908 Devices Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the 908 Devices First Quarter 2023 Financial Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, May 9, 2023.

Speaker 1

Thank you. This morning, 908 Devices released financial results for the Q1 ended March 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 ir908devices.com. Joining me today from 908 is Kevin Kanop, Chief Executive Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward looking statements in the meaning of federal securities laws.

Speaker 1

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 list and description, please see the Risk Factors section of the company's annual report on Form 10 ks for the year ended December 31, 2022, and its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast, May 9, 2023.

Speaker 1

With that, I would like to turn the call over to Kevin.

Speaker 2

Thanks, Joe. Good morning, and thank you, everyone, for joining our Q1 2023 earnings call. I'd like to start off by thanking our team for their hard work and dedication as we continue to demonstrate encouraging process across our business. Our 1st quarter revenue increased 14% year over year to $9,500,000 and replaced 78 devices, bringing our installed base to more than 2,400 devices. Notably, we saw continued strength in recurring revenue, which grew 67% over the prior year period.

Speaker 2

We're pleased to see this increasing need for accessories, consumables and service as it demonstrates that our customers truly value analysis at the point of need. Overall, I'm pleased with our execution given the continuing challenges within the bioprocessing space. Importantly, our technology is broadly extensible with applications across different end markets. Our handheld products are serving critical forensics market applications, including the devastating rise Counterfeit Pharmaceuticals. We view the diversity of our end markets as a key advantage.

Speaker 2

I'm confident in our long term trajectory and feel we are doing the groundwork needed for both near term and long term success. We are uniquely positioned to both capture the bioprocessing opportunity in front of us, while executing with our handheld devices. In January, we started the year off with the launch of our first online device Maven that provides real time monitoring and control of glucose and lactate in cell culture and fermentation processes. Maven is a complement to our Rebel device and a precursor to Rebel online. We are encouraged by the feedback we have been receiving from prospective customers and the increasing opportunities we've seen in the funnel over the past few months, particularly in the cell therapy space.

Speaker 2

Maven adds to our growing portfolio of desktop products for process analytics. Now I'd like to provide you a brief update on the progress we have made across our 3 focus areas for 2023. 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 of the company's leading account to drive broader enterprise adoption. For our handhelds, we continue to expand our international presence.

Speaker 2

Last year, we received our NATO stock number, which was a significant step in facilitating the procurement process for our MX-nine zero eight device. We now have a purchase vehicle in place, which is valid for up to 5 years and provides NATO member states and 4 additional countries with the ability to purchase up to approximately 80 units in a streamlined fashion. With this in place, we've already seen a handful of units purchased and look forward to growing international adoption. We are proud to receive this designation for the MX908, which is becoming recognized as a standard bearer for handheld chemical detection and identification. We also received additional MX-nine zero eight orders for use in Europe and the Middle East during the quarter.

Speaker 2

The U. S. State Department, an existing customer, purchased several units intended for use in Ukraine. The Customs and Border Agency in Saudi Arabia purchased multiple units primarily for narcotic detection and identification. We are pleased with the traction we're gaining internationally along with the broader adoption within our enterprise accounts.

Speaker 2

Closer to home, In January, the Ohio Attorney General's Office announced the expansion of the MX-nine zero eight program in Southeast Ohio. This is the final region in the statewide rollout, which began in October of 2021. In the announcement, Attorney General Dave Yost noted that MX-nine zero eight has the potential to revolutionize how drug testing is done in Ohio. We value our partnership with the Ohio Attorney General's Office, and we are working to replicate the success across other states as the need remains substantial. We believe programs like this would be impactful in every single state across the United States.

Speaker 2

In fact, today is National Fentanyl Awareness Day, a day dedicated to raising awareness about the danger to fentanyl, most often found in counterfeit pharmaceuticals. According to the CDC, fentanyl is involved in more deaths of Americans under 50 than any other cause of death, including heart disease, cancer and all other accidents. And just last month, the Biden administration declared Fentanyl mixed with Xylazine as an emerging threat in the U. S. Fortunately, as we work closely with first responders who identified Xylazine as a growing concern early on, we added this analyte to our MX908 device software nearly 3 years ago and our customers have fueled the capability now to deal with this issue.

