Taken together, we now have a complementary suite of PAT desktop devices which we plan to use to deepen our engagement with BioPharma customers this year and position us advantageously to seize opportunities as the current macro headwinds subside. And finally, turning to our third objective, laying an omics foundation. There’s a clear need for accelerating mass spec-based workflows to address proteomic and metabolomics opportunities. We believe our ZipChip device, along with our prototype microfluidic chips, can ultimately meet this need for speed. During the fourth quarter there were several peer-reviewed articles published in scientific journals that noted the speed of our ZipChip device for high resolution separations. And here are a highlight from two articles. In a publication in the Journal of Analytical and Bioanalytical Chemistry, scientists from Ireland’s National Institute for Bioprocessing Research and Training, or NIBRT, highlighted the use of ZipChip for rapid characterization of AAV capsid proteins, with runs performed in as little as five minutes. Researchers concluded that ZipChip’s rapid characterization illustrates its strength in monitoring product quality during AAV production. In a publication in the Journal of American Society for Mass Spectrometry, scientists from Amgen (NASDAQ:) employed our ZipChip technology to enable rapid intact mass analysis of oligonucleotide single strands. Baseline separation of equal length oligos was achieved in less than four minutes compared to run times of 15 minutes with LC/MS analysis. In addition, with ZipChip, no method development nor ion pairing reagents are required. Overall, I’m pleased with the progress we made on our stated objectives in 2023, including the launch of two devices in the process analytical technology space and the continued penetration of our handheld and enterprise accounts. With that, I’ll now turn the call over to Joe for more details on our financials.

