908 Devices - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue from continuing operations was $11.8M (+59% YoY), driven by 86% growth in handheld product and service revenue; GAAP gross margin was 47% and adjusted gross margin 54%.
• EPS vs consensus: Primary EPS (SPGI) beat (actual -$0.19 vs -$0.27 est), while revenue was a slight miss (actual $11.78M vs $11.93M est); adjusted EBITDA loss improved YoY to -$4.6M.
• Full-year 2025 guidance reiterated: revenue (continuing ops) $53–$55M (11%–15% growth), adjusted gross margin mid-to-high 50s, adjusted EBITDA positive by Q4; no material 2025 AVCAD revenue assumed.
• Catalysts highlighted: Texas DPS $2M MX908 order shipping in Q2, rescEU deployments in EU stockpiles, and potential AVCAD full-rate decision by government FY-end (≥$10M annual at scale).

What Went Well and What Went Wrong

What Went Well

• Handheld product/service revenue surged to $11.0M (+86% YoY), with recurring revenue of $4.4M (37% of total) and 157 devices placed; installed base reached 3,172 (+28% YoY).
• International momentum and enterprise wins: rescEU shipments (108 devices to EU members), Romania deployed 27 MX908 units; U.S. federal (HSI) expanded to 65+ units; Texas DPS placed $2M order.
• Cost and margin trajectory: adjusted gross margin 54% (+~75 bps YoY) and adjusted EBITDA loss improved to -$4.6M; management reiterated reaching adjusted EBITDA positivity by Q4 2025.

What Went Wrong

• GAAP gross margin contracted to 47% (from 52% prior-year) due to intangible amortization and channel/geography mix; program revenue fell to $0.1M as AVCAD LRIP lapped.
• Operating expenses rose to $16.6M (from $11.5M), including a $2.5M non-cash contingent consideration fair value change and RedWave-related expense.
• Net loss from continuing operations widened to -$9.8M (from -$5.9M) and GAAP EBITDA remained negative; management flagged second-half seasonality and continued caution on government timing.

Transcript

Operator (participant)

Hello and welcome everyone to the 908 Devices First Quarter 2025 Financial Results Conference Call. My name is Becky, and I'll be your operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. I'll now hand over to your host, Kelly Gura, Investor Relations, to begin. Please go ahead.

Kelly Gura (VP of Investor Relations)

Thank you. This morning, 908 Devices released financial results for the first quarter ended March 31st, 2025. 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 [email protected]. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial Officer. Before we begin, our commentary today will include the presentation of some non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations of the most directly comparable GAAP financial measures can be found in today's earnings press release, which is available in the Investor Relations section of our website. Additionally, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the Press Release 908 Devices issued today. For a more complete 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, 2024, and in its other filings with the Securities and Exchange Commission. Except as required by law, 908 Devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, May 13th, 2025. With that, I would like to turn the call over to Kevin.

Kevin Knopp (CEO and Co-Founder)

Thanks, Kelly. Good morning, and thank you for joining our First Quarter 2025 earnings call. Two months ago, we announced a strategic transformation of 908 Devices. Today, 908 Devices 2.0 is concentrated on higher growth handheld markets aligned with powerful secular tailwinds, including rising national security funding, international preparedness initiatives, and the urgent public health response to the opioid crisis. With the divestiture of our biopharma desktop portfolio to Repligen complete, we have fortified our cash position and meaningfully reduced our operating costs. I'm really proud of our team's performance and execution in the first quarter. We delivered strong growth ahead of internal expectations while responsibly managing OpEX and spending. Revenue from continuing operations was $11.8 million, an increase of 59% over the prior year period.