Speaker 2

This is a great example as how additional value is unlocked for our customers with our continuous service and support offerings. We will continue to ensure our handheld device provides our customers with rapid of Actual Answers enables them to keep our community safe as the fentanyl crisis evolves. For our desktops, We've been working over the quarter to engage potential additional OEM partners, bioreactors, cell expansion systems and integrated cell therapy platforms. The aim being to add online analytics to their systems for real time monitoring control of key process parameters such as glucose and lactate throughout the cell therapy process from process development through clinical manufacturing. The value proposition is clear.

Speaker 2

Online analytics enhances process understanding as well as reduces the risk of contamination and saves operator time as technicians no longer of need to enter the clean room to perform manual sampling. Turning to our second objective, advancing and broadening our product portfolio. Our core mission is develop devices that are simple to use, smart by providing customers with robot answers at the point of need and connected for improved process understanding. 1st responders need to be equipped with devices that provide them with answers where and when they need it. To that end, we continually add analytes to our MX908 software.

Speaker 2

In the Q1, we released version 3.4 that added 4 additional analyte targets. We also released the Core Clear and Charge Station, a maintenance accessory that improves the device's usability and maximizes its uptime. As previously mentioned, we have created an interface control protocol to make it easy for our handheld to be integrated into new ecosystems such as robots, drones and other related workflow equipment. We recently supported Dual Draw's integration of MX908's aerosol and vapor detection capabilities with their downdraft technology to enable a mail screening platform that protects operators and allows them to safely perform inspection and packages. This is a great example of how the MX-nine zero eight can help expand the reach of critical chemical detection and connect to a broader set of users.

Speaker 2

For our desktops, We released a data analysis tool for our Rebel device that is built on the jump statistical software package. Raw data from the Rebel can quickly and easily be visualized of depletion or accumulation trends over the course of time within a bioreactor and facilitating adjustments to the FEED strategy. To that end, as previously noted, we are collaborating with UK based Centre For Process Innovation or CPI to optimize cell culture media and beating strategies in small volume fed batch bioreactors through process scale up using a REBL and now Maven devices. Using Rebol, daily detailed amino acid data was generated for both AMBER 15 and 250 runs of and the data was analyzed using Rebel's new data analysis software tool. By adding in depleted essential amino acids along with low levels of food media, CBI scientists achieved a meaningful titer increase while keeping toxic metabolites low and maintaining a high cell viability.

Speaker 2

With Maven, scientists were able to implement a continuous control strategy for glucose, which is highly desirable to achieve healthy growing conditions. Taken together, REBL and Maven enable process development scientists to optimize titer and cell growth, while preventing accumulation of toxic metabolites that can negatively impact protein CQAs. Biopharma Manufacturing Company Resilience has adopted the REBL analyzer to inform and optimize cell culture feed strategies in perfusion bioreactors. In a monoclonal antibody expressing cell line, Resilience Process Engineers demonstrated a 50% increase in titer while reducing costs of goods by adding back only the nutrients that cells deplete in. Of Cell culture media and feed costs are significant in the perfusion process, while at line media analysis, resilience can now of and accelerate biotherapeutic development to optimally reduce cost of goods and time to submission.

Speaker 2

Our Zip Chip CE mask spec, which is a complement of our Maven and Revel devices, is an offline device used for monitoring key process parameters and for rapid characterization of multiple product critical quality attributes or CQAs. This fast separation method was highlighted in a new paper published in the Analyst, a Royal Society of Chemistry Publication. In this paper, Amgen researchers used our Zip Chip device to separate and characterize bispecific antigen binding biotherapeutic fragments within 12 minutes or less and with higher resolution and better sensitivity than traditional LC MS methods. Similarly, in a webinar hosted by LCGC, Scientists from Ireland's National Institute For Bioprocessing Research and Training, or NIBERT, presented on how our Zip Chip TEMS device accelerates peptide mapping workflows for analysis of MAD critical quality attributes. NIBERT scientists noted that Zip Chip provides robust determination of important quality attributes in less than 20 minutes, which provides a faster alternative to more standard LC MS approaches that can take hours.

