Q3 2022 908 Devices Inc. Earnings Call

November 14, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Yeah.

Good day and thank you for standing by welcome to the nine no way devices third quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Kellie Gould Investor Relations. Please go ahead.

Thank you.

19, eight devices released financial results for the third quarter ended September 32022.

Received this news release or if you'd like to be added to the company's distribution list. Please send an email to IR at <unk> Dot com.

Joining me today from anyway, if Kevin Scott, Chief Executive Officer, and co founder and Joe Griffith, The 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 finally 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-K for the year ended December 31 2021.

And its other filings with the Securities and exchange question.

Except as required by law like devices disclaims any intention or obligation to update or revise any financial protection with Oracle, we're looking statements, whether because of new information future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast November 14th trying Heiko.

I would like to turn the call over to Kevin.

Thanks, Kelly good morning, and thank you for joining our third quarter 2022 earnings call I'd like to start off by thanking our entire team for their tremendous effort in bringing a third quarter. Two successful close I'm really proud of their continued focus and dedication to support our customers' critical to life application. We are operating in a challenging macro environment.

<unk> and our team is going above and beyond <unk>, we delivered strong growth during the third quarter with revenue increasing 26% over the prior year period to $15 8 million about 20% of third quarter revenue was from the remaining U S Army device shipments and 80% was from new business and other customers. While we are.

We're pleased with our third quarter results and year to date performance, we have begun to see a slowdown in our funnel with prolonged purchasing cycles over the summer months and into the fall. We believe this is largely due to the adverse impact of macroeconomic factors across the markets. We serve we expect these headwinds and impairment to continue over the next couple of quarter.

Yeah.

Given this impact we now expect full year 2022 revenue to be in the range of $46 million to $49 million, representing annual growth of 13% at the midpoint of the range.

Discussed on our last earnings call progression of a few larger handheld opportunities would be required to achieve our previous full year guidance and we've seen protracted cycles and test trials pilots to enterprise conversion.

This near term pressure, we firmly believe the opportunity for rapid and robust analytics at the point of need is as strong as ever.

This positive view was reinforced at our user meeting in September critical math, 2022, which covered the full breadth of our product platforms and their application. This event brought together more than 175 customers, both virtually and in person to share their success using our mass spec devices to provide rapid and robust.

<unk> information at the point of need.

We heard from customers, serving and spanning industry, academia and government, including Boehringer Ingelheim.

Clemson University, Ohio Bureau of criminal investigation, and the Fresno, California Police Department was truly inspiring to hear the impact that our technology is having to advance biotherapeutics and combat the opioid crisis.

Now I'd like to provide a brief update on our progress across the five focus areas. We set for 2022 to drive growth over the longer term.

Starting with our first objective of driving customer adoption.

For our desktops, we are continuing to see underlying demand for more advanced therapeutics the need for more process control and the steady increase in proteomics and metabolomics research all of which fuel the biopharmaceutical industry's long term growth. However, the shift in the macro environment has begun to slow some near term demand for our desktop.

Devices, particularly in cell and gene therapy applications, where our technology is being adopted that support the process development preclinical space.

The alliance for regenerative Medicine recently issued its first half 2020 to report on advanced therapies, which noted that 2022 has already been a record year for the approval of new cell and gene therapies with several other therapies on track for regulatory decision in late 2022 and 2023. However.

The number of ongoing clinical trials globally decreased by 13% from the end of 2021 and investment levels have slowed after two record breaking years.

Across our desktop we continue to see orders from a fairly even split between new and existing customers with our rebel device. We continue to see traction with additional units in several of the top 20 pharma companies and with some of these companies ordering their second or even fourth device with their ZIP chip device Genentech procured its fourth unit.

During the quarter in a paper published in September and analytical chemistry, Genentech researchers noted the device's ability to quantify peptide exchange at high throughput and at high sensitivity and a car T cell therapy application overall, we believe that our penetrate and radiate strategy in which we work to penetrate new account.

Create a foothold and then radiate across the enterprise account will continue to drive broader adoption and acceptance over the long term.

Turning now to our handhelds.

The opioid crisis shows no signs of abating in August the National Center for Health Statistics, a division of the CDC.

Now that U S life expectancy decreased last year to its lowest level since 1996, while COVID-19 was the primary cause of the decline another leading cause was unintentional death, mainly comprised of overdoses.

This crisis continues to be a major driver of customer adoption. There are several recent news report the highlight the severity of the ongoing crisis in September New reports highlighted a shortage of adderall used to treat ADHD and noted the dangers of sourcing the drug on the street as these counterfeits contain fentanyl and other drugs.

The FDA has confirmed the adderall shortage, noting that several generic forms may not be available until March 2023, and in Rhode Island.

36, more than 660000 counterfeit outercoat pill containing methamphetamine also in September the DEA issued an advisory warning a brightly colored fentanyl also known as Rainbow or 10 different loan used to target young children. The DEA has six multiple forms of rainbow fentanyl, including pills powder and blocks that resemble.

Sidewalk chalk finally in August the Australian Federal police and the Australian border Force announced the seizure of the largest vessel shipments detected in Australia, preventing more than 5 million potential lethal doses of the drug hitting the street. While EBITDA has noted that dental is the deadliest drug threat facing the U S. We are seeing more and more evidence of it be.

<unk> a global crisis.

These sobering statistic and alarming news reports continue to highlight the need for first responders and other frontline workers tab trace chemical detection at the point of if needed to combat the spread of highly dangerous drug a case in point is the increase in drugs coming in personal mail and legal correspondence that correctional facilities, we've seen several orders for <unk>.

<unk> County jail for Nx 98 device throughout the year with another order in the third quarter for five devices from a department of corrections based in New England.

As previously noted we build a pipeline of testing trials and pilot program to drive enterprise adoption of our handheld devices in the third quarter, we expanded an existing enterprise accounts. The U S Army, receiving an order for $3 million for Aero modules prepare with their fleet of Amex 98 devices once last year the first of it.

It's kind of Aero module enables users to monitor detect and identify deeper in aerosol hazards quickly and safely.

Turning to our second objective accelerating commercialization as of the end of the third quarter. We now have over 220 employees worldwide and are close to reaching our goal of 80 commercial team members that said, we continue to be thoughtful reviewing plan commercial expansion across all our regions.

Certain macro backdrop.

Turning to our third objective developing and advancing our product portfolio. We continue to unlock our platform's capabilities through consistent releases of additional analyte assay accessories and data integration in order to increase areas of use for our customers and to penetrate our addressable market.

For handheld we expanded the capability of our <unk> device to detect eight highly toxic and illegal pesticide. These pesticides are being used to grow illegal marijuana, primarily on federal land posing a threat to the environment water sources wildlife and people.

The issue is particularly critical in California, where the state is expanding its multi agency seasonal illegal marijuana eradication program. This will now be a year round effort with the aim of prosecuting underlying labor and environmental crime previously federal personnel had no safe and reliable method to conduct pesticides testing at the site is illegal marijuana.

Growth and had to send samples to a central lab, often waiting several weeks to conduct a safe site remediation in January of this year, we announced a research collaboration with the United States Forest service and agent CB, United States Department of agriculture to extend the capabilities the nx evaluate to detect these illegal pesticides.

For our desktops, we continue to develop and refine pits to meet customer needs. We introduce version two point out of our spent media analysis for rebel which provided additional analyte and enhanced calibration for improved accuracy and quantification resolved. We're developing another focused rebel kit to be released in the first half of 2023.

Pushes the boundaries of the analytical performance for specific set of amino acids, commonly measured most application.

In regard to our acquisition of trace analytics in August we are extremely pleased with how well the trace team is integrating with our R&D team to further our online development effort.

As you May recall, our acquisition of <unk> provided us with online Aseptate fiery after sampling and biosensor technology, which is a central addition to our Microfluidics technology pillar and will help us unlock more of our total addressable market their technology and single use and reusable configuration has been proven in mammalian cell culture.

<unk> and microbial fermentation at all levels of the bioprocess chain from research and development to large scale production.