Growth was driven by strong device sales, with our mass spec devices accounting for roughly 60% of revenue and FTIR products making up the other 40%. Recurring revenue increased 54% from the previous year and represented 37% of total revenues. Importantly, our adjusted EBITDA loss improved nearly 50% year over year in Q1 2025 compared to our previously disclosed adjusted EBITDA for Q1 2024 prior to our transformation. We are truly energized by the massive opportunity ahead for our premier devices in vital health and safety applications. We are pleased with the continued momentum we're seeing in the second quarter and remain well positioned against our reiterated full-year revenue guidance. Since the new U.S. administration has taken office, there's been a heightened priority on drug interdiction, a clear signal that frontline chemical detection is now a national imperative.

In April, the White House Office of National Drug Control Policy, referred to as the ONDCP, released its statement of drug policy priorities, setting the tone for a coordinated federal response to the proliferation of illicit fentanyl and other synthetic drugs. Beyond prevention and treatment, the ONDCP calls for advanced technologies to detect smuggling routes and equip law enforcement and first responders with tools to prevent overdose deaths. We see this as a major catalyst for future procurement opportunities. The increased emphasis on disrupting the global drug trafficking supply chain, particularly fentanyl flows from Asia through Mexico, is also prompting cross-border initiatives. We anticipate more foreign governments will invest in modernizing their chemical detection capabilities, and we are working to favorably position our handheld devices. This is part of a broader global trend. Ongoing geopolitical tensions, particularly in Europe, have amplified concerns around chemical threats.

In response, EU member states and NATO countries are significantly increasing their defense and counterterrorism spending. We're seeing strong interest in modern detection equipment across military and security agencies, and our mass spec and FTIR product portfolio is well positioned to meet these needs. To capitalize on these developing tailwinds and realize the vision for 908 Devices 2.0, we've established three strategic focus areas for 2025, targeting market expansion, advancing innovation, and reinforcing financial discipline. I'll walk through the progress we've made across each area in the first quarter. Our first focus area is increasing adoption of our devices to address global threats to public health and safety. Our devices deliver rapid and accurate answers at the point of need with minimal training, which is exactly what frontline responders need when lives are on the line. Our goal is to be the standard for advanced chemical detection in the field.

During the first quarter, we received a $2 million order from the Texas Department of Public Safety for our MX908 devices. Our mass spec devices for trace chemical identification will be deployed statewide to support frontline drug interdiction and narcotics enforcement. This follow-on order builds upon a successful pilot last year and reflects growing urgency to modernize public safety tools amid rising fentanyl-related deaths in Texas. To protect the public from chemical threats, the Washington Metro Area Transit Authority purchased two ThreatID and two XplorIR devices, adding to their existing MX908 units. The ThreatID provides chemical identification of over 28,000 bulk solid, liquid, and gas substances, while theXplorIR can rapidly detect, identify, and quantify up to 5,000 gases in real time.

Also in the same region, the Metropolitan Washington Council of Governments, a regional planning organization that coordinates public safety across jurisdictions in the District of Columbia, Maryland, and Virginia, purchased eight XplorIR devices to support emergency response operations. This order builds on their existing MX908 fleet, further strengthening their frontline chemical detection capabilities. At the U.S. federal level, Homeland Security Investigations, or HSI, a premier law enforcement agency within the U.S. Department of Homeland Security and a key enterprise account, added a dozen MX908 devices during the quarter, bringing their total deployment to over 65 units. These devices support the trace, detection, and identification of drugs, explosives, and chemical warfare agents. Across Europe, heightened geopolitical tensions, including the war in Ukraine, are accelerating disaster preparedness investments. Through the EU's RescEU initiative, member states are building strategic stockpiles of response capabilities.

Our largest RescEU order to date was with Finland in Q4 for 90 Protector devices, which we completed the remaining fulfillment of in the first quarter. The Czech Republic's Fire Brigade also received six ThreatID devices in Q1, expanding on a previous purchase of six XplorIR devices as European emergency response agencies continue expanding and modernizing their detection toolkits. We're proud to be a trusted partner in this important EU initiative. We are seeing a growing trend of customers returning to purchase additional devices over time, highlighting strong satisfaction and demand across our product portfolio. By cross-deploying both handheld mass spec and FTIR technologies, they are building adaptable, resilient toolkits for emergency response. Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company. We are committed to the relentless pursuit of higher performance, breakthrough capabilities, and greater simplicity.

