908 Devices Inc Stock

Thank you. Hello everyone. Thank you for joining us and welcome to the 908 Devices second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. hand. To withdraw your question, press star 1 again. I will now hand the conference over to Barbara Russo in Investor Relations. Barbara, please go ahead.

Thank you and good morning. On this call, we will be discussing our financial results for the second quarter ending June 30th, 2026, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopf, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial Officer. During today's call, we will make forward-looking statements within the meaning of federal securities law. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release, as well as in our most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, August 11, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances.

Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available in the investor relations section of our website.

With that, I now turn the call over to Kevin. Thanks, Barbara. Good morning, and thank you for joining our second quarter 2026 earnings call. I'm pleased to report that we delivered strong results this quarter, demonstrating the power of our strategy and dedication of our team. In the second quarter, we generated $16.1 million in revenue, representing 23% growth year-over-year. A momentum with U.S. state and local customers remained particularly strong, with these customers representing more than half of our revenues in the second quarter. We're seeing continued funding support at the state and local level, driven by the urgent need to modernize detection capabilities in response to evolving threats, from the ongoing fentanyl crisis to emerging synthetic drugs and chemical hazards. This funding momentum, combined with strong customer demand, gives us confidence in the durability of this growth trajectory.

From a profitability standpoint, we are making meaningful progress. The cost structure initiatives we implemented last year are delivering results. Our adjusted EBITDA loss was less than $2 million in the second quarter, which is a 50% improvement year-over-year. These improvements demonstrate our commitment to scale efficiently while investing in growth. As announced on May 6th, we acquired NearLab, expanding our narcotics detection portfolio. We now have an AI-powered, subscription-based, cloud-connected, near-infrared spectroscopy platform that enables point-and-click analysis of common drugs in seconds, along with our Viper and MX908 devices, we provide a comprehensive narcotics workflow for law enforcement, from fast screening to confirmatory analysis. Overall, I'm very pleased with our execution this quarter.

We are delivering against our strategy on multiple fronts, expanding our market presence both organically and through strategic M&A, while building a stronger foundation for longer term value creation. Execution maps directly to our three focus areas for 2026, scaling proven platforms, extending platform leadership, and strengthening revenue durability. Let me walk through the progress we made in each. First, scale our proven platforms. Our objective is to accelerate growth by modernizing legacy detection equipment, especially FJIR, across global fire, law enforcement, and defense enterprise accounts. We've made tangible progress in these areas in 2026. Start with our scale. Over the past 24 months, we've shipped more than 750 FTR devices, converting this opportunity is real, substantial, and one we're capturing. Viper, our newest FTR device, is leading that modernization push.

We shipped more than 35 units in Q2, and we believe we will achieve our goal of shipping more than 100 Viper devices this year. Two wins this quarter show why. A major South Asian law enforcement agency displaced incumbent competitive product after a trial, purchasing more than 15 units, and the Bureau of International Narcotics and Law Enforcement Affairs ordered its first Viper unit to support Mexico's narcotic interdiction mission using U.S. State Department funding, a mechanism we believe can extend to other partner nations. Together, these show Viper winning on two key fronts, capturing competitive share and capturing funding. Our flagship MX-908 plays the same role for trace level analysis as it enables our customers to keep pace as the modern illicit drug landscape evolves from fentanyl to nitazines and now to orphines. Clear evidence of the modernization cycle in motion is our Texas Department of Criminal Justice win. 15 MX-908 devices for corrections facilities statewide were purchased in Q2, converting from a successful two-device trial with the Texas Office of Inspector General.

We expect more orders to follow as that program's success becomes visible across the state. That's our playbook working exactly as designed. Engage early. prove value, delight the customer, and expand. We also attained a high visibility proof point this summer. MX908 Beacon, Viper, and Explorer devices were part of the security toolkit at several stadiums during the FIFA World Cup. Deployments at major international events are exactly the kind of field validation that builds confidence across the first responder community. raising awareness of our solution. Finally, this momentum is being carried into the third quarter.

We are pleased to announce that in July, we secured a $6 million protector order for corrections agency in the Asia Pacific region. This progress validates the three dynamics underpinning our platform scaling focus. Governments need better tools to identify unknown substances. We have the relationships and technical credibility to win competitive procurement, and every deployment builds an installed base that opens the door to further expansion, feeding a flywheel. Turning to our second focus area, extend platform leadership. Our objective here is to drive growth through greenfield placements, differentiated capabilities, and discipline product introductions. In markets our existing platforms don't yet reach.

But Xplor is the clearest example of that strategy at work. Xplor represents a genuine breakthrough in gas and vapor detection, and the market is responding. Placements grew nearly 70% over the 12 months ending June 30th. That growth is being pulled forward by two tailwinds, one HAZMAT incidents and the other SABURNI defense. Domestically, chemical incidents are rising. A recent Wall Street Journal article noted 131 serious chemical accidents in the US in 2025, up 20% year over year. And first responders are feeling that pressure directly. In May, a chemical tank at a jet park manufacturer in California overheated, forcing the evacuation of more than 40,000 residents near Los Angeles.