Joseph Griffith: Thanks, Kevin. Starting with our fourth quarter results, revenue for the fourth quarter 2023 was $14.4 million, up 23% from $11.6 million in the prior year period, primarily driven by an increase in handheld device revenue. Handheld revenue was $11.1 million for the fourth quarter 2023, up 57% from $7.1 million for the fourth quarter 2022, primarily related to an increase in device sales, with 116 MX908 handheld device shipments in the fourth quarter. Desktop revenue from our products serving the life science, instrumentation, and bioprocessing markets for the fourth quarter 2023 was $3.2 million, down 2% from $3.3 million in the prior year period. This included five ZipChip interfaces, three REBEL, 10 MAVEN, and five MAVERICK device shipments. As a reminder, starting next quarter we will no longer break out placements by device. We’ll focus more on overall revenue and combine desktop placements as the key metrics for growth for our broadening desktop portfolio. We exited 2023 with a cumulative handheld and desktop install base of 2,853 devices, up from 2,385 exiting 2022. Recurring revenue, which consists of consumables, accessories, and service revenue, represented a third of total revenue in the quarter, and was $4.7 million, a $1.2 million decrease over the prior year period. This decrease was driven by a decline in handheld accessory and consumable revenue, offset in part by growth in service revenue. As a reminder in the prior year period, we had $2.2 million in recurring revenue from a large enterprise order with the U.S. Army. Gross profit was $7.3 million for the fourth quarter of 2023, compared to $5.9 million for the prior year period. Gross margin was 51% for the fourth quarter 2023, consistent with the prior year period. For the fourth quarter of 2023, product and service gross margin improved to 51%, compared to 46% for the prior year period, which helped to offset $1.2 million of favorable gross margin from contract revenue in the prior year period. Total operating expenses for the fourth quarter of 2023 were $17 million, compared to $16.3 million in the prior year period. This increase was driven by stock-based compensation and an increase in commission expenses related to handheld revenues, offset in part by a reduction in G&A expenses. Net loss for the fourth quarter of 2023 was $7.4 million compared to $9.8 million in the prior year period. Now moving on to our full year results. Total revenue for the full year 2023 was $50.2 million, up 7% from $46.9 million in 2022. This was primarily driven by an $8.3 million increase in handheld revenues, offset by a $3 million decrease in desktop revenues and a $2 million decrease in contract revenues. Total 2023 product and service revenues were $49.9 million, up 12% from $44.5 million in 2022. Handheld revenue was approximately $37.9 million for the full year 2023 compared to $29.5 million in the prior year period, representing growth of 28% year-over-year, primarily driven by an increase in device sales. Desktop revenue was $12 million for the full year 2023, a 20% decline compared to $14.9 million in the prior year period, as customers remain cautious in their capital expenditures. Recurring revenue for the full year was a third of product and service revenue and was $16.5 million compared to $15.7 million in the prior year period, representing growth of 5% year-over-year. Recurring revenue growth was driven primarily by strong service revenue, which grew to 38% year-over-year, offset in part by $3.5 million in recurring revenue from a large enterprise order with the U.S. Army in the prior year period. Looking ahead, we expect recurring revenue for our product portfolio to continue to be around a third of product and service revenue for the full year 2024. Gross profit for the full year 2023 was $25.3 million as compared to $26 million in the prior year period. Gross margin was 50% for the full year 2023 as compared to 56% for the full year 2022. Product and service growth margin was 50% for the full year 2023, as compared to 54% for the prior year period. The decrease in product and service growth margin was driven primarily by an increase in spending to reach scale within our operations and service functions, a temporary increase in the use of third-party contractors to train customers on our MX908, and a $0.6 million increase in non-cash stock-based compensation and intangible amortization. As we look ahead to 2024, we expect our gross margins to continue to be in the low 50s due to the impact of pricing, higher material costs, and overall product, service, and channel mix. Operating expenses for the full year 2023 were $68.1 million as compared to $61.4 million in the prior year period. This increase was driven primarily by a $3.3 million increase in salaries and related costs and a $2.3 million increase in stock-based compensation, partially offset by a reduction in G&A expenses. Net loss for the full year 2023 was $36.4 million, compared to $33.6 million in the prior year period. We ended 2023 with $145.7 million in cash, cash equivalents and marketable securities with no debt outstanding. In 2023, we consumed $43 million, which includes $15 million used to pay off debt and $1 million used to pay contingent consideration for our prior acquisition. We enter 2024 with a strong cash position and zero debt, which we believe provides a multi-year runway to support our long-term growth objectives. Looking ahead in 2024, we expect revenue to be in the range of $52 million to $54 million, representing growth of 4% to 8% over a full year 2023. This range presents a balanced view of several factors. First, while Q4 had some indicators of positivity for the life science, instrumentation, and bioprocessing markets, we’re assuming the pressures we saw throughout the year will persist through at least the first half of 2024. Second, despite these headwinds, we anticipate a step up in total desktop device placements during 2024, with rising contributions from newer products throughout the year as they progress through customer evaluations. And finally, we expect continued strength in our handheld devices, which serve the forensics market to bolster our overall growth as we continue to navigate a challenging macro environment for our desktops. As a result of these factors, taken together with delay in passing fiscal year 2024 US Federal budget, we expect revenue for 2024 to be slightly more weighted to the second half compared to prior years, with an expected split of roughly 40% in the first half and 60% in the second half. Each year, we typically see a step down from Q4 to Q1 due to the seasonality of year-end budget cycles. This year we expect that to be even more pronounced, largely due to the delay in the passing of the federal budget and the strong performance of handhelds in the fourth quarter of 2023. At this point, I would like to turn the call back to Kevin.

Kevin Knopp: Thanks, Joe. We view 2024 as a transitional year for 908 Devices. We expect solid growth from our product serving the forensics market and overall revenue growth to accelerate throughout the year as the headwinds in the life science instrumentation and bioprocessing market begin to subside. With this anticipated improvement, we are well positioned to capture the opportunity in this market with an expanded product portfolio. We are confident that with an improved macro environment, we’ll be able to return to robust double-digit growth in 2025, which will solidify a path to profitability with our existing cash reserves. To get there, we are laser focused on three key areas for 2024. First is market expansion. Our focus here will be on broadening our market presence by actively engaging with new key accounts and developing strategic partnerships, while also expanding our reach across global enterprise accounts. In 2023, we saw an increase in the pipeline of opportunities for our handheld devices with a 25% increase in enterprise potential. Given the strong growth of our handhelds in forensics, we will invest in areas where we believe we can drive higher growth, both domestically and internationally, and explore ways to further leverage our sales and marketing channel. Additionally, planned increases in NATO defense spending and spending in the Middle East are expected to have a positive impact. For our desktop products, we are working to introduce MAVEN and MAVERICK into advanced therapeutic modalities, establishing a presence with design wins, and strategic relationships with innovators in the cell therapy space. A second area of focus will be to leverage our expanded product portfolios to maximize opportunities and strengthen customer engagements. Our PAT portfolio now includes at-line, online, and in-line analysis capabilities, providing real-time analytics for our customers. This has led us to being increasingly viewed as partners in the cell culture analysis for biologics and cell and gene therapy applications, enabling broader conversations and ultimately larger potential. With all the necessary desktop products in place to address near-term opportunities, we are being selective with our R&D investments, focusing on incremental rather than next generation advancements in 2024. And finally, we will execute a framework for sustained growth with the path to profitability. Our year-over-year operating expenses, excluding stock compensation are projected to remain flat in 2024, with R&D spend tempering now that major product launches of 2023 are complete. We are committed to reaching profitability with our existing cash reserves, and this path will be solidified as we return to robust double-digit growth rates in 2025. I look forward to updating you on our progress across each of these initiatives throughout the year. With that, we’ll now open it up to questions.