We recently released a software update for Protector featuring a new search algorithm that significantly improves the identification of complex solid and liquid mixtures. This condensed phase mixture analysis offers detailed breakdowns with confidence ratings, providing clear, faster decision support in the field. Looking ahead, we have new FTIR devices in development and remain on track for the 2026 launch of our next-gen handheld mass spec. Additionally, we expect to receive notice to proceed to full-rate production and begin to ramp deliveries for the U.S. Department of Defense AFCAD program by year-end. With our partner Smith's Detection, we are working through a handful of incremental improvement and fixes requested during evaluation and are encouraged as we believe we are meeting the program's detection performance expectations. As a reminder, this program has the potential to generate over $10 million in annual revenue at full production.

I'm excited to provide an update on all of these initiatives as we progress through the year. Our roadmap is rich with updates and releases through this year and next, serving as key catalysts to support our long-term growth trajectory. Supporting our growing U.S. government business more broadly, we have shifted much of our supply chain to domestic sources over the past few years. With all of our manufacturing now located in the U.S., we are in a strong position to mitigate the potential impact of tariffs on our products. As we develop new products, including the next-generation MX device, we will continue to prioritize U.S. manufactured components to strengthen this advantage. Finally, our third focus area is strengthening our financial position and accelerating profitability. We are targeting positive adjusted EBITDA by the fourth quarter of this year and full-year cash flow positivity in 2026.

The $70 million cash sale of our bioprocessing portfolio to Repligen has fortified our balance sheet and provides a meaningful margin of safety as we execute and drive towards cash flow break-even. The transition has been smooth and continues to progress on schedule, with completion of the asset transfer expected by the end of the second quarter. We have also begun transitioning all of our production from Boston to Danbury, Connecticut, and are preparing to relocate our corporate and R&D teams to a new cost-efficient headquarters in the Greater Boston area. We remain on track to complete the production consolidation in time to support our second-half revenue ramp. This move is expected to significantly lower facility costs, improve margins, and further strengthen our path to profitability. In summary, demand is accelerating, our pipeline's delivering, and our operations are scaling.

I'll now hand it over to Joe to review our first quarter financial performance.

Joe Griffith (CFO)

Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, our financials will be reporting continuing operations only, with any current and past activity related to our desktops, including the gain on sale, on one line item within discontinued operations in our financial statements. As we shared on our last earnings call, we will now report revenue across three categories. First, handheld product and service revenue. Second, program product and service revenue, which includes contribution from the U.S. Department of Defense AFCAD program. Third, OEM and funded partnership revenue, which includes contract revenue. Full revenue from continuing operations in the first quarter 2025 was $11.8 million, up 59% from $7.4 million in the prior year period, primarily driven by an increase in handheld product and service revenue and offset by an anticipated decrease in program product and service revenue.

Handheld product and service revenue was $11 million for the first quarter 2025, up 86% from $5.9 million for the first quarter 2024. This increase was driven primarily by $4 million in revenue related to our recently acquired FTIR products. We shipped 157 devices in the first quarter, compared to 53 devices shipped in the first quarter of 2024 prior to the RedWave technology acquisition, bringing our installed base to 3,172. Program product and service revenue was $0.1 million for the first quarter 2025, decreasing $1.4 million year over year. As a reminder, in the first quarter 2024, we recognized $1.5 million of revenue from our initial low-rate production delivery under the U.S. Department of Defense AFCAD program.