Better user meeting Wolfgang <unk> analytics, founder and now the head of our bio analytics R&D presented the benefit of automated control of glucose in landscape in a process development lab, which includes cell free sterile and safe sampling with no volume of prep required.

As we've noted our main focus this year has been to build upon the capabilities of our existing products and expand the reach of our technology platform. In 2023, we plan to shift our focus to releasing two new devices. We are excited to share more detail early next year as we expect them to be impactful in 2023.

Turning to our fourth objective broadening our bioanalytical platform as more advanced therapies and through the pipeline biopharma manufacturers need to identify and understand critical process parameters and their impact on critical quality product attributes during process development and the entire bio manufacturing workflow our devices are.

Well positioned to meet this need we continue to collaborate with key industry partners and academic institutions demonstrates the value of our technology and providing rapid and robust information that enables manufacturers to accelerate biotherapeutic workflows.

This value has been highlighted at a number of industry events over the past few months, our collaboration with the center for process innovation and independent innovation organization in the U K demonstrated the value of outline cell culture media analysis to inform BD strategy for <unk>.

CPI process engineers use real time data from the rebel to optimize nutrient resulting in an increase in tighter by up to 40% and a reduction in toxic metabolite accumulation and a significant reduction in design of experiment time.

These results were recently presented in a webinar hosted by Biopharma International magazine and in a poster at the <unk> Pharma Symposium in mid September independent data from a rebel analyzer such as this is key to demonstrating our value proposition of enabling broader adoption of process engineers conduct amino acid analysis more regularly.

There were several other posters presented by our collaborators at the CE Farm Symposium and the cast mass spec conference, including biotech My current gene Thermo Fisher scientific and protein metric. These posters highlighted the use of our Egyptian device for several applications, including characterizing illegal nucleotide peptide mapping of recombinant AAV is in charge.

Variant analysis of small molecules.

This chip benefit highlighted in these posters included high resolution and high sensitivity comparable to LC Ms method, but much faster separation with minimal sample volume and in the case of Oligos no harsh I impairing region.

At the Bioprocess International show part of Boston Biotech week, our collaborators at Johns Hopkins University gave a presentation on leveraging the power of outline amino acid measurement with the rebel to enable complex bioprocess modeling.

Also at the show our principal scientists from slippage in a biotech company presented on mass spec based characterization workflows and biopharmaceutical development labs, and noted ZIP chip capability to perform high resolution separation, while minimizing sample prep for <unk>.

Finally at our user meeting scientists from Boehringer Ingelheim, how does it fit very fast separations and high sensitivity characterizing product quality attributes in the oligonucleotide and monoclonal antibody. Additionally, in my T. Researchers underscored rebels value and their ability to rapidly monitor and profile nutrient consumption of recombinant AAV producing cells into.

Profusion process we.

We are delighted to hear our collaborators in biopharma customers highlight the value of the desktop devices to characterize multiple product quality attributes and control key process parameters, which ultimately to improved efficiency and robust product quality.

And finally, turning to our longest term objective laying in Ohmic Foundation, we see a clear an emerging need for accelerating mass spec based workflows to address proteomics and metabolomics opportunities. We continue to foster a cadence in publications technology and research with previous mirror academic institutions and research partner to support future product launches.

Work flow specific to the Omics domain.

In the area of Metabolomics and academic research paper in the journal metabolite focused on characterizing cell to cell signaling molecule levels and healthy versus type two diabetes affected human pancreatic islet.

Researchers use it coupled with the broker mass spectrometer and noted it's fast separation time of within three minutes, along with a high confidence of analyte identification.

As previously shared we are advancing our microfluidic chip to address emerging proteomics and metabolomics opportunities last month, we hosted a meeting of our proteomics Scientific Advisory Board, where key opinion leaders provided guidance and feedback on the direction of our AUM, It's facing research and development efforts, our scientific Advisory Board members we're enthusiastic.

Think about our continued development arm chip peptide pre concentration from the ZIP chip platform, providing feedback on throughput robustness requirements to address emerging low input proteomics market.

We're fortunate to have this remarkable group of thought leaders share their insights as we advanced our development effort.

In summary, we remain encouraged by the value of our technology platform is providing to our customers to break masked back out of the confines of a centralized laboratory and bring it to the point of need while we faced some near term macro pressure. We continued to focus on serving our customers expanding our user base and making our technology, even more accessible to broader audiences, which opens.

Stores for new users and applications with that I'll now turn the call over to Joe for more details on our financials.

Thanks, Kevin.

For the third quarter, 2022 was $15 8 million compared to $12 5 million in the prior year period, representing growth of 26%.

This increase was primarily driven by desktop device placements and increase in handheld recurring revenue and an increase in service revenue across both handheld and desktop devices.

About 20% of our third quarter revenue was from the remaining U S Army device shipments, which compares to approximately 40% of the prior year period total revenue.

Handheld revenue from our <unk> nine away product was $11 million, an increase of $1 7 million compared to the prior year period, representing growth of 18%.

Desktop revenue from our rebel and ZIP chip products for the third quarter 2022 was $4 4 million compared to $2 9 million in the prior year period, representing growth of 51%.

Recurring revenues consisting of consumables accessories and service revenue for the third quarter 2022 was $4 5 million compared to $2 2 million in the prior year period, representing growth of 105%.

The increase in recurring revenues was evenly split between an increase in service revenue and an increase in Aero modules.

Our installed base grew to 2317 units with 175 devices shipped during the third quarter.

This included 150, <unk> 908 handheld devices 18, rebel desktop devices and <unk> Zip chip interface desktop devices.

Gross profit was $9 3 billion for the third quarter of 2022 compared to $6 8 million for the prior year period.

The increased gross profit was driven by an increase in product and service revenue.

Gross margin was 59% for the third quarter 2022, as compared to 54% for the prior year period.

The increase in gross margin was due to higher service revenue and average selling prices for our devices offset in part by higher personnel and operating costs.

Gross margin was 57% year to date.

Total operating expenses for the third quarter of 2022 were $16 5 million compared to $12 1 million in the prior year period.

This increase was driven by head count expansion across our business of $1 2 million increase in stock based compensation and an increase in marketing activities and travel expenses.

Net loss for the third quarter of 2022 was $6 3 million compared to $5 2 million in the prior year period.

We ended the third quarter of 2022 with approximately a $194 million in cash and cash equivalents. In addition, we had approximately $15 million of debt outstanding.

Our trailing 12 months of cash used for operating activities was $25 million as of September 30, and was approximately $29 million for the full year 2021.

With approximately $180 million of net cash as of quarter end and our cash utilization, we have multiple years of runway to focus on our product innovation market penetration and commercialization efforts, we have implemented over the last few years.

Now looking ahead for the remainder of 2022, we now expect full year revenue to be in the range of $46 million to $49 million, representing 13% growth year over year at the midpoint of the range.

There are a few notable impacts to our guidance since our earnings call in early August on our Q2 earnings call. We mentioned, we are keeping a close eye on potential macroeconomic factors that could impact your execution.

Specifically, our team driving strong adoption of our handhelds through the end of the U S government fiscal year, capturing year end biopharma spending and mitigating continued disruptions in APAC.

Unfortunately, we have seen opportunities push out beyond the end of the U S government fiscal year as Kevin mentioned progression of a few large or handheld opportunities would've been required to achieve our previous guidance range and we are seeing protracted cycles and test trials to pilots to enterprise conversion.

We believe in part this is due to prioritize resources for Ukraine and surrounding regions the dive.

<unk> of resources to the southern border to assist with the migrant crisis, taking away from drug interdiction and.

And Covid recovery.

In addition for our desktops are revised guidance range now assumes desktop revenues to grow by approximately 30% over the prior year.

While this growth rate is two times the growth rate of the overall business. It reflects some impairments in the fourth quarter from macro factors, including the likely level of year end capital spending is prioritized for new technologies.

Specifically these factors include talent migration across organizations, resulting in delays adoption and a training retraining burden.

Large capital purchases canceled for associated Bioreactors.