Speaker 2

As these examples illustrate, our devices are providing our customers with robust and real time analytics that enable them to improve product quality and process Efficiency. And finally, turning to our 3rd objective, laying an omics foundation. We see a clear and emerging need for accelerating mass spec based workflows to address proteomics and metabolomics opportunities. At the U. S.

Speaker 2

HUFO conference in March, Doctors Will Thompson and Scott Millers of 908 Devices presented a poster and lightning talk titled Double Your Fun, High Throughput Multiomics Using Microchip Capillary Electrophoresis, which utilize Zip Chip for metabolomics and our prototype SPE enabled chips for proteomics on Thermo Scientific's EXPLORIS mass spectrometers. Doctor. Thompson, in collaboration with Duke University researchers, will expand on the investigation into multiomics in his oral at the American Society For Mass of the Charlevy Conference or ASMS in June. This talk will show how our prototype microfluidic chips enabled independent metabolomic, peptidomic, plus top down and bottom up proteomics from a single sample continue 20 microliters of dried blood. Also at ASMS.

Speaker 2

We are presenting a record 19 posters with collaborators from key research institutions, biopharmaceutical companies and mass spec vendors. We look forward to discussing these highlights and takeaways on our next earnings call. With that, I'll turn it back over to Joe for more details on our financials.

Speaker 1

Thanks, Kevin. Revenue for the Q1 of 2023 was $9,500,000 compared to $8,300,000 in the prior year period, representing an increase of 14% over the prior year period. Handheld revenue from our MX-nine zero eight product for the Q1 of 2023 was $6,200,000 an increase of $1,700,000 compared to $4,500,000 in the prior year period. We shipped 62 MX908 handheld devices during the Q1. The increase in handheld revenue was primarily driven of an increase in the recurring revenue for our MX-nine zero eight devices, both service and accessories.

Speaker 1

Desktop revenue primarily from our Rebel, Zip Chip Interface and Maven products for the Q1 2023 was $3,100,000 a 13% decrease from $3,600,000 in the prior year period. We shipped 4 Rebel, 6 Zip Chip interfaces and 6 Maven devices during the quarter. We'll continue to break out placements by device in the near term. However, as our portfolio broadens, we'll focus more on overall revenue and combined desktop placements as the key metrics for growth. The decline in desktop revenue was primarily due to a decrease of device placements year over year.

Speaker 1

We were encouraged to see the uptick in recurring revenues demonstrating the value that our devices bring to our customers. Recurring revenues consisting of consumables, accessories and service revenue for the Q1 of 2023 increased 67% to $4,200,000 compared to $2,500,000 in the prior year period. The increase in recurring revenue was primarily related to higher service revenue and higher handheld accessory and consumable revenue, including the Aero module. Notably, recurring revenue as a percent of total product and service revenue has increased from 31% in Q1 2022 to 45% in Q1 2023. Gross profit was $4,400,000 for the Q1 of 2023 compared to $4,100,000 for the prior year period.

Speaker 1

Gross margin was 46% for the Q1 of 2023 as compared to 50% for the prior year period. The decline in gross margin was largely due to lower device production builds and higher non cash charges for stock based compensation and intangible amortization during the Q1 of 2023. Total operating expenses for the Q1 of 2023 of $17,400,000 compared to $13,700,000 in the prior year period. This was driven by an increase in personnel related costs from the impact of headcount added throughout 2022, as well as a $800,000 increase in stock based compensation and a $300,000 increase and acquisition related costs for intangible amortization and valuation of contingent milestones. Net loss for the Q1 of 2023 was $12,500,000 compared to $9,400,000 in the prior year period.

Speaker 1

We ended the Q1 of 2023 with approximately $161,000,000 in cash and cash equivalents. During the quarter, we paid down $15,000,000 of debt and ended the Q1 with no debt outstanding. Looking ahead for 2023, as of today, we are not seeing meaningful improvement in the capital purchasing cycles within bioprocessing, particularly affecting our rebel placements. We expect these pressures to persist into at least the Q3 of the year. Our team is working hard to educate existing and potential customers on the value of the technology and broaden adoption across sites.