We are not assuming any meaningful revenue contribution from the AFCAD program in 2025, as we completed the initial low-rate production deliveries in Q3 2024 and are preparing for full-rate production in 2026. OEM and funded partnership revenue was $0.7 million for the first quarter 2025, with no comparable revenue recorded in the prior year period. This revenue was primarily driven by pharma and industrial QAQC customers. Recurring revenue, which consists of consumables, accessories, and service revenue, represented 37% of total revenues this quarter and was $4.4 million, a 54% or $1.5 million increase over the prior year period, largely driven by service and OEM revenues. Looking ahead, we expect recurring revenue for the full year to be approximately 30% of total revenue. Gross profit was $5.5 million for the first quarter of 2025, compared to $3.9 million for the prior year period.

Gross margin was 47% for the first quarter 2025, compared to 52% for the prior year period, with the decrease primarily driven by intangible amortization from the RedWave acquisition. Adjusted gross profit was $6.4 million for the first quarter of 2025, compared to $4 million for the prior year period. Adjusted gross margin was 54%, an increase of approximately 75 basis points compared to the prior year period. The increase in adjusted gross margin was driven by an increase in revenue offset by a higher percentage of sales through the international distributors. Total operating expenses for the first quarter of 2025 were $16.6 million, compared to $11.5 million in the prior year period.

The increase in operating expenses was driven by a $2.5 million non-cash charge for the change in the fair value of the contingent consideration liability and an increase in operating expenses primarily related to our RedWave acquisition in the second quarter 2024. Net loss from continuing operations for the first quarter of 2025 was $9.8 million, compared to $5.9 million in the prior year period. This increase was largely due to the $2.5 million non-cash charge that I just mentioned, intangible amortization with the RedWave acquisition, higher deal-related costs, and lower interest income. Our focus is managing adjusted EBITDA towards profitability. Adjusted EBITDA for the first quarter of 2025 was a loss of $4.6 million, an improvement from a loss of $5.3 million in the prior year period. As Kevin pointed out earlier, this is a major improvement compared to our adjusted EBITDA prior to our strategic transformation.

We ended the first quarter 2025 with $124.3 million in cash, cash equivalents, and marketable securities with no debt outstanding. The increase of $54.7 million in cash in the first quarter was primarily related to the net proceeds from the sale of our desktop portfolio. Excluding the sale proceeds, we consumed approximately $10 million of cash in the first quarter of 2025, related to our loss from continuing operations and working capital changes. Q1 is typically our largest cash-consuming quarter. The net proceeds from the sale of our desktop portfolio, combined with the streamlined cost structures we implemented in Q4 and our growth drivers for 2025 and beyond, gives us confidence we will cross over to cash flow break-even on a full-year basis in 2026 with a healthy cash balance.

Looking ahead in 2025, we continue to expect revenue from continuing operations to be in the range of $53 million-$55 million, representing growth of 11%-15% over full-year 2024 revenue from continuing operations. Our guidance range includes the following assumptions. First, we expect handheld product and service revenue to grow 11%-15% year over year, which equates to a range of $51 million-$53 million. Second, we expect OEM and funded partnerships, including contract revenue, to be approximately $2 million. Third, as mentioned, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense AFCAD program in 2025, as we completed the initial low-rate production deliveries in Q3 2024 and are preparing for potential full-rate production in 2026.

We expect total revenue growth to accelerate above 20% in 2026, driven by our three growth catalysts: expanding handheld adoption, launching next-generation products, and scaling our U.S. government programs. Moving down the P&L, we continue to expect adjusted gross margins to increase to the mid to high 50% range for full-year 2025, with further expansion in 2026 following our manufacturing consolidation in Connecticut, which is currently underway. We continue to expect to become adjusted EBITDA positive by Q4 of this year and cash flow positive on a full-year basis in 2026, supported by accelerated revenue growth and cost savings from our facility consolidation and desktop portfolio divestiture. Our guidance does not assume any significant impact from tariffs based upon current economic policies in place. Historically, about 75% of our revenue comes from North America. On the cost side, as Kevin mentioned earlier, our products are U.S.

manufactured, with our materials and components substantially sourced from domestic suppliers. As a result, we expect minimal impact in 2025, supported by our healthy component inventory and proactive supply chain management. We will continue to monitor this evolving environment. We delivered strong top-line performance in the first quarter and believe this momentum can continue throughout the year. That said, it's still early in the year, and given our typical second-half weighted seasonality, we believe it's appropriate to reiterate our guidance at this time. At this point, I would like to turn the call back to Kevin.