<unk> priority of our devices and layoffs at small and large biotechs, resulting in canceling of consumables.

At this point I would like to turn the call back to Kevin for closing comments.

Thanks, Joe I am confident in our long term trajectory and feel we are laying the groundwork for both near term and long term success in the near term our team remained focused to progress our handheld opportunities through test trial, the pilots and expand to enterprise accounts.

<unk> referenced desktop accounts across top pharma for our desktop to enable our penetrate and radiate strategy scale, our operations to ensure the highest quality product in the face of ongoing supply chain pressures.

Our customers pre and post health to help ensure proficiency on our devices as they faced unprecedented employee migration.

And bolster service and support reach particularly in APAC in face of continued China, Lockdowns and the limited ability to transit through the region.

As we look ahead to 2023 and beyond we believe 90% <unk> devices is uniquely positioned to capture the opportunity in front of US we have multiple new product releases slated for 2023 in the bioprocess monitoring space with the first being launched early in Q1 and the next shortly thereafter, we havent diversification and defensive positioning.

Their handheld offering in the forensic space.

<unk> have seen order growth of more than 50% year to date beyond the U S. Army device orders. We believe these handhelds will continue to be critical with rising geopolitical uncertainties and the ongoing treadmill crisis and finally, we have a strong cash balance with the runway into 2025, as we have remained efficient and thoughtful and spend in <unk>.

Count with that we'll now open it up to questions.

Thank you as a reminder to ask a question you will need to press star one one on your telephone.

You will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Max Masucci from Cowen.

Hey, thanks for taking the questions.

Maybe just just to start.

It would be great to hear just based on the trends youre seeing in biologics preclinical activity.

Also based on feedback from our critical mass event.

Or how we should calibrate our 2023 expectations for <unk>.

<unk> Zip chick placements and utilization.

Yes sure.

Sure happy to and yes, maybe we can just dive into some of the bits you mentioned on the flip side the spending in those profiles for the desktop customers.

As mentioned in the script there I mean, I think we are just seeing a lower level and slowdown a bit across the board for some of the handhelds desktops and desktops, particularly as mentioned just seeing some slowdown in the large capital purchases with the fiery actors that delays the priority for our devices and we are seeing layoffs.

Our customer base.

And we're just frankly not seeing the same amount of year end capital spend at this time for new Tech, which is which is ours and as you know, we're really not riding a replacement cycle for it.

And Thats.

It gives us less of a visibility than maybe some of the large cap instrument companies.

We are selling as you mentioned really into that preclinical space with these novel desktops and <unk> are tightening so all of that we really see is.

That isn't a 98 specific phenomenon, but an industry phenomenon and you can dive into that deeper and think about bio pharma spending in particular and you can see a slowdown in that cell and gene therapy space, which we've been trying to gain a foothold in.

We've mentioned in the past about 20% of our rebels are in that space.

We're certainly seeing more moderation in Q3 across that space, but our unit numbers are pretty small and modest we're always trying to slice and dice that but in general I would just say that we have seen that slowdown in deal velocity.

You were asking about rebel and looking forward and contemplate in our revised guidance is reduced growth for rebel given some of the constraints that Kevin just mentioned on the macro environment, especially with the adoption of the new technology.

As noted earlier talent migration across the organizations large capital purchases canceled for associated both bioreactors layoffs at small and large biotechs.

As we look at the Delta of how we brought down our guidance, we attribute approximately two thirds to handhelds and a third the desktops and then change in desktop coming from slower than anticipated funnel progression for our rebel.

We are being cautious may not see the same year end budget flush, resulting with those new placements and we anticipate it could be a couple of quarters of impairment as the volume patterns did you change that a preclinical level that you mentioned.

Okay great.

And then we haven't seen the 10-Q, yet, but it would just be great to hear about.

Some of the regional demand trends experienced during the quarter.

Just generally whether you've seen any major uptick or downtick in growth in any of the regions that you break out.

Well Youll see our Q hit the <unk> hit.

Hit the line before market here, but geography.

About 80% in the Americas.

Right.

Yes.

If you think specifically in Europe as you know we've been really trying to bolster over this year, what we're doing internationally broadly mainland Europe , and the middle east and a bit in APAC.

Yes, as Joe said, the EMEA is probably about 15% of our revenues, but we do see that.

There is additional opportunity there.

And we are selling through distributors today, and so less of an exchange impact, but we can talk through any dynamics there. So.

Not all downside I would say across that Europe region, specifically, if you think about some of the pressures from the Ukraine more than U S partner nations, and it's causing a bit of a look around to see if they have the.

The best of class a tenant of detection capabilities.

APAC APAC has been a bit harder for us had been about a small percentage of revenues, it's maybe 5% of our year to date revenues.

And we sell through distributors, there, but yes, we're not seeing the upside due to those firms with multiple parties have mentioned theyre out there.

Being able to get on a small team to build a transit and support applications.

Our units across the region.

We actually have our head of commercial is increasing right now as we speak.

That makes sense just one final one for me the gross margins of delivered solid outperformance versus our expectations over the past few quarters.

Rising asps for devices was cited as a contributing factor to the strong gross margins.

This quarter.

It would just be curious.

If you can give us a bit more detail around how pricing has trended maybe both on the device and the consumables side.

Okay.

Happy to and have been pleased with the gross margins year to date and within the quarter and Asps have been a piece of that and an element.

And whether it's to distribute.

No more.

Okay.

Direct here in the U S and was about 80% here in the Americas, but we did put some price increases in effect at the beginning of the year that started to kick in in earnest during Q3, but in Q2 as well.

<unk>.

Okay.

Of our kits and other consumables, where we did not increase the pricing for 2022, so a lot of that ASP benefits.

Benefits coming through the device themselves will take a hard look at it going forward based upon the different market factors in what we do for 'twenty three but it is good to see our customers see the value of the technology and lean towards purchases at higher price points.

Okay, Great I appreciate you taking the questions.

Thank you one moment for our next question.

Our next question comes from line.

No Dan Arias from Stifel.

Yes.

Good morning, guys. Thanks for the question Kevin on the Amex side can you just talk about the services revenue stream that you expect to come out of the army crop contract and then be represented in the 2023 revenue base and then just on overall revenue growth given the way that we're finishing here on the year.

And the roll off of the army contract, but also some of the the order growth numbers that I think you mentioned how should we just think about growth next year to what extent do you think the additional amex system deals can offset the army contract.

And then when you look at total year over year growth.

Realizing that you are going to guide formally in <unk>. What is the what is the right way to think about the year over year there.

Yes.

A little bit on the RV side, as we mentioned about 20%.

Q3 revenue was RMB, 80% plus from from other business outside of that with that said there is ongoing responsibilities on the server and the service side that's right.

About that service contract Theres about $5 million of ongoing service revenue over the period, where they committed to technology upfront.

Disclosed that it goes through September 2025.

So about three years of service.

That's recognized on a recurring revenue basis.

Within the quarter, we did see you.

The U S army adopting the arrow, our capabilities and add about $1 million.

Recurring revenue a ship related to those aero modules in the third quarter and the remaining portion of that additional order will be here in Q4.

Moving forward yes.

Yes, I mean, if we if we take your question about what does 2023 look like with that as a backdrop.

Yes.

Totally.

Okay.

And of course here, but.

We just step back at a high level to think about it yes likely more moderate growth.

Over the first half of the year and particularly as some of the volume patterns need to change in that preclinical level to support our desktops.

We certainly don't want to see any more macro impacts to deteriorate earlier. We are we are seeing that as we mentioned a couple of quarters.

We really don't believe that that much of that.

What we have.

Are you still set up for 2023 in terms of new products and we're engaging now with Kols on that the first will launch in early two one leverage this is kind of ex China.

<unk> expands our analyte panel a bit in many ways might provide an on ramp to further rebel adoption and.

Major device release slated to following in short order. So we're definitely not standing still there as we leverage our R&D machine and really have been impressed with <unk> analytics, and where that can go in and the great team and great technology that brings so so yes. So based on where we are I'd say more moderate but incremental from new products getting that positive.