Speaker 1

So as funding becomes available, we are a high priority for our customers. Notably, we are seeing strong adoption of our handheld devices that serve the forensics market. In this challenging macro environment, we view it as a competitive advantage that our extensible technology serves a diversity of users and end markets. So that being said, we anticipate 2nd quarter revenue growth to be centered around our handheld device revenue and recurring revenues, similar to what we experienced in the Q1. While ongoing pressure in the bioprocessing environment is likely to continue longer than we had previously anticipated, we are seeing very strong adoption of our handheld devices, which we believe will offset this impact.

Speaker 1

Taken together, we still expect full year revenues to be in the range of $48,000,000 to $52,000,000 representing growth of 2% to 11% over full year 2022. At this point, I would like to turn the call back to Kevin for some closing comments.

Speaker 2

Thanks, Joe. In summary, we're pleased with the progress we made towards our goal in the Q1. Looking ahead, we believe we are uniquely positioned to capture the opportunity in front of us for three reasons. First, we have a robust roadmap and strategy of process analytical technologies beyond the MD1 product. We're creating a full portfolio of complementary devices from our current portfolio, including Rebel, Zip Chip Interface and Maven, plus our exciting and differentiated roadmap products to come, including one that will be announced later this year.

Speaker 2

2nd, we have a diverse offering with our handheld devices in the forensic space. We believe these handhelds will continue to be critical with the rising geopolitical uncertainties and the ongoing fentanyl crisis. And 3rd, we have a strong cash balance with the runway through 2025 as we have remained efficient and thoughtful on spend and headcount, working to ensure expenses are not outpacing our revenue growth. With that, I'd like to first thank you for bearing with us through our technical challenges here in the operator call today, but we would like to open it up for questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Phone. Your first question comes from the line of Dan Arias from Stifel. Please go ahead.

Speaker 2

Good

Speaker 3

Kevin or Joe, maybe just to start on the REVEL, obviously a lot going on in the bioprocess market right now. So on system placements, Is the idea that we really shouldn't expect acceleration in install numbers until 4Q, just given Joe's comment on Not seeing any improvements. And then on utilization amongst those that do have a Revel, can you kind of just talk about the larger versus the smaller company user trends. And are you expecting any improvement there just in terms of utilization for the folks that have gotten over the hump and do have the system and presumably are trying to use it.

Speaker 2

Yes, sure. Thanks, Dan. Maybe I'll start it off and pass Joe, for just some additional details on it. But yes, as we stated, in Q4, we do expect rebel placements to be muted with some of the bioprocessing pressures that are being seen out there for CapEx in particular. And while our expectations are modest that we are experiencing that what others are experiencing in the industry and it's clearly an industry phenomenon not specific to 908.

Speaker 2

We're just seeing CapEx sales cycles extended and life cycles of existing and people just even pausing purchase outright We're needing more authority to sign off. But we do look at the fact that we have a growing portfolio of desktops. We actually replaced of 16 desktop devices as a whole, for the quarter. And we're really kind of using this time to expand that product portfolio and continue the strategy to build out a set of process analytical technologies that are all interconnected. We're really focused today on that utilization, if you will, and really focused on showing the value of our products to our customers.

Speaker 2

And that's demonstrating tighter improvements, quality improvements. We're fortunate to be able to announce some of these recently. And to us, it's really a strategy. It's not around a single product called Rebel, but really the portfolio process analytics technologies. Regarding utilization, specifically, The utilization for our Rebel pull through has largely been unchanged from Q4.

Speaker 2

So Q4 is really tracking at a similar amount, around a half a kit per month that we're seeing on average, a bit higher perhaps, but about that versus our nominal goal of around 1 kit. We have been asked by you and others in the past, like can we device it out by as you're suggesting by smaller companies or maybe by therapeutic modality. We're working on that. We do really just have small numbers. It does make it challenging to slice and have meaningful statistical data there.

Speaker 2

But we can say, we are becoming aware of more MSAT customers using our products. And some of those Customers are using it for more like process monitoring applications. And we have examples of where those customers are consuming kind of 3 to 4 times our average. So right now, we're really been focused on driving that utilization.