Kevin Knopp (CEO and Co-Founder)

Thanks, Joe. I'm incredibly proud of how our team has embraced this transformation and delivered meaningful progress against each of our strategic priorities. In just a few short months, we've reshaped our business, strengthened our foundation, and begun realizing the promise of 908 Devices 2.0. We're leaning into high-growth markets with urgency and focus, advancing chemical analysis innovation with a strong pipeline and making disciplined moves that accelerate our path to profitability. Just as we said last quarter, this is more than a restructuring; it's a relaunch. The strong start we've made in Q1 reinforces our conviction that we have the right team, the right products, and the right strategy to lead. With clear momentum and a fortified balance sheet, we're unlocking value and positioning the company to deliver strong financial performance and sustainable growth. With that, let's open it up to questions.

Operator (participant)

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Matt Larew from William Blair. Your line is now open. Please go ahead.

Matt Larew (Equity Research Analyst)

Thanks for taking my question. I wanted to ask on the commercial side, you know, you've now had RedWave here about a year, and you completed the commercial integration last year. Just want to get a sense for any additional benefits you're seeing from any cross-selling. I think, Kevin, you spoke to accelerating demand really globally. Just want to get a sense for whether you think you have the infrastructure in place to really realize and tackle that demand, or if there are any target investments that you might want to make.

Kevin Knopp (CEO and Co-Founder)

Yeah, absolutely. Thanks, Matt, for the question. Yeah, we're super excited about how the integration with RedWave has gone. We're just kind of at that year anniversary point, and it's really been a foundation for the transformation that we've been working on here, right? Because we went from one product to now four. So we've got a much larger portfolio, which has been helping us diversify our revenue streams there. I would say that, yes, the sales team has really been hitting stride with these products and really getting it out there. We have about 40 people in our combined sales and marketing team. We think we do have the right investments and the team in place to keep driving growth. The cross-selling opportunities are many. We had some in our prepared remarks.

We did see some good wins in that regard from follow-on orders, whether it be part of the RescEU program or the Washington Metropolitan Area Transit Authority and several others where we saw people picking up one or more of our products in the portfolio after starting with the previous one with follow-on order. From the demand acceleration side, I think you're right. I mean, we're seeing certainly some of the tailwinds develop out there with some of the macro pressures.

Matt Larew (Equity Research Analyst)

Okay, fair enough. Joe, I just wanted to check on the transition to Danbury. I think you talked about maybe that being like a third-quarter element. Just any kind of update on the progress that you've made and some of the data points you've given around annual savings targets just as you get closer to realizing if those have moved around at all.

Joe Griffith (CFO)

Yeah, we're mid-stride on the move. You know, some of the initial trucks have made their way from Boston down to Danbury, so I think it's going well so far. We've been fortunate to have a strong team down there in Danbury to receive it and some key employees that are transferring. So, you know, we're looking to try to complete it by mid-year. We'll be up and running for manufacturing in the back half and the ramp with the second half. Yeah, from a facility perspective, it's a lower cost footprint and, you know, savings overall on the facility side will approach $2 million a year. We'll start to see some of the benefits in the back half, maybe in the neighborhood of 40% of those savings are through the gross margin line.

Excited on the progress to date and pleased, you know, if anything, it's ticking a bit ahead of plan compared to where we were a few months ago.

Matt Larew (Equity Research Analyst)

All right. Thank you.

Operator (participant)

Thank you. Our next question comes from Dan Arias from Stifel. Your line is now open. Please go ahead.