Feedback now and thus far really should make us more diversified and give us more opportunity and drive more conversations next year. It's all very differentiated new products. We're contemplating so we believe that to be an important contribution for us in 2023.

Okay helpful. And then just maybe following those comments just on the rebel side. The macro concerns that you highlighted there is do you expect that to impact pull through in <unk> for the rebel relative to <unk> levels or is that mainly an instrument placements issue.

And then Kevin I hear you on the industry level data for cell and gene, but you guys are still in the pretty early innings of penetrating that market. So.

Are you, saying that the new trial start trajectory is sort of outweighing. The overall level of activity taking place that arm report does put the number of trials globally at over 2000.

Installed base at like $1 50, or 200 come the end of the year. So it does seem like there's a lot of opportunity. There. So a lot of room to play systems can you just talk about.

The selling environment and just how you are finding conversations within a pretty large overall market to be thanks.

Yes, absolutely I mean from the selling conversations youre right only about 20% of our of our rebels or going into that cell and gene and while it is slowing you would expect there is additional opportunity to pursue there as well as outside of cell and gene I think what we're just generally seeing Dan is that people are slowing down their desire to grab new technology in <unk>.

Change the way they are doing it we literally had labs that have been a good pull through customers for us go from having a dozen employees to down to two and they are trying to build basket. So theres a lot of training a lot of retraining theres a lot of focus on taking the limited dollars they happen and applying it to a replacement product for something status quo.

And it takes work to adopt a new product new technology and get across the chasm. If you will and it takes effort on the customer side of 908 side and it's just a new way of doing things. So I'd say across the board with the Biopharma spending we're just seeing more of a reluctance in a slowdown from that perspective on the pull through than in Europe .

Bella and the pull through and device versus consumer.

As I noted definitely an impact on the device side here in Q4, as we look to finish up the year and moving into 2023, but on the robotics. We are striving for that active users to be approximately one per month on average that's about.

40% pull through for those users we have been seeing some pressures on that currently we were probably closer to half of it per month versus one per month for those active users and some of those are the employee turnover that we're seeing within and need the training and retraining the project priority within our customer accounts needs to be clear.

To kind of drive some of that.

Cross the chasm per se on the new technology adoption, I think getting a different route.

It's not just the devices, but also some on the consumable pull through as well.

Okay I appreciate it thank you.

Thank you.

One moment for our next question.

Our next question comes from the line of Puneet <unk> from Leerink.

Yes, hi, guys.

This is a meaningful reduction in guidance. This year I mean, obviously the questions are for 2023.

I think Kevin the question that I have it really is.

You have 80 or so folks in the commercial organization today. They were hired last year. They are fully trained and productive right now.

So you essentially have a strong sales force you are seeing some slowdown in clinical trials you are still early in this ramp you have an innovative product that is highly differentiated versus the rest of the market in terms of the accuracy. The ease of use all of those benefits out. There. This is still very much a still process della.

And in clinical trials so.

It just.

The challenging to see sort of why that slows down so meaningfully here.

And maybe can you talk to us about sort of.

What's your line of sight there when do you think this can sort of improve what are you hearing from the customers on the rebels side.

And then I have a follow up on nine or eight nine rate.

Yes sure sure.

As we mentioned about two thirds of that guidance adjustment of $6 million as we attribute more to the to the handhelds and about one third to our desktops, which which will be led by rebel there.

From a customer sentiment I would say that.

As I mentioned, a little bit earlier on the Q&A here for Dan, but we're just seeing a general slowdown for people to adopt new technology, I think youre right, we've got a pretty compelling offering and rebel in terms of what it can do and the fact that it can do things outline that really speed it up and we're so excited to showcase things now out with our customers.

Like the CPI data that demonstrates that so I think what we're seeing and what we're feeling is that we really have to double down on that type of messaging and making sure that we're explaining that value prop and how this does save time and money and efficiency to those customers because as you know today they'll send it out to a central lab.

But that's what they do and today, we're trying to work with them to adjust their feeding strategies change how they're approaching their bioreactor monitoring so they can get better outcomes and better efficiencies. So we're working with groups to showcase that some of that we've done at our critical mass event.

Data from a rep perspective, youre right across the world here across handhelds and desktops, we've got 80 people in our sales and marketing team we are chasing.

And around that 80 today were close to that number but we do have some ebbs and flows in that number or whether we're ending at 75 or 82 were really trying to be very thoughtful planned and making sure. We're.

We're spreading across the right the right regions.

We are focused on growth there and we don't want to be too lean or too heavy.

We do see rep churn on occasion, and I don't think we're seeing more than the industry is feeling but that's not that's not zero and we are a small small company. So you don't have a lot of redundancy across your your different geographies there, but in a normal year, it's a little easier to predict that as you said rep productivity.

Activity in that after a particular period that the top line impact, but we've certainly seen reps, where our desktops and helps contribute big very new reps to it but we've also seen and maybe just just after nine months, but we've also seen other reps that we're sure going to be great. Just just just not having out of the park success yet this year. So there is.

Definitely a macro overlay there as you work to get new products get announced and adopted.

Okay. That's helpful and actually a quick follow up on <unk>.

<unk>.

In terms of the new product launch.

Online product that is expected to correct me if I'm wrong, it's still 2023, what's the timing of that and what can you tell us about that I don't know if Chris is on the call, but what can you tell us about that product and how that's.

Setting up.

Yes, yes.

To cover that we've already said that the rebel online. If you will is more about 2024 situation.

We're really excited though is to offer other online products that can be a prelude for that and leveraging our tres analytics acquisition. So.

We're very excited that the first one of those get out into the market.

Early Q1, and a second one shortly thereafter and so all of these efforts are really trying to steer and push us further into that bio processing for Plano domain and adding to the to the operating of our analytes and the process parameters, but also introducing some elements of process control and getting us out there with that online analytics.

Ability that than us.

It's more of a two step as we seek to accelerate our rebel online efforts both development and commercially. So yes, we're very excited about it and getting a strong roadmap where we've got some of these products are the outlets with kols and are getting some some good feedback.

Happy with that acquisition of <unk> analytics, very differentiated and it enables online capability for multiple products that we've got on our on our roadmap here.

That's a big differentiator from where 98 ships in that we're able to spend new products and adapt because we have a pretty comprehensive set of technologies here, but yes very excited for the road map to come.

And then just lastly on Amex 90 weight I mean, you seem to be expanding the application base there.

Pesticide into other products and <unk>.

A lot release testing and things like that so.

Could you talk to us about sort of as we think about 2023.

<unk>.

How diversified.

Ken Ken the offering product offering a b from an applications perspective, obviously army and forensic there's a large component right now for you, but just maybe talk to us sort of what sort of a diversification should we expect on an application basis. Thank you.

Sure.

The handheld as you mentioned, our largest go along into that forensics set okay.

Those applications.

Related in some way back to start knowing the opioid crisis and whether those are aerosol hazards or counterfeit drugs that people are swabbing on a surface.

Continuing to see growth there outside of the U S. Army, we mentioned good growth in orders year to date.

Outside of the U S Army work for those.

You are right. We are also always trying to expand our analyzed panel and capabilities on a handheld to dwell and we did just announce more work we've been doing with USDA, specifically the U S Forest service to develop a pesticide library.

Really for the environmental impact.

And safety impact around the illegal use of pesticides on federal federal lands and we do see that Thats a way for us to just get out there explore have more conversations in that in that.

Space.

But yes, I think we're excited where the handhelds will continue to grow and we now have over 800 and as we mentioned before we're working on new products, there as well that will keep shrinking down to form factor and we think will be compelling cycles.

Cycles over the next couple of years as well so yes, I think it's a good good platform for us that we're continuing to invest really want to own that handheld detection space.

Okay. Thanks, guys.

Yes.

Thank you one moment for our next question.

Our next question comes from the line of Matt Larew from William Blair.

Hi, This is actually modeling moment on for Matt Lerew.