Speaker 1

And maybe to add a few different pieces to that, Dan. As of today, as I mentioned, we're not seeing meaningful improvement in the capital purchasing cycles within bioprocessing, particularly affecting those rubber placements. And we do see that expectation that we did set in our Q4 earnings call. We will likely see the pressures persist into at least Q3, as I mentioned, in our exit 3 in Q4 of last year, 4 in Q1. We see continued improvement there, but probably not to the levels that we saw in the 1st 9 months of 2022 until possibly Q4.

Speaker 1

So our team is working hard really to educate the existing and potential customers on the value of the technology being. And right now, we're notably really seeing that strong demand for our handheld devices that helps to offset some of those current market concerns.

Speaker 3

Yes. Okay. Okay. And then maybe just on the handheld side and the sales funnel that you have here. Kevin, you've talked about these enterprise opportunities that you've been working on.

Speaker 3

I think you've kind of called them of 25 to 100 systems or so. How is that group of potential customers tracking just in terms of confidence in orders that can sort of serve to backfill the Army contract that was rolled off. And ultimately, where do you think The desktop sorry, the handheld business and placement total can go to this year. I know you're not going to be too specific, but just some help on the year over year given the Army contract would be helpful.

Speaker 2

Yes, absolutely. I'll start off and pass Joe again here. But we're excited for the pipeline that where we're at today. And as we know, we're progressing things from these testing and trials on pilot programs and then turn to enterprise accounts. And we're seeing that we've got plenty of funnel to work with and great conversations for this Early in the year, in particular, with existing customers looking to roll out more devices.

Speaker 2

And we have factored in the status of these enterprise accounts into our guidance that we reiterate today. And we highlighted things like Ohio, which has been going quite well for us and seeing continued success there and value being demonstrated with that program. And we're looking to get pilot programs going in other of state and local areas, including Tennessee, we've made some good progress on. And so I'd say we've got great progress and pipeline progression across the board for handhelds. And that's across all our areas, federal military, call it the outside the army, but then also large opportunities within state and local and international.

Speaker 1

That's right. U. S. Army is definitely one of our examples, Great example of a large enterprise adoption historically and there are other customers in the pipeline for 20 to 100 plus devices. Kevin was alluding to some of those opportunities.

Speaker 1

We're working with each as they get budget allocation and funding for purchase, seeing very positive momentum on this front. We have over 2,000 devices in the field, but plenty more sockets out there. So we don't really feel limited today. And we do see path to positive unit growth in 2023 for our handhelds despite the fulfillment of that U. S.

Speaker 1

Army device order, which you recall is approximately 100 devices over the 1st 9 months of 2022.

Speaker 3

Okay. Thank you very much, guys.

Operator

Thank you. Your next question comes from the line of Puneet Souda from SVB Securities. Please go ahead.

Speaker 4

Yes. Hi, Kevin. Thanks for the question. So with the Rebel and Maven, you're building here a set of process analytical technologies. I mean, I appreciate the market environment that you're in, but these instruments are on the sort of the smaller side of our lower side of Capital Equipment.

Speaker 4

So wondering what you can do from your end to drive adoption of these in this of what appears to be a more tougher environment. And wondering what you're seeing on cell therapy side customers. Are you seeing some Are you seeing more interest on the cell therapy side versus the mAb side? Just maybe help us dissect that a little bit and what you can do from your side in terms of data collaborations, partnerships and whatnot to potentially drive growth here for Rebel and Maven Products and the Process Analytical Technologies.

Speaker 2

Yes, yes, sure. Thanks, Puneet. I think you're right. I mean, we are focused on building out a platform. I think you're also right in that our CapEx prices are perhaps a little more reasonable than some other tools, but they're still not Inexpensive in that our Rebel, the list price is approximately $150,000 So it still takes groups The budget and it's still considered a CapEx purchase for our growing portfolio here.

Speaker 2

They would all be in that definition. And as we've talked about at length, right, we've just seen customers just be more cautious and be more Discerning and moving forward with the CapEx commitment at this time and we've seen people that believe they were budgeted and had it be pushed right on them. I believe that the process analytical technologies, the need is growing of importance. I don't think there's much debate about that. I think it's really a matter of That timing with how people are looking at recovery and call it a bit of a reset in the pharma, biopharma area and then bioprocessing in particular.