Dan Arias (Managing Director of Life Sciences and Diagnostics)

Hi, good morning, guys. Thanks for the questions. Kevin, on AFCAD, it sounds like that's progressing well. What is the timing that you expect at this point anyways when it comes to getting the thumbs up to move into full production mode from Smith there? When that does step up to revenue generation mode at the higher level, the $10 million that you referenced, is that a gradual ramp in recognition, or do you think that you sort of reach a steady state of revenue generation during that phase?

Kevin Knopp (CEO and Co-Founder)

Yeah, thanks, Dan, for the question. Yeah, we remain very excited about the AFCAD program. It's been a development we've been working on for nearly a 10-year period, driven in partnership with Smith's Detection, who's our lead partner there. We're a subcontractor to Smith's, who's the prime on this program. Certainly an impactful program. We're working through, call it a handful of improvements and fixes that have come up during the evaluation. We're most encouraged that the kind of fundamental detection performance appears to be meeting program expectations. Meaning we're able to detect the analytes of interest at the levels that they're interested in. We're excited for that. Now, we're working through, as you know, last year we delivered on the low-rate initial production, and we're waiting for a potential decision to move forward for full-rate production, the FRP phase of it.

We do expect that decision by the end of the government fiscal year. Some risk that it moves into the later half of our calendar year here, so by calendar year end. I think we're really looking for it by the end of the government fiscal year. A lot of to be determined. I mean, certainly there's a new administration in place. Anything is possible. Certainly a delay is possible, but equally possible in our mind is an acceleration. We're seeing good engagement as we work through the final phases and they approach their decision. On the timing of revenues, I'll pass it to you, Joe.

Joe Griffith (CFO)

Yeah, from a ramp perspective, you know, we'll learn a lot as hopefully we see the full-rate production contract come into place, you know, kind of a five- to seven-year window of deliveries. We do see that more ramping as far as a faucet being turned on or turned off, you know, but we'll learn a lot more about the quantities and how that goes. It is kind of year by year. We think there's an opportunity that could ramp quickly to $10 million a year, possibly in 2026, but you might see that span over 2026 into 2027 before it gets to that full-rate level. We are excited with the way it's progressed, but looking forward to learning some of the dynamics on the exact step up and ramp in that opportunity.

Dan Arias (Managing Director of Life Sciences and Diagnostics)

Yeah, for sure. Okay. And then, Joe, as we think about the opportunity for installed-base expansion and then conversion on a next-gen system, can you maybe just true us up on what percentage of the MX systems that are in the field are active? And then on the next-gen system itself, apologies if we covered this last quarter, I'm not remembering, but is there a gross margin benefit to be had there? Can you just remind us how that comparison would look from a profitability standpoint? Thanks a bunch.

Joe Griffith (CFO)

Sure. Yeah, I can give a little bit of color and then, Kevin, you might have some additional details. Yeah, from a gross margin benefit, we do see an opportunity with any next-generation launch to find more efficiencies in the materials, the components, you know, learnings as we move from one generation to the next. We would expect some level of gross margin benefit, you know, as we move into next-gen. The biggest piece is the top line, which we think, you know, from an ASP perspective, could be comparable even with those cost savings. You know, on the MX908 itself, greater than 2,800 out in the field, a good chunk of those, you know, kind of 40-50% greater, are under service contract. We see some good attachments and renewal rates, you know, related to staying on service contract.

A lot of that is because you get the latest and greatest software updates, the library enhancements as we develop new analogs to be built into the library. You know, we have a top-notch service and application support team that's very responsive to the customer. We often get, you know, rave reviews, you know, from our customers in the period of performance. MX is a great opportunity as we move into 2026.

Yeah, we're super excited about that one, Dan, because it's kind of a step change in simplicity and size and weight. We believe it can drive that upgrade cycle. It's pretty consistent. We've talked about our goal is to have a major product release every 24 months or so. We've got a pretty rich pipeline of things that we're working on, including FTIR devices, including software, including more on the recurring revenue, continued connected services through our team leader application. A lot of exciting things happening on the MPI side.