One quick one for me I think you've said in the past that one third of rebel users had open purchase orders for consumables, meaning they were ordering multiple kits at a time have you seen any impact from these customers who are buying in bulk in terms of destocking is that a concern at all that they have now made a large purchase orders and they won't be they will be last pull through for consumables going forward.

Yes.

We have seen you are right. We have people on what we think more of a blanket purchase order where they sign up for a set number of hits that could be six that could be 12 to be delivered typically they sign up for anomaly. One a month and then they can call us to pull those into our push those out based on their their project schedules and we've seen both cases, but we've also.

<unk> seen with some of the macro dynamics. We've also seen some customers, having layoffs, and then calling us and saying we need to delay those kits or cancel that order altogether.

Got it. Thank you and then just in general.

In terms of the recent election do you see any change to government spending priorities that would make an impact on investment in your offerings.

Yes, that's a great question I mean, we're continuing to monitor that very closely we do have a legislative effort, where we are we try to work.

On the advocacy side as well.

Rental is very important we certainly seen some headwinds with what we call. It more of a macro level with just limited funding thats been available that some of our customers, particularly one.

On the southern border across the board multiple organizations really hit by.

Migrant crisis, there were a lot of resources are being taken from technology and needed for humans to to help with that problem.

We'll have to see what transpires here with the elections.

Near term and longer term sentiment, but I think we do have good visibility.

Share publicly in the past that.

Kevin Mccarthy had been gotten a firsthand demo through the Ohio PCI of Arbor technology set and that's all positive.

There is an awareness that more needs to be done for the spending on opioid crisis, Joe and I are just mentioning that there is there were articles on are driving this morning more around counterfeit drugs. So I think the government certainly viewed that as a problem I think it's also becoming more of a global problem.

And so I think we'll continue to see resources on it but maybe too early to tell us does it.

Change.

Great. Thank you.

Thank you I would now like to turn the conference back to Kevin <unk> CEO of <unk> for closing remarks.

Yes. Thank you. Thank you all very much for your attendance and we appreciate your time this morning.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good day and thank you for standing by welcome to the nine no wave devices third quarter 2022 financial results Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone please be advised that today's conference is being recorded.

Now I'd like to hand, the conference over to your Speaker today Kellie Gould Investor Relations. Please go ahead.

Thank you. This morning 90 weight devices released financial results for the third quarter ended September 32022, 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 at nine O eight devices dotcom.

Joining me today from anyway, if Kevin Dotts, Chief Executive Officer, and co founder and Joe Griffith, The 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 nine weight 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-K for the year ended December 31, 2021, and then its other filings with the Securities and exchange question.

Except as required by law like 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.

Conference call contains time sensitive information and is accurate only as of the live broadcast November 14th Toric, ICL, but thought I'd like to turn the call over to Kevin.

Thanks, Kelly good morning, and thank you for joining our third quarter 2022 earnings call I'd like to start off by thanking our entire team for their tremendous effort in bringing the third quarter. Two successful close I'm really proud of their continued focus and dedication to support our customers' critical to life application. We are operating in a challenging Matt.

CRO environment, and our team is going above and beyond we delivered strong growth during the third quarter with revenue increasing 26% over the prior year period to $15 8 million.

About 20% of third quarter revenue lift from the remaining U S Army device shipments and 80% was from new business and other customers. While we are pleased with our third quarter results and year to date performance, we have begun to see a slowdown in our funnel with prolonged purchasing cycles over the summer months and into the fall. We believe this is largely due.

The adverse impact of macroeconomic factors across the markets. We serve we expect these headwinds and impairment to continue over the next couple of quarters.

Given this impact we now expect full year 2022 revenue to be in the range of $46 million to $49 million, representing annual growth of 13% at the midpoint of the range as discussed on our last earnings call progression of a few larger handheld opportunities would be required to achieve our previous full year guidance and we have.

Seen protracted cycles and test trials pilots to enterprise conversion. Despite this near term pressure, we firmly believe the opportunity for rapid and robust analytics at the point of need is as strong as ever.

This positive view was reinforced at our user meeting in September critical mass 2022, which covered the full breadth of our product platforms and their application. This event brought together more than 175 customers, both virtually and in person to share their success using our mass spec devices to provide rapid and robust actual.

Information at the point of need.

We heard from customers, serving and expanding industry, academia and government, including Boehringer Ingelheim.

<unk> University, Ohio Bureau of criminal investigation, and the Fresno, California Police Department. It was truly inspiring to hear the impact that our technology is having to advance biotherapeutics and combat the opioid crisis.

Now I'd like to provide a brief update on our progress across the five focus areas. We set for 2022 to drive growth over the longer term.

Starting with our first objective of driving customer adoption.

For our desktops, we are continuing to see underlying demand for more advanced therapeutic the need for more process control and the steady increase in proteomics and metabolomics research all of which fuel the biopharmaceutical industry's long term growth. However, the shift in the macro environment has begun to slow some near term demand for our desktop.

Devices, particularly in cell and gene therapy applications, where our technology is being adopted that support the process development preclinical space.

Ongoing clinical trials globally decreased by 13% from the end of 2021 and investment levels have slowed after two record breaking years.

Across our desktop we continue to see orders from a fairly even split between new and existing customers with our rebel device. We continue to see traction with additional units and several of the top 20 pharma companies and with some of these companies ordering their second or even fourth device with their ZIP chip device Genentech procured its fourth unit.

Create a foothold and then radiate across the enterprise account will continue to drive broader adoption and acceptance over the long term.

Turning now to our handhelds.

The opioid crisis shows no signs of abating in August the National Center for Health Statistics, a division of the CDC announced that U S life expectancy decrease last year to its lowest level since 1996, while COVID-19 was the primary cause of the decline another leading cause was unintentional death, mainly.

Comprised of overdoses.

This crisis continues to be a major driver of customer adoption. There are several recent news report the highlight the severity of the ongoing crisis in September New report highlighted a shortage of adderall used to treat ADHD and noted the dangers of sourcing the drug on the street as these counterfeits contain fentanyl and other drugs.

The FDA has confirmed the adderall shortage, noting that several generic forms may not be available until March 2023, and in Rhode Island.

36, more than 660000 counterfeit outercoat pill containing methamphetamine also in September the DEA issued an advisory warning a brightly colored vessel also known as Rainbow Tandy fentanyl use to target young children.

<unk> has six multiple forms of rainbow fentanyl, including pill powder and blocks that resemble sidewalk chalk finally in August the Australian Federal police and the Australian border Force announced the seizure of the largest vessel shipments detected in Australia, preventing more than 5 million potential lethal doses of the drug hitting the street, while EBITDA has noted that venmo.

Is the deadliest drug threat facing the U S. We are seeing more and more evidence of it becoming a global crisis.

These sobering statistics and alarming news reports continue to highlight the need for first responders and other frontline workers tag trace chemical detection at the point of need to combat the spread of highly dangerous drug a.

A case in point is the increase in drugs coming in personal mail and legal correspondence at Correctional facility. We received several orders for regional County jail for Nx 98 device throughout the year with another order in third quarter for five devices from a department of corrections based in new England.

It's kind of Aero module enables users to monitor detect and identify deeper in aerosol hazards quickly and safely.

Turning to our second objective accelerating commercialization.

As of the ended the third quarter. We now have over 220 employees worldwide and are close to reaching our goal of 80 commercial team members that said, we continue to be thoughtful reviewing plan commercial expansion across all our regions admit this uncertain macro backdrop.

Turning to our third objective developing and advancing our product portfolio. We continue to unlock our platform capabilities through consistent releases of additional analyte assay accessories and data integration in order to increase areas of use for our customers and to penetrate our addressable market.

For handheld we expanded the capability of our Nx 90 weight device to detect eight highly toxic and illegal pesticides. These pesticides are being used to grow illegal marijuana, primarily on federal land posing a threat to the environment water sources wildlife and people.

The issue is particularly critical in California, where the state is expanding its multi agency seasonal illegal marijuana eradication program. This will now be a year round effort with the aim of prosecuting underlying labor and environmental crime previously federal personnel had no safe and reliable method the conduct pesticide testing at the site is illegal marijuana.