Speaker 2

A ton we can do during this time and we are taking advantage of that time to be able to have more intimate engagement with these customers and showcase The values that the whole portfolio can provide. Maven in terms of its control of glucose at low levels, REVL enabled to inform feeding strategies and Zip Chip looking at critical quality attributes and a new product we're working and engaging with key opinion leaders now on to get out later this year. So I think there is a lot we can do there. We were happy to see that Resilience was publicly out there with some successes they've had and Mirroring what we've been seeing with CPI and working closely with them. So I think there's a lot we can do there.

Speaker 2

Maybe one bit of A data or a factoid that also might be helpful to triangulate. The sales process often involves people sending in demos. And when people ask for a demo, generally you need a material transfer agreement. So quarter to date, we've done more material transfer agreements than we have in all of Q1. So we are seeing some engagement and activity.

Speaker 2

I think it's really around How fast do those close and how fast does that segmented you will recover?

Speaker 4

Okay, got it. That's super helpful. Then On the guide itself, and maybe sort of for Joe, obviously, you're moderating Desktop Instruments and install base potentially for that. But what gets you Potentially on the sort of the higher end of the guide, if things were to recover sort of in the second half and what are you contemplating and what gets you to the lower end of the guide, if things were to get worse. So maybe just talk about those dynamics, where you feel that where you think you will have the strength.

Speaker 4

Is it more on the MX908 side and maybe, just where things can potentially be weaker if the environment was to continue? Thank

Speaker 1

you. Sure. We're definitely spending most of our time looking to the midpoint and the high end of that range and making sure we have a path to get there led by strength to the MX, the 908 in our handhelds. There are a few levers that will take us to that high end. 1st would be stronger adoption of new products than anticipated.

Speaker 1

We get excited when thinking about where ultimately our new products can go. We need to crawl and walk and then run with those products. We're trying to balance that enthusiasm with the fact that we are in the early stages with both Maven and the to be launched product in the second half. 2nd conversation of handheld enterprise accounts that we touched on, we have a number of big swing items in our pipeline, But they do take time to develop, as you know, and get through their procurement processes. Sometimes it takes years, We're continuing to build that pipeline for the opportunity and we've had some great conversations with our handheld customers and seeing some encouraging early signals for the year to be able to see that path to the top line or top of the range.

Speaker 5

Got it. Okay. All right, guys. Thank you. Welcome.

Operator

Thank you. Your next question comes from the line of Stephen Ma from TD Cowen. Please go ahead.

Speaker 5

Great. Thanks for taking the questions. You spent some time talking about the macro challenges and extended capital purchasing cycles. Are there any plans to do a reagent rental or lease structure on the Rebel, so that customers don't have to pay upfront or capitalize the equipment?

Speaker 1

That's a great question and something that we have talked about through the years and are looking at that as a potential option and talking to a few customers that we have confirmed that they don't have the capital spending here in 2023. So we are looking at as a tool in the tool bag, to be able to present to specific customers, But ultimately, I want to ensure we see the value of the technology in getting the device placed. But in those unique situations, We will entertain with customers the ability for them to pay a certain amount, make an investment upfront and then have access to the technology and see the value within their workflows. So yes, we are working through that.

Speaker 2

Yes. And I'd add to that that we're trying to be responsive to our customers' needs right now and we know they're constrained. And as we talk at length, we really want to show them the value of our product is and visit CapEx. But if we can create an on ramp to the adoption of that unit by mechanisms like Joe described, that'd be great. It's not a wholesale change of our business model.

Speaker 2

We're not doing anything like that at this It's still a CapEx sale, and we think that's the right way to go. But as Joe said, we're listening to our customers and just trying to be responsive in the short term.

Speaker 5

Okay. And so if you did decide to go in that direction, I guess, could that be what like back half of this year or just something not really on the radar?

Speaker 1

Yes, I think to be determined. As Ken said, mostly just being responsive to our customers.

Speaker 5

Okay. Got it. And then one more. You talked about penetration into new customers as a key strategy. Of the 78 devices placed in the quarter.