Dan Arias (Managing Director of Life Sciences and Diagnostics)

Okay, thank you.

Operator (participant)

Thank you. Our next question comes from Puneet Souda from Leerink Partners. The line is now open. Please go ahead.

Puneet Souda (Senior Managing Director of Life Science Tools and Diagnostics)

Yeah, hi guys. Just wondering for the full-year guide, how are you thinking about first half versus second half in terms of the installs into the second half? Obviously, you do not have AFCAD there, but just, you know, given the opportunity you are seeing, maybe also talk about the Texas Department of Public Safety order. Should that be all into Q2, or could that slip some into the second half as well?

Kevin Knopp (CEO and Co-Founder)

Yeah, we were excited with the way Q1 kind of getting out of the gate, you know, being that $11.8 million, you know, see opportunity in early stages pipeline development for Q2 and really the back half. Specifically on Texas, that is a Q2 opportunity. It was great to get the order over the line and delivery, you know, here in Q2. We were anticipating, you know, H1 to be carried primarily by state and local and international opportunities, and that's played out. I'd say that the team collectively, whether it's on the Fed mill, which has a few more challenges this year, but on the international side, state and local continued development of the pipeline to support that back half, you know, weighted ramp and that seasonality that we typically see, and really looking towards a really strong Q4, you know, as we get beyond the U.S.

government fiscal year.

Joe Griffith (CFO)

Yeah, and maybe, Puneet, if it helps, I can add a little more color onto the U.S. federal military side. I mean, I think we are really set up with our transformation around some of what we think is tailwinds that are really developing there. We're not involved with the groups like NIH and academic, right? We're more prioritized around the national security and law enforcement that we're seeing the new administration prioritize. As Joe mentioned, it's certainly a turbulent time there, but I think what we're seeing is largely aligning in our favor, whether it's the plus-ups that are happening on the DOD side or proposed for 2026, or the Department of Homeland Security, both of which, much like NIH grant funding, flow down to our customers through DHS grants that local law enforcement and fire and emergency services use.

I think that is setting us up to support what Joe mentioned in the second half.

Puneet Souda (Senior Managing Director of Life Science Tools and Diagnostics)

On that point of the government contracts, what sort of visibility that you have? Obviously, there is, you know, quite a few moving pieces right now within the government as well with changes and other impacts that we have seen so far, but there are opportunities as well. Just wondering sort of where are you getting the visibility, where the visibility is more stronger versus less? I have follow-up on gross margin, if I may. Thank you.

Joe Griffith (CFO)

Sure. Yep, absolutely. Yeah, from a visibility perspective, you know, especially on the FedGov side, but also international more and more, you know, we kind of see those multiple 20-plus unit opportunities that we maybe touched on in the past and the importance of those to creating visibility. As we get in hand, you know, kind of the confidence around the numbers. Yeah, I'd say good pipeline development there, you know, in shaping up. We have tried to develop a cadence of announcing some of those opportunities as they do come to fruition to show that traction. You probably saw some of that, whether it was with, you know, Ukraine or the Texas DPS opportunity.

Yeah, and it's really that progression that we've talked about over the last few years of moving people from those first initial placements or pilots and then moving them into these larger enterprise accounts. Maybe one last final point on this is that with the RedWave acquisition now under our belts, we have certainly diversified our sales and revenue channels there. As a point in time in 2024 that we've called out in the past, it's about a third of our device sales have come from international customers and another third coming from the state and local that we just gave a couple of examples of. The last third from those larger U.S. federal, call it DHS, Department of Defense type accounts. I think we're pleased with seeing how that has diversified over time.

We're also pleased in that the larger number of installed bases, 3,000 or more, and the support and service, which is helping drive that 37% recurring revenue that we're seeing.