Operator: Thank you. [Operator Instructions] The first question comes from Puneet Souda from Leerink Partners. Please go ahead.

Puneet Souda: Hi, Kevin, Joe. Thanks for taking my questions. So first one is a demand question tied to the guide, actually. You have more products than ever before as a company with a number of launches and PAT. So just help us understand, as we look at 2024, when you look at the funnel, what gives you more opportunity, what gives you more excitement in terms of adoption of these products? And what are you hearing from the field today in terms of REBEL, MAVEN, and MAVERICK products gaining more adoption and sort of contributing? I’m simply asking that because, when we look at the bioprocessing industry, we are seeing some signs of recovery, but your products are very nascent still in this marketplace. So I just want to get a more nuanced view there if I could.

Kevin Knopp: Yes, absolutely. Thanks, Puneet. You’re right. I mean, we feel very happy that we’ve been able to expand our set of products and kind of go from a one product to a complete strategy of PAT products spanning at-line, online and in-line capabilities and with that it gives us a range of price points that are accessible to a customer, a range of capabilities from, call it, more the bread and butter analytes, glucose and lactate, all the way through to a very comprehensive panel with our REBEL at-line analyzer. So I think one of the things we’ve been seeing from that is across the board, despite this environment, we’re engaged now and being viewed more as a bit of a as a partner in cell culture analysis and really driving conversations perhaps at more of a senior strategic level within these accounts which I think ultimately is going to lead to more potential on it. More specifically, I think we’re seeing MAVEN and MAVERICK get some keen interest in biologics, but also some cell therapy areas, and then REBEL as well, in the biologics space predominantly, but interest there as well in the cell therapy space.

Puneet Souda: Okay. That’s helpful. And of — if I can follow up on MX908, could you talk about the sort of the puts and takes here. It seems like there is a significant interest, just given the political uncertainties, war and other situations and as well as fentanyl crisis. It seems like the need for such a product is strong. But can you maybe take us through sort of the puts and takes, what we need to consider, what could drive expectations towards your higher end of your expectations versus towards the lower end, what are some of the puts and takes there? Appreciate it. Thank you.

Kevin Knopp: Sure, you’re right. I mean, we definitely saw a strong demand for our handhelds over 2023, and we do expect that to continue through this year. And you’re right, that application of trace chemical detection identification distributed at the point of need. It continues to get traction for us in the US and international. Robust need drivers that we did point out in the script, but significant levels as you read in the news every day of geopolitical risk across Europe and Middle East. And then, of course, the fentanyl crisis is not abating, unfortunately, there and it just continues to rear its head in a broader way. So we had some items in the script and in the prepared remarks there, but around seeing more and more adoption internationally. We’re seeing larger deals developed internationally. We’ve seen good growth overall since the IPO. So really a 29% CAGR we’ve seen over the time between 2020 and 2023. And likely not the same growth level of 28%. We saw this there, but meaningful opportunity as we put out today in the guide.