Speaker 5

Could you give us a sense of the percentage of sales as a new customers versus existing customers?

Speaker 2

Sure. Yes, you're right. We do like to have both new sales to existing incentive. We have, as we said on the Q4 call, we've got 10 accounts now with 6 or more units. We've been adding to that.

Speaker 2

We have a couple of accounts now with Maven added into mix that now have actually all our products, Zip, Chip, Rebel, Maven, all our desktop products there. So we're seeing a good mix, I would say. And if you think of the just in our Q1 in particular here, We saw about a 70five-twenty 5 split with our 16 desktop placements to larger versus smaller biopharma companies, Some of those new, some of those existing.

Speaker 5

Okay, great. Thanks for the color. And if I can sneak one more in. So could you give us some color on the European sales traction? I know you previously said on a prior earnings call, you're putting additional sales and support efforts in Germany via the Trace acquisition.

Speaker 5

Just any color, if possible, on how that's going in Europe? Thank you.

Speaker 2

Yes, absolutely. We've been investing across the board in our international assets and as we reported to last year. And I think we're pretty pleased with the progress that's now showing up and we're seeing measurably in the case of our handhelds in particular there. And We've seen great progress of that pipeline across the board in Q1 for the handhelds and the federal, state and local, but certainly on the international side of things, which gives us confidence in our ability to execute here in 2023. And we have hired sales leaders in the Middle East.

Speaker 2

We moved a channel manager from the U. S. And we've made other personnel investments there. And all have really been centered around of Driving Broad International and we're seeing some return on those investments now. We highlighted the NATO contract vehicle as one example there.

Speaker 2

And For handhelds, the biggest budgets are in the U. S. And that hasn't changed, but there are sizable opportunities international And they share similar concerns with the U. S. Counterparts here and for the use of the technology, and we do see it as a growth opportunity, especially here in 2023.

Speaker 5

Okay, great. Thank you.

Operator

Thank you. Your next question comes from the line of Jacob Johnson from Stephens. Please go ahead.

Speaker 6

Hey, good morning. Maybe just one more on the macro. Like you said, I think everybody is seeing elongated sales right now given the macro environment. But I'm just curious if we go kind of level higher in terms of like the funnel of interest, the inbounds you're getting in general, kind of how is that trending? I think you talked about it a little bit in Puneet's answer, but I figured Give you opportunity to flesh that out some more.

Speaker 2

Yes, absolutely. I mean, I think as we discussed in the Q4 call, we anticipated that It was going to be muted over the first half and now we're seeing signs that that likely is extending into Q3 of this year. We're very excited that we've got a broad portfolio of discussions now going on with customers at a to Puneet's point, have a variation of CapEx prices and utility from bread and butter analytes that our Maven provides with glucose and lactate to more forward leaning optimization tools like our rebel device. So we are excited to have that. I would say that we've been working to make sure we're engaging prospects, of customers, conferences, existing fielded base, etcetera.

Speaker 2

So we're really been getting out there, including at the more senior levels and having the leadership team out there and engaging, I think the key folks in these organizations and our customer base and making sure We can support them there. I wouldn't say that we're seeing a concentrated step up in activity here in our Q1 activities or Q2 to date. And I think that's why it's anticipated that we still see things needed here for a bit in the case of our desktops. But you're right, we did put a little tidbit out there that the very forward portion of that demo cycle or those material transfer agreements, which we saw more executed here quarter to date than we did in all of Q1. So we take that as a good sign.

Speaker 2

We think that will take some time to close. But we also in terms of the utilization, we're trying to get these customers and we are seeing them being active. We also reported in Q4 that it was the 2nd highest quarter on record of consumable orders blanket orders that are normally at 1 kit per month. So we're working with customers to drive that utilization and drive that value and benefit out of it. But we're also very pleased, Jacob, that we've got our handhelds and that we've got that diversified position with our handhelds in the forensics market during these times.

Speaker 6

Got it. Thanks for that, Kevin. And then maybe just For Joe, on the outlook for FY 'twenty three, it seems like the mix of revenues may have going to be more handheld this year than previously thought. I know you don't guide to margins, but I think we were targeting kind of mid-50s gross margin this year. Any change in that expectation?