Puneet Souda (Senior Managing Director of Life Science Tools and Diagnostics)

Got it. And then just briefly on gross margins, can you provide your view on pricing and if there are any levers you can pull there? And then with respect to the move to Danbury, just trying to understand the capacity utilization of that facility, do you think the cost benefits would be immediate or would there be sort of underutilization of facility for some time before we start to see those benefits?

Joe Griffith (CFO)

Yeah, a few different pieces there. I think on pricing, you know, we'll look to hold our pricing as set for 2025. You know, we're continuing to monitor potentially on the tariff side and we'll see if we need to consider any surcharges, but not at this time. A big piece of that is we just don't see, at least today, you know, much of an impact there, you know, as our supply and our components, we have a lot of the goods in hand. You know, I'd say we're in a bit of wait and see, but we haven't triggered anything at this point. That is a lever that we can introduce, you know, on the pricing side.

On the move to Danbury, I think the impact can be fairly immediate, you know, where we've picked up and moved our whole Boston facility and we'll be moving it, you know, to stand up the MX908. It's a similar size facility, but now having all of our FTIR and our handhelds, MX908, all under one roof, we run one shift down there. There's definitely capacity to increase our production, you know, that we're doing today on a weekly basis. We have some initial square footage that's not going to be used, but I think within, you know, the next 12 months, you know, future product launches will fill that out pretty quickly. When and if ever needed, you know, we could go to a second shift or continue other alternatives. You know, I do see that very little underutilization out of the box.

Puneet Souda (Senior Managing Director of Life Science Tools and Diagnostics)

Got it. Thanks, guys.

Operator (participant)

Thank you.

Kevin Knopp (CEO and Co-Founder)

Thank you, everyone.

Operator (participant)

As a reminder, to ask a question, please press star followed by one. Our next question comes from Brendan Smith from TD Cowen. Your line is now open. Please go ahead.

Brendan Smith (Director and Senior Analyst of Biotechnology Equity Research)

Great. Thanks for taking the question, guys. Congrats on all the progress. Maybe just a quick one from us. Kind of given all the different rollouts ongoing and planned in the months ahead, and really as you're kind of, you know, approaching cash flow breakeven, just kind of wondering how you're thinking about any potential M&A or additional BD and really, I guess, what the strategy or criteria for that would be as you kind of settle into this new era for 908 and just take stock of where you see the company going over the next few years.

Joe Griffith (CFO)

Yeah, thanks for that question, Brendan. I mean, M&A has certainly been part of our strategy over the past few years. And, you know, the RedWave acquisition to us has really been a great success. It's becoming a very quick, meaningful contributor, right? We announced today it was about 40% of our revenues in the first quarter came from our FTIR products and 60% from our mass spec-based products. The team's really hitting stride now and has allowed us to greatly gain efficiency of that sales force and putting more products into their bag. We're super, super pleased about that. You know, we'll continue to be optimistic and look at things that we believe are very synergistic and aligned with our financial profile. You know, there's definitely opportunities out there, but we've got pretty tight filters in our mind.

You know, all that said, we are incredibly focused right now, task at hand, really executing on those targets we put out there today. We have the catalysts we need to drive that 20%+ growth in 2026 and beyond. We have those well within our control here today. Such a great runway that we see for that organic opportunity. We touched on already the secular tailwinds here. We see them unfolding in our favor. We see a lot there to execute on. Something we'll be mindful of, something we've had success at, but we're heads down at the moment here executing.

Brendan Smith (Director and Senior Analyst of Biotechnology Equity Research)

Gotcha. Sounds good, guys. Thanks.

Operator (participant)

Thank you. We currently have no further questions, so I'll hand back to Kevin Knopp for closing remarks.

Kevin Knopp (CEO and Co-Founder)

Great. Thank you. Thank you, everyone, for joining the call. We really appreciate it. We really appreciate your time today and going through an update. We're truly excited for what lies ahead here with what we're calling 908 Devices 2.0. Have a wonderful day. Thank you very much.

Operator (participant)

Thank you for joining today's call. You may now disconnect your line.