Joseph Griffith: And maybe to tie together, both on the desktop side and the handheld side. As we think about 2024, our desktop growth that’s expected to be more variable than the handheld growth for reasons we called out in the remarks. With rising contributions from those new product launches, we are expecting desktop growth to rebound into positive territory in 2024. So we’re encouraged, we’re seeing some of those positive indicators and anecdotes that things are moving in the right direction. With the Q4 and product adoption, it was solid. Our base case does assume that the desktop spending shows gradual improvement during 2024. So on the whole, this year we expect 2024 to be better than 2023, likely not a material step change, but steady market improvement. And if recovery trends are better than expected, and we see a case for accelerating desktop growth in the second half of the year, maybe towards the double digit range. But as a reminder, desktop revenues really is about 24% of our total 2023 revenues. And over the years, this number should rise and then over the next two years, but today handheld really remains our meaningful contributor. And on that handheld side, we have delivered the consistent growth above levels in the traditional lab mass tech market and grown 14% CAGR over the last two years. Maybe a few factors in play for 2024 relate to that growth, $2 million year-over-year step down in AVCAD [LREC] (ph) revenues anticipated in the guide, which translates to roughly a 5% drag on our handheld growth. And we await the potential full rate production award as early as 2025 for AVCAD. There’s a bit of a gap in 2024. For 2024, the delays in the US federal budget will remain the — pressuring our handheld revenue growth. We see an opportunity to recapture the maybe Q1 weakness throughout the remainder of the year. So we do expect our 2024 handheld revenues to be in the kind of mid-single digits in the guidance range that we shared today.

Puneet Souda: Got it. That’s helpful, guys. Thank you.

Kevin Knopp: Welcome.

Operator: Our next question comes from Dan Arias from Stifel. Please go ahead.

Daniel Arias: Good morning guys, Thanks for the questions. Joe, maybe just digging into Kevin’s comments there and your comments there on bioprocess. When we look at the guide for the year, the $52 million to $55 million that you’re talking about, and we try to sort of impute some placement trend across the year for REBEL, can you maybe just talk about how the year might start versus finish on REBELs if we were to sort of get to the middle of that range? And then did I hear you right when you said desktops might step up this year? Kevin, the rebound that you mentioned, does that refer to instrument revenues for REBEL, MAVEN, and MAVERICK relative to 2023? I just want to make sure I clarify the way in which you’re thinking about 2024 over 2023.

Joseph Griffith: Yeah, I think a few different pieces there, Dan. Yes, we did reference to stepping up throughout the year, we see some continued pressures here in Q1 and Q2 on placements on the device side, both with kind of our ZipChip and REBEL devices, but also the timing of some of the new product adoption and placements on MAVERICK and MAVEN, especially with MAVERICK as we start to get the evaluations out there with the customers. It may take a few weeks. We’re excited by some of the conversations we’re having with MAVERICK, but the timing is probably Q3 and back half. So seeing some of that accelerated growth as we go throughout the year, more in the back half on the bioprocessing of products is assumed in the $52 million to $54 million range.

Daniel Arias: Okay. And then just on the handheld side and the funnel that you highlighted, what are you looking at in terms of a mix of bigger enterprise deals versus smaller ones, 10 to 20 system deals? Just trying to think about how the order book could build if we put it in sort of baseball context and think about triples and home runs versus singles.

Kevin Knopp: Yeah, I think, Dan, it’s a good mix. I mean, when we think of our funnel, we think of it as the smaller opportunities called pilots. We’ve got a hundred plus units in that stage of the funnel and that’s across 16 accounts up a bit from 2022 and then our enterprise accounts has expanded about 25%, so those are the larger deal opportunities that you spoke of that that could be those 50 unit large or an addition to a previous large opportunity. What I think it’s been really great to see is that, while we’re always going to be dependent on some larger opportunities for a given year, we’re also seeing more diversity in the pipeline develop. That’s across the state and local accounts where you might see opportunities now that aren’t just a single unit, but could be a high handful or a bit more in some unique cases. But then internationally, we’ve seen us progress from about 20% of sales last year outside of North America, and — sorry, for 2022, and then for 2023, about 25% of sales. And importantly, if you dig into that a little bit more, we’re just seeing that diversity in the size of those opportunities, seeing more larger opportunities develop outside North America as well. So I think we’ve got a healthy mix there, but we are dependent on large deals as well.

Daniel Arias: Okay. Thanks so much.

Operator: Our next question is from Jacob Johnson from Stephens. Please go ahead.

Jacob Johnson: Hey, thanks. Good morning, guys. Maybe starting with a question on the cell and gene therapy side, I’m just curious, you’ve got two partnerships, Terumo is using MAVEN, Cellares is using MAVERICK. I’m just curious why they’re using different instruments, maybe it’s different unit operations, but I’m curious about that. And then maybe two, as we think about that market, how do you think of the opportunity for MAVEN versus MAVERICK, kind of the greater opportunity in cell and gene therapies?