It grows and had to send samples to a central lab, often waiting several weeks to conduct a safe site remediation in January of this year, we announced a research collaboration with the United States Forest service and agent CB, United States Department of agriculture to extend the capabilities the nx evaluate to detect these illegal pesticides.

For our desktops, we continue to develop and refine fits to meet customer needs. We introduced version two point out of our spent media analysis for rebel which provided additional analyte and enhanced calibration for improved accuracy and quantification resolved. We're developing another focused rebel kit to be released in the first half of 2023.

That pushes the boundaries of the analytical performance for specific set of immuno acid, commonly measured the most application.

In regard to our acquisition of trace analytics in August we're extremely pleased with how well the trace team is integrating with our R&D team to further our online development effort.

As you May recall, our acquisition of trades provided us with online Aseptate fiery after sampling and biosensor technology, which is a central addition to our Microfluidic technology color and will help us unlock more of our total addressable market their technology and single use and reusable configuration has been proven in mammalian cell culture.

<unk> and microbial fermentation at all levels of the bioprocess chain from research and development to large scale production.

At our user meeting looking kind of <unk> analytics founder and now the head of our bio analytics R&D presented the benefit of automated control of glucose in lactate in our process development lab, which include cell free sterile and safe Stapley with no volume of prep required.

As we've noted our main focus this year has been to build upon the capabilities of our existing products and expand the reach of our technology platform. In 2023, we plan to shift our focus to releasing two new devices. We are excited to share more detailed early next year as we expect them to be impactful in 2023.

Turning to our fourth objective broadening our bio analytics platform as more advanced therapies into the pipeline biopharma manufacturers need to identify and understand critical process parameters and their impact on critical quality product attributes during process development and the entire bio manufacturing workflow our devices are.

Well positioned to meet this need we continue to collaborate with key industry partners and academic institutions to demonstrate the value of our technology and providing rapid and robust information that enables manufacturers to accelerate biotherapeutic workflows.

This value has been highlighted at a number of industry events over the past few months, our collaboration with the center for process innovation and independent innovation organization that in the U K demonstrated the value of outline cell culture media analysis to inform BD strategy for <unk>.

There were several other posters presented by our collaborators at the CE Farm Symposium and the cast mass spec conference, including biotech any current gene Thermo Fisher scientific and protein metric. These posters highlighted the use of our <unk> device for several applications, including characterizing illegal nucleotide peptide mapping of recombinant AAV is in charge.

Variant analysis of small molecule.

This chip benefit highlighted in these posters included high resolution and high sensitivity comparable to LC Ms method, but much faster separation with minimal sample volume in the case of Oligos no harsh impairing region.

Also at the show our principal scientist from selected in a biotech company presented on mass spec based characterization workflows and biopharmaceutical development labs, and noted ZIP chip capability to perform high resolution separation, while minimizing sample prep for <unk>.

Finally at our user meeting scientists from Boehringer Ingelheim, how does it fit very fast separations and high sensitivity characterizing product quality attributes and that religion.

In monoclonal antibody. Additionally, on my T. Researchers underscored rebels value and their ability to rapidly monitor and profile nutrient consumption of recombinant AAV producing cells in the perfusion process.

And finally, turning to our longest term objective laying in <unk> Foundation, we see a clear an emerging need for accelerating mass spec based workflows to address proteomics and metabolomics opportunity. We continue to foster a cadence in publications technology and research with predict near academic institutions and research partner to support future product launches.

Workload specific to the Omics domain.

Researchers use it coupled with the broker mass spectrometer and noted it fast separation time of within three minutes, along with a high confidence of analyte identification.

As previously shared we are advancing our microfluidic chip to address emerging proteomics and metabolomics opportunities last month, we hosted a meeting of our proteomics scientific Advisory Board, where key opinion leaders, providing guidance and feedback on the direction of our AUM, It's facing research and development efforts, our scientific Advisory Board members we're enthusiastic.

We're fortunate to have this remarkable group of thought leaders share their insights as we advanced our development efforts.

In summary, we remain encouraged by the value of our technology platform is providing to our customers to break <unk> out of the confines of a centralized laboratory and bring it to the point of need while we faced some near term macro pressure, we continued to focus on serving our customers extending our user base and making our technology, even more accessible to broader audiences, which opened.

Stores from new uses and applications with that I'll now turn the call over to Joe for more details on our financials.

Thanks, Kevin.

For the third quarter, 2022 was $15 8 million compared to $12 5 million in the prior year period, representing growth of 26%.

This increase was primarily driven by desktop device placements and increase in handheld recurring revenue and an increase in service revenue across both handheld and desktop devices.

About 20% of our third quarter revenue was from the remaining U S Army device shipments, which compares to approximately 40% of the prior year period total revenue.

Handheld revenue from our <unk> nine away product was $11 million, an increase of $1 7 million compared to the prior year period, representing growth of 18%.

Desktop revenue from our rebel and ZIP chip products for the third quarter 2022 was $4 4 million compared to $2 9 million in the prior year period, representing growth of 51%.

The increase in recurring revenues was evenly split between an increase in service revenue and an increase in Aero modules.

Our installed base grew to 2317 units with 175 devices shipped during the third quarter.

This included a 150 <unk> 908 handheld devices 18 rebel desktop devices and seven ZIP chip interface desktop devices.

Gross profit was $9 3 million for the third quarter of 2022 compared to $6 8 million for the prior year period.

The increased gross profit was driven by an increase in product and service revenue.

Gross margin was 59% for the third quarter 2022, as compared to 54% for the prior year period.

The increase in gross margin was due to higher service revenue and average selling prices for our devices offset in part by higher personnel and operating costs.

Gross margin was 57% year to date.

Total operating expenses for the third quarter of 2022 were $16 5 million compared to $12 1 million in the prior year period.

This increase was driven by head count expansion across our business of $1 2 million increase in stock based compensation and an increase in marketing activities and travel expenses.

Net loss for the third quarter of 2022 was $6 3 million compared to $5 2 million in the prior year period.

We ended the third quarter of 2022 with approximately $194 million in cash and cash equivalents. In addition, we had approximately $15 million of debt outstanding.

Our trailing 12 months of cash used for operating activities was $25 million as of September 30, and was approximately $29 million for the full year 2021.

With approximately $180 million of net cash as of quarter end and our cash utilization.

We have multiple years of runway to focus on our product innovation market penetration and commercialization efforts, we have implemented over the last few years.

Now looking ahead for the remainder of 2022.

Now expect full year revenue to be in the range of $46 million to $49 million, representing 13% growth year over year at the midpoint of the range.

Specifically, our team driving strong adoption of our handhelds through the end of the U S government fiscal year, capturing year end biopharma spending.

Mitigating continued disruptions in APAC.

Unfortunately, we have seen opportunities push out beyond the end of the U S government fiscal year.

Kevin mentioned progression of a few larger handheld opportunities would have been required to achieve our previous guidance range and we have seen protracted cycles and test trials pilots to enterprise conversion.

We believe in part this is due to prioritize resources for Ukraine and surrounding regions. The diversion of resources to the southern border to assist with the migrant crisis, taking away from drug interdiction.

And Covid recovery.

In addition for our desktops are revised guidance range now assumes desktop revenues to grow by approximately 30% over the prior year.

Specifically these factors include talent migration across organizations, resulting in delays adoption and a training retraining burden.

Large capital purchases canceled for associated Bioreactors.

<unk> priority of our devices and layoffs at small and large biotechs, resulting in canceling of consumables.

At this point I would like to turn the call back to Kevin for closing comments.

Joe I am confident in our long term trajectory and feel we are laying the groundwork for both near term and long term success in the near term our team remained focus to progress our handheld opportunities through test trial, a pilot and expand to enterprise accounts catalyzed referenced desktop accounts across top pharma for our desktop two innate.

Evil or penetrate and radiate strategy scale, our operations to ensure the highest quality products in the face of ongoing supply chain pressures.