Speaker 1

There's not any changes in that And as we kind of looked at the Q1 margins, I would say the main factors with gross margin variations will continue to be mix and scale. In Q1, it was primarily driven by lower device production builds, where we didn't initiate as many builds in Q1 2023, especially on the desktop side compared to the prior year period and also that higher non cash charges that I mentioned both stock based comp and intangibles, so about 200 basis points each impact. So we do see that opportunity to improve gross margin with our new products and our consumables And we're not at scale today and our margins overall, as you mentioned, being in the mid-50s and we expect this to continue on a go forward basis for the full year, 2023.

Speaker 6

Got it. Thanks for taking the questions, guys.

Operator

Thank you. Your next question comes from the line of Matt Larew from William Blair. Please go ahead.

Speaker 7

Hey, good morning. I wanted to follow-up maybe, Kevin, just on the new product side. Obviously, Some market weakness temporarily on the bioprocessing side, but just want to check-in on your plans still for additional product launches in the back of the year. And if any customer pressures or maybe even customer feedback as they're examining their own budget of influence or the way you're thinking about new product development.

Speaker 2

Yes, yes, yes. Thanks, Matt. Yes, I mean, we certainly view innovation And new products as a key component to 908 and our heritage here and our growth strategy. So we're really pleased with the acquisition we did at Trace Analytics in August of last year and how things are going there and how that's integrating and combining into a roadmap in our product development effort. Great group of talented individuals that got added there and really some awesome technology.

Speaker 2

So we got one new product out here In January, that integrates the TRACE technology with our Maven product, which is a prelude to our Rebel online, which we've discussed, the aseptic sampling approach is key. I wouldn't think any I wouldn't say anything has changed in the priority of building out that portfolio of process analytical technologies and tools and the appetite of customers when we engage select customers on what those new products are going to be, including discussing what the Rebel Online will be and working to engage them as we work through our stage gate process for Rebel Online. So, I don't think there's a change in sentiment with the needs that these customers have. I think there's just a bit of a near term delay in their adoption. But we're trying to take advantage of That time to have this great engagement and build out that complete portfolio and engaging more of a partner discussion we're finding now, because we can talk about that whole portfolio.

Speaker 7

That's good to hear. And then final one, maybe just around The sales funnel has been asked a couple of times, but you referenced mStat maybe being a new opportunity and obviously I presume the conversations and prospects at all will continue to happen. Maybe just the you referenced the material transfer today. Is there anything in terms of the mix of funnel by within bioprocessing by sort of location customer type that you can share with

Speaker 2

us. Yes. I would say that as we look at the funnel for our desktops, ops. So we're trying to develop things in the U. S.

Speaker 2

And internationally for that. We're seeing both examples there. Again, I would say one great thing is that we're able to take Maven To the Rebel customers and we're picking up new customers with Maven that don't have any of our desktop products. Well, We certainly now have a couple of examples and proof points of customers having all of our desktop products. We now have customers that only have our MAVEN and that gives us an opportunity.

Speaker 2

It's also interesting to us that some of those areas quite of interest would be in that cell and gene therapy application Some of these integrated technologies that are interested in adding analytics. So we think that opens up possibilities for us here. We had 16 desktop devices, as I previously mentioned, in Q1 that we placed, and they were roughly split between 75, 25 between larger and smaller of Biopharma Companies. And we have about a third of our desktop devices overall in top 20 biopharma. So it's a meaningful percentage, but we do have a number of units in early stage biotech.

Speaker 2

So if we look at what has closed and what's in our pipeline, it's a mix between existing customers, some small biotechs and some large biotechs coming back for or large biopharma coming back. So I don't think I've got one specific trend in there, but hopefully a bit of color that's useful.

Speaker 7

All right. Thank you.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Kevin Knott for any closing remarks.

Speaker 2

Yes, thank you. First, I'd like to thank you for bearing with us on our plethora of operator call logistics errors. But we're very excited for how The quarter went and we're pleased to be able to reiterate the guide today and march forward and make progress. So thank you for your time.

Operator

Thank you, sir. Thank you so much, presenters. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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Earnings Conference Call
908 Devices Q1 2023
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