Kevin Knopp: Yes, I’d be happy to cover that. I was super excited to announce another collaboration there with the leading cell therapy developer and manufacturing Cellares, being very integrated and bringing them in line monitoring of some of these key cell culture parameters and lots of potential we believe in that space and getting designed in and partnered or co-marketed or otherwise connected to these leading innovators in the space, including Cellares and Terumo and others we’re working on, but we haven’t yet announced. We’re super excited about that. As you know, there’s a lot happening in the field at this time, and we believe we’re bringing a strong value proposition across our set of products, including for our online and in-line connected where you’re doing real time monitoring without the risk of sampling and with reduced labor. And that benefit allows for immediate corrective action and maintain sample integrity and reduce risk contamination. So lots of value there. In the case of MAVERICK, really looking to be compatible with their cell shuttle system and be fully integrated and be a scalable platform forum. Obviously it’s quite an automation product that they’re developing there. And MAVERICK with its scalability of today, a couple of key process analytes, but also some attributes. And then they open backend for people to do their own modeling and machine learning and other algorithm development on it. It’s a broad set of capabilities, but the price point is different than MAVEN. The price point is more in the $100,000 versus in the $25,000, $30,000 range for our MAVEN. So MAVEN brings the glucose and lactate measure maybe more direct and applicable to a lower CapEx deployment where this could be more mated with that. So I think it also brings those same attributes, but it’s more enzymatic based and it’s just a compliment across that portfolio. So I think there’s a lot of good things there that are being developed. We’re also, of course, continuing our efforts on our REBEL development. We are continuing to make sure that we’re throttling and managing our R&D expenses, but we’ve also made great progress there over the last years as part of that portfolio build out. And REBEL and its future versions, including the online version, are very important to us. We’re not currently planning to launch our online-capable REBEL this year, in the year 2024, because we really want to meet the market where it’s at. We do have online capabilities of REBEL connected in our in-house fire reactors and fermenters, and we’ve been selectively showcasing that to customers, and some of those customers are seeking to engage and put it in their labs for 2024. But we really do feel that with MAVEN and MAVERICK and that broader set of products, we have everything we need in place with near-term opportunities, and we are being selective with our R&D, and we’re a little more focused on the incremental rather than next generation advancements for 2024. But lots of continuous progress across the products with REBEL included and the 2024 model of the REBEL is definitely a more capable and broader machine that addresses just analytics, data analysis, more than our first incarnation. So we’ll keep that up.

Jacob Johnson: Thanks for that Kevin. You managed to answer my plain follow-up. So maybe go to a different direction then. Joe, when you talked about the gross margin outlook this year, I heard you mentioned kind of pricing as part of that. Maybe here’s kind of your thoughts on how you’re thinking about pricing this year?

Joseph Griffith: Sure. I’m going to touch on a few different things on gross margin, but specifically on pricing each year. We look at the market and we have implemented price increasing here in 2024 to try to offset some of the inflationary impacts. But as we kind of look back on gross margin, we had some pressure on gross margin in the fourth quarter and in 2023 as a whole. A piece of that was an increase in spending to each scale within our operations and service functions. And that was really despite some higher revenues and the cost to deliver the revenue, service personnel, contract trainers, materials, they all increase. We also saw a temporary need and increase in our third-party contractors to train our customers on the MX908. As we saw, the increased demand for the use of the device, we’re working to reduce the number of contract trainers we use going forward. I mentioned $0.6 million in non-cash stock-based compensation and tangible amortization as a driver, and that’ll — at least the non-cash stock count will increase a bit in 2024, so we get to our fourth year of being public. There are probably two other elements within our product gross margins about $0.5 million in higher materials and supplies on warranty obligations during 2023 and about $300,000 in higher provisions for excess and obsolete materials as our products progress and iterate through the years. Pricing is definitely helping [Multiple Speakers] we also have some headwinds across the board.

Jacob Johnson: Got it. Thanks for taking the questions.

Kevin Knopp: Welcome.

Operator: The next question is from Matt Larew at William Blair. Please go ahead.