Supporting our customers pre and post <unk> to help ensure proficiency on our devices as they face unprecedented employee migration and bolster service and support reach particularly in APAC and pace of continued China Lockdown and the limited ability to transit through the region.

As we look ahead to 2023 and beyond we believe 90% <unk> devices is uniquely positioned to capture the opportunity in front of US we have multiple new product releases slated for 2023 in the bio processing monitoring space with the first being launched early in Q1 and the next shortly thereafter.

We have a diversification in defensive position with their handheld offering in the forensic space and have seen order growth of more than 50% year to date beyond the U S. Army device orders. We believe these handhelds will continue to be critical with rising geopolitical uncertainties and the ongoing threats milk prices and finally, we have a strong cash back.

And with the runway into 2025, as we have remained efficient and thoughtful and spend and head count with that we'll now open it up to questions.

Thank you.

A reminder to ask a question you will need to press star one one on your telephone again, you will need to press star one one on your telephone please standby, while we compile the Q&A roster.

Our first question comes from the line of Max Masucci from Cowen.

Hey, thanks for taking the questions.

Yes.

Maybe just just to start.

It would be great to hear just based on the trends youre seeing in biologics preclinical activity.

Based on feedback from our critical mass and then just for.

Or how we should calibrate our 2023 expectations for.

For rebel and ZIP chick placements and utilization.

Yes.

Sure happy to and yes, maybe we can just dive into some of the bits you mentioned on the kind of the spending in those profiles for the desktop customers.

As mentioned in the script there I mean, I think we are just seeing a lower level and slowdown a bit across the board for some of the handhelds desktops and desktops, particularly as mentioned just seeing some some slowdown in the large capital purchases with the fiery actors that delays the priority for our devices and we are seeing layoffs.

Our customer base.

And we're just frankly not seeing the same amount of year end capital spend at this time for new Tech, which is which is ours and as you know, we're really not riding a replacement cycle for it.

And that.

It gives us less of a visibility than maybe some of the large cap instrument companies.

We are selling as you mentioned really into that preclinical space with these novel desktops and things are tightening. So all of that we really see is a.

That isn't a 98 specific phenomenon, but an industry phenomena you can dive into that deeper and think about bio pharma spending in particular and you can see a slowdown in that cell and gene therapy space, which we've been trying to gain a foothold in.

We've mentioned in the past about 20% of our rebels or in that space.

As noted earlier talent migration across the organizations large capital purchases cancel for associated both bioreactors layoffs at small and large biotechs.

As we look at the Delta of how we brought down our guidance, we attribute approximately two thirds, the handhelds and a third the desktops and the change in desktop coming from slower than anticipated final progression for our rebel.

We are being cautious may not see the same year end budget flush, resulting with those new placements and we anticipate it could be a couple of quarters of impairment as the volume patterns you to change that preclinical level that you mentioned.

Okay great.

And then we haven't seen the 10-Q, yet, but it would just be great to hear about.

Some of the regional demand trends experienced during the quarter.

Just generally what are you seeing any major uptick or downtick in growth in any of the regions that you breakout.

Well youll see our Q hit the.

Hit the line before market here, but geography, its about 80% in the Americas.

Eight.

Yes.

If you think specifically in Europe as you know we've been really trying to bolster over this year, what we're doing internationally broadly mainland Europe with some in the middle east and a bit in APAC.

Yes, as Joe said, the EMEA is probably about 15% of our revenues, but we do see that.

As additional opportunity there.

And we're selling through distributors today, and so less of an exchange impact, but we can talk through any dynamics there. So.

Not all downside I would say across that Europe region, specifically, if you think about some of the pressures from the Ukraine War and U S partner Nations, and it's causing a bit of a look around to see if they have the.

The best of class a tenant protection capabilities.

APAC APAC has been a bit harder for us had been about a small percentage of revenues, it's maybe 5% of our year to date revenues.

And we sell through distributors, there, but yes, we're not seeing the upside due to those firms is that multiple parties have mentioned they're out there.

We've got a small team to build a transit and support applications.

Units across the region.

We actually have our head of commercial isn't anything right now as we speak.

Okay.

Makes sense just one final one for me the gross margins of delivered solid outperformance versus our expectations over the past few quarters.

Rising asps for devices was cited as a contributing factor to the strong gross margins. This.

This quarter.

Be curious.

If you can give us a bit more detail around how pricing has trended maybe both on the device and the consumables side.

Okay.

Happy to have been pleased with the gross margins year to date and within the quarter and the Asps have been a piece of that and an element.

Yes.

And whether it's to distribute.

No more.

Direct here in the U S and was about 80% here in the Americas, but we did put some price increases in effect at the beginning of the year that started to kick in in earnest here in Q3, but in Q2 as well.

Elevated.

Okay.

Sure.

Some of our kits and other consumables, where we did not increase the pricing for 2022, so a lot of that ASP benefits.

Benefits is coming through the device themselves and we will take a hard look at it going forward based upon the different market factors in what we do for 'twenty three but it is good to see our customers see the value of the technology and leaning towards purchases at higher price points.

Okay. Great appreciate you taking the questions.

Thank you.

One moment for our next question.

Our next question comes from line.

No Dan Arias from Stifel.

Yes.

And then when you look to look at total year over year growth.

Realizing that Youre going to guide formally in <unk>. What is the what is the right way to think about the year over year there.

Yes.

Yes, a little bit on the RV side, as we mentioned about 20% of our.

Our Q3 revenue was RMB, 80% was from from other business outside of that with that said there is ongoing responsibilities on the serving of service side that's right.

About that service contract Theres about 5 million of ongoing service revenue over the period, where they committed to technology upfront and I think I've disclosed that it goes through September 2025.

So about three years of service.

Thats recognized on a recurring revenue basis.

Within the quarter, we did see.

Army adopting the arrow capabilities, and that's about $1 million of.

Recurring revenue a ship relate to those aero modules in the third quarter and the remaining portion of that additional order will be here in Q4.

Moving forward.

I mean, if we if we can take your question about what does 2023 look like with that.

Back drop.

Yes.

Totally.

Okay.

Of course here, but if we just step back at a high level to think about it yes likely more moderate growth.

Over the first half of the year and particularly as some of the volume patterns need to change in that preclinical level to support our desktops.

We certainly don't want to see any more macro impacts to deteriorate earlier. We are we are seeing that as we mentioned kind of a couple of quarters.

We really don't believe that that much of that.

What annuities.

How are you.

Set up for 2023 in terms of new products and we are engaging now with kols on that the first will launch in early two one leverage this is kind of extrapolation.

Expands our analyte panel a bit in many ways might provide an on ramp to further rebel adoption and good afternoon.

Great your device release slated to following in short order. So we're definitely not standing still there as we leverage our R&D machine and really have been impressed with <unk> analytics, and where that can go in and the great team and great technology that spring. So so yes, so based on where we're at I would say more moderate but incremental from new products getting that positive.

And then Kevin I hear you on the industry level data for cell and gene, but you guys are still in the pretty early innings of penetrating that market. So.

Are you, saying that the new trial start trajectory sort of outweighing. The overall level of activity taking place that arm report does put the number of trials globally over 2000 and.

And we have your installed base at like $1 50, or 200 company end of the year. So it does seem like there's a lot of opportunity there. So a lot of room to play.

Play systems can you just talk about the.

The selling environment and just how you are finding conversations within a pretty large overall market to be thanks.

Yes, absolutely I mean from the selling conversations youre right only about 20% of our of our rebels or going into that cell and gene and wallet is slowing you would expect there is additional opportunity to proceed there as well as outside of LNG and I think what we're just generally seeing Dan is that people are slowing down their desire to grab new technology in <unk>.

The way they're doing it we've literally had labs that have been a good pull through customers for us go from having a dozen employees to down to two and they are trying to build basket. So there is a lot of training. There is a lot of retraining. There's a lot of focus on taking the limited dollars they happen and applying it to a replacement product for something status quo.