Matthew Larew: Hi, good morning. Kevin, I wanted to ask you, you reference Terumo and Cellares, but you’ve had a partnership with Sertorius here for some time selling MAVEN. So just want to make a sense for how that has progressed perhaps as a way for us to gauge how these newer partnerships might progress as well.

Kevin Knopp: Yes, absolutely. We do very much enjoy our partnership with Sertorius. We do have a previous generation of the MAVEN product that’s for sale through that channel and that’s been a good relationship. We’re continuing to see that for glucose control and really kind of part of their system to allow a full offering to a customer, to a large farmer for biologics in particular. And need there is across from the small volume bench top bioreactors all the way up to pilot scale and beyond. So we’re very much engaged working with them and developing a successful partnership there. And as you know, we do have Sartorius Korea as part of our distribution channel for that defined unique territory where they’ve got a very, very strong footprint. In that case, they’re representing as a distribution partner for us our MAVEN, our MAVERICK, and our REBEL products.

Joseph Griffith: Yes, I just maybe add that on the Sartorius side, they’ve been a great OEM partner and kind of collaborator and a proof point for the technology. And we look for those not only on the desktop side, but across on the handheld side too, as far as different ways to get our product in the market. AVCAD is an example of that on the handheld side. And we’ll look for ways to enable that in the future. We have a really talented sales team across the board, especially on the government side, and we’ll look to utilize where we see technology to be able to plug it in and get more top line contribution.

Matthew Larew: Okay, And then, Kevin, you gave some data points in the prepared marks around bookings and leads generated in the second half versus the first half of the year. [indiscernible] comment you can give on what the composition of those leads are, both from a product perspective in terms of the influence of new products, but perhaps also from a customer perspective in the sense of existing manual customers either with REBEL or another product to or you’re now have an opportunity to build the desktop ecosystem versus perhaps new customers who were particularly attracted to one of the products that you launched last year?

Kevin Knopp: Yes, absolutely. I can give you some more color on that. Happy to. If you think first from the bookings and where we landed for Q4 shipments of the new desktop devices, MAVEN and MAVERICK were absolutely key drivers to that uptick that we spoke of there in the Q4 desktop bookings and took it to be the largest booking quarter we had since Q4 2021. MAVEN, of course, was really just launched in January of 2023, and Q4 did represent its best quarter since launch. That being said, we had some favorable timing there, right, because as Joe had mentioned previously in an answer that you really see as you launch a new product, you get some additional placements, you work through customer evaluations and then you see that revenue uptick and we saw some of that happening with our MAVEN and then we also had our MAVERICK, our first shipments of MAVERICK occur in Q4 to customers and partners, distributors there, those adoptions. And then recurring revenue was also strong, we saw across the board, both in large pharma accounts that have been established users for say a REBEL product there as a big driver, but also in some newer customer adoptions there. So we had at least a couple of, call it, $50,000 to $100,000 consumable kit orders by large pharma customers, and that’s kind of in that 12 to 24 kits to be delivered throughout the year. So we do expect that as we’ve seen in past years, but we did like to see that again. And our installed base really just continues to build across the board there and gaining some visibility into service and desktop consumable sales here. But with the launch of MAVEN and MAVERICK, now with the REBEL analyzer device replacements are still our priority, but it is nice to see some of those consumables or service recurring elements contributing to our Q4 bookings. From a distribution of customers, if I look back at our desktop sales over the 2022 and 2023, the bulk of it is into the biopharma biotech customer space. We have less penetration in the academics, government and CDMO, CRO space. So I would say we’ve got about 50% to 70% in that biopharma biotech space and maybe only 15%, 20% in the academics. And where we have seen some increases would be really more in the life science suppliers, media providers, and importantly, some of the things we touched on, the Sartorius relationship, the innovators in bioprocessing equipment for biologics and cell and gene. So as we become part of other systems or do more of these partnerships, likely that will continue.

Steven Mah: Okay, thank you.

Operator: [Operator Instructions] And we have no further questions on the call, so I will hand the floor back to Kevin to wrap up.

Kevin Knopp: All right. Well, thank you all for your time and we appreciate you tuning in today and look forward to giving you further updates as we progress across 2024. Thank you.

Operator: This concludes today’s conference call. Thank you all very much for joining. You may now disconnect your lines.

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