And it takes work to adopt a new product new technology and get across the chasm. If you will and it takes effort on the customer side of 908 side. It's just a new way of doing things. So I'd say across the board with the Biopharma spending we're just seeing more of a reluctance in a slowdown from that perspective on the pull through.

And then you asked about on the pull through and device versus consumer.

As I noted definitely an impact on the device side here in Q4, as we look to finish up the year and moving into 2023, but on the rebel pits. We are striving for that active users to be approximately one per month on average and that's about 40% pull through for those users we have been seeing some pressures on that currently.

We are probably closer to half per month versus one per month for those active users and some of those are the employee turnover that we're seeing within and need the training and retraining. The project priority within our customer accounts needs to be clear to kind of drive some of the cross the chasm per se on the new technology adapt adopt.

I think getting a different routes. So it's not just the devices, but also some on the consumable pull through as well.

Okay I appreciate it thank you.

Thank you.

One moment for our next question.

Our next question comes from the line of Puneet <unk> from Leerink.

Yes, hi, guys.

So.

This is a meaningful reduction in guidance. This year I mean, obviously the questions are for 2023.

<unk>.

I think Kevin the question that I haven't really as.

You have 80 or so folks in the commercial organization today that were hired last year. They are fully trained and productive right now.

So you essentially have a strong sales force you are seeing some slowdown in clinical trials you are still early in this ramp.

You have an innovative product that is highly differentiated versus the rest of the market in terms of the accuracy. The ease of use all of those benefits out. There. This is still very much a still process development and clinical trial. So.

It just sort of the challenging to see sort of why that slows down so meaningfully here in.

And maybe can you talk to us about sort of.

What's your line of sight there when do you think this can sort of improve what are you hearing from the customers on the rebels side.

And then I have a follow up on 99 right.

Yes sure sure.

As we mentioned about two thirds of that guidance adjustment of $6 million as we attribute more to the handhelds and about one third to our desktops, which which will be led by rebel there.

From a customer sentiment I would say that it is.

As I mentioned, a little bit earlier on the Q&A here for Dan, but we're just seeing a general slowdown for people to adopt new technology, I think youre right, we've got a pretty compelling offering and rebel in terms of what it can do and the fact that it can do things that line is really speed it up and we're so excited to showcase things now out with our customers like.

The CPI data that demonstrates that.

What we're seeing and what we're feeling is that we really have to double down on that type of messaging and making sure that we're explaining that value prop and how this does save time and money and efficiency to those customers as you know today they'll send it out to a central lab, but that's what they do and today, we're trying to work with them too.

Adjusted their feeding strategies change, how they're approaching their bioreactor monitoring so they can get better outcomes and better efficiencies. So we're working with groups to showcase that some of that we've done at our critical mass events.

CPI data from a rep perspective, youre right across the world here across handhelds and desktops, we've got 80 people in our sales and marketing team.

Chasing.

And around that 80 today were close to that number but we do have some ebbs and flows in that number so whether we're ending at 75 or 82 are really trying to be very thoughtful planned and making sure where we're.

Spreading across the right the right regions.

We are focused on growth there and we don't want to be too lean or too heavy.

We do see rep churn on occasion, and I don't think were seeing more than the industry is feeling but that's not that's not zero and we are a small small company. So you don't have a lot of redundancy across your your different geographies there, but in a normal year, it's a little easier to predict that as you said.

Rep productivity and that after a particular period that the top line impact, we've certainly seen reps, where desktops and hand helps contribute big very new reps to it but we've also seen and maybe just just after nine months, but we've also seen other reps that we're sure going to be great. Just just just not having out of the park success yet this year so.

There is definitely a macro overlay there as you work to get new products get announced and adopted.

Okay. That's helpful and actually a quick follow up on <unk>.

<unk>.

In terms of the new product launch.

Online product that is expected to correct me if I'm wrong is still 2023, what's the timing of that and what can you tell us about that I don't know if Chris is on the call, but what can you tell us about that product and how that's.

Setting up.

Yes, yes happy to cover that we've already said that the rebel online. If you will is more of a 2024 situation.

We're really excited though is to offer other online products that can be a prelude for that and leveraging our tres analytics acquisition. So.

We're very excited that the first one of those get out into the market.

Early Q1, and a second one shortly thereafter and so all of these efforts are really trying to steer and push us further into that bio processing for Dino domain and adding to the to the operating of our analytes and the process parameters, but also introducing some elements of process control and getting us out there with that online analytics K.

The ability that that is more of a two step as we seek to accelerate our rebel online efforts both development and commercially. So yes, we're very excited about it and getting a strong roadmap, where we've got some of these future products already out with Kols and are getting some some good feedback.

Happy with that acquisition of <unk> analytics, very differentiated and it enables online capability for multiple products that we've got on our on our roadmap here and I think that's a big differentiator from where 98 ships in that we're able to spend new products and adapt because we have a pretty comprehensive set of technologies here.

But yes, very excited for that roadmap to come.

And then just lastly on Amex nine weight I mean, you seem to be expanding the application base there.

Pesticide to other products and.

A lot release testing and things like that so.

Could you talk to us about sort of as we think about 2023.

How diversified.

Ken Ken the offering product offering a b from an applications perspective, obviously army and forensics is a large component right now for you, but just maybe talk to us sort of what sort of diversification should we expect on the application base. Thank you.

Yes sure.

The handheld as you mentioned, our large Gulf going into that forensics set up going forward.

Robert those application.

In some way back to the opioid crisis, and whether those are aerosol hazards or counterfeit drugs.

People are swabbing on a surface.

Yes.

And you're going to see growth there outside of the U S. Army. We mentioned good growth in orders year to date outside of the U S Army work for those.

We are also always trying to expand our analyzed panel and capabilities on a handheld as well and we did just announce more work we've been doing with USDA, specifically the U S Forest service to develop a pesticide library.

Really for the environmental impact.

And then safety impact around the illegal use of pesticides on federal Federal lands and we do see that that's a way for us to just get out there explore have more conversations in that in that.

That space.

Continuing to invest really want to own that handheld detection space.

Okay. Thanks, guys.

Thank you one moment for our next question.

Our next question comes from the line of Matt Larew from William Blair.

Hi, This is actually modeling moment on for Matt Farrell.

Large purchase orders and they won't be early last poultry for consumables going forward.

Yes, hi.

We have seen you are right. We have people on what we think more of a blanket purchase order where they sign up for a set number of hits that could be six that could be 12 to be delivered typically they sign up for anomaly. One hit a month and then they can call us to pull those into our push those out based on their their project schedules and we've seen both cases, but we've also.

<unk> seen with some of the macro dynamics. We've also seen some customers, having layoffs, and then calling us and saying we need to delay those kits for cancel that order altogether.

Got it. Thank you and then just in general.

In terms of the recent election do you see any change to government spending priorities that would make an impact on investment in your offerings.

Yes, that's a great question I mean, we're continuing to monitor that very closely we do have a legislative effort, where we are we try to work.

And on the advocacy side as well.

Federal is very important we've certainly seen some headwinds with what we call. It more of a macro level with just limited funding thats been available that some of our customers, particularly one on the southern border across the board multiple organizations really hit by.

The migrant crisis, there were a lot of resources are being taken from technology and needed for humans to help with that problem.

So we'll have to see what transpires here with the elections.

Near term and longer term sentiment, but I think we do have good visibility.

We share publicly in the past that.

Kevin Mccarthy has been gotten a firsthand demo through the Ohio PCI of Arbor technology set and that's all positive.

There is an awareness that more needs to be done.

The spending on opioid crisis, Joe and I are just mentioning that there is there were articles on are driving this morning more about counterfeit drugs.

I think the government certainly these are that is a problem I think it's also becoming more of a global problem.

And so I think we'll continue to see resources on it but maybe too early to tell if there's a particular change.

Great. Thank you.

Thank you I would now like to turn the conference back to Kevin <unk> CEO of <unk> for closing remarks.

Yes. Thank you. Thank you all are very much for your attendance and we appreciate your time this morning.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2022 908 Devices Inc. Earnings Call

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