Responders used Explorer on entry to identify and quantify the hazardous vapors and relied on it throughout cleanup. As these incidents rise, so does the case for Explorer. Internationally, we see the same demand from defense customers. The Danish Defense Acquisition and Logistics Organization selected Explorer to enhance long-range chemical detection for defense operations, an initial multi-unit procurement paired with a framework agreement for future purchases, a strong signal of the competence in the platform's differentiated performance. performance. Explore is exactly what extend platform leadership is supposed to look like. We identified an unmet need, real time gas and vapor identification and quantification in the field, built differentiated technology to solve it, and now we're capturing a market opportunity that's growing on its own as chemical incidents rise and customers see. what modern detection technology can do. Finally, our third strategic focus area is strengthening revenue durability.

Our objective is to build a more predictable revenue mix through recurring revenue from connected services, growth in OEM-based revenue, and longer-term programs. NearLab is a key driver of the connected services vision we're building towards, and while OEM revenue and longer-term programs remain important parts this focus area, I want to spend today's update on NearLab and where we see its potential. For decades, presumptive drug identification in the field has relied on color metric test kits, cheap, single use and disposable with no data trail behind the result. That has created real problems. Innocent substances can trigger false positives leading to wrongful arrests and legal challenges. And it's becoming a legislative issue Colorado's legislature voted unanimously this year to ban custodial rest based solely on color metric results and reform efforts are underway and at least seven other states. We see that as a durable tailwind, not a one time event, and it points to where this category is headed away from disposable chemistry and toiletries. towards connected technology that produces a defensible, auditable result with the identification, the underlying data and the chain of custody all captured and retained. That's the model NEAR Lab lets us build towards.

The same kind of recurring subscription-based model that has transformed other public safety hardware categories, pairing durable hardware with a cloud connected software layer that agencies rely on and return to every day. Within the first 60 days post close, our US commercial team ran in person and virtual demonstrations and secured field evaluations through our try before you buy program, engaging 30 agencies and hundreds of prospects at the federal, state, and local levels. This includes seven Haida Task Force, the multi agency teams on the front lines of drug trafficking enforcement that tend to set the procurement tone for their regions. Agencies evaluating the platform consistently cite four things, speed, ease of use, an intuitive interface and accurate identification, exactly the attributes that make the case against colorimetric testing. That commercial motion is already converting. In the roughly two months since close, we sold more than 35 NearLab devices, each with a multi-year software subscription, meeting our expectations for the initial post-acquisition period, with shipments to law enforcement agencies in Colorado, in California, and customs agencies in Morocco and Iceland. Our overall pipeline is strong and growing and we're starting to see enterprise scale opportunities develop in that pipeline both domestically and internationally, a meaningful early signal of NearLab's longer term potential.

The real opportunity is bigger than any one product. NearLab is an example of what our entire business has the potential to become. Durable hardware paired with recurring connected software and the kind of real-time analytical reach back support our customers consistently tell us they value most from 908. We believe that model, hardware, software, and expert support working together can guide how we build and monetize every product in our portfolio for years to come. With that, I will turn it over to Joe to walk through the detailed financial results for the quarter. Thanks, Kevin. Total revenue was $16.1 million for the second quarter of 2026, increasing 23% from $13 million in the prior year period. Antheld product and service revenue was $15.5 million for the second quarter of 2026, up 24% from $12.5 million for the second quarter of 2025.

The increase was primarily driven by our FTIR products, including more than 35 VIPER shipments and near lab law enforcement revenue. In total, we shipped 198 devices in the second quarter, bringing our installed base to 4,101. Recurring revenue represented 31% of total revenues this quarter and was $4.9 million, a 4% increase over the prior year period. primarily related to software and accessories and FTIR service revenue, offset in part by the expected reduction in mass spec service revenue. Gross profit was $8.3 million for the second quarter of 2026, compared to $6.4 million for the prior year period. Gross margin was 52% for the second quarter of 2026 compared to 49% for the prior year period. The increase was driven by higher product revenue volume and decreased facility costs related to the move of our Boston facility in 2025. In addition, in the quarter, we benefited from a shift in channel mix with more U.S. state and local placements that have lower channel costs compared to international placements.

These factors were offset in part by a lower service gross margin related to the decreased mass spec service revenue in the second quarter of 2026. Adjusted gross profit was $9.2 million for the second quarter of 2026, compared to $7.3 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 85 basis points compared to the prior year period. The increase in adjusted gross margin was driven by our improved 2026 operating structure, including higher revenues, channel mix, and the reduced facility costs, as mentioned above. Total operating expenses for the second quarter of 2026 were $21.2 million compared to $21.5 million in the prior year period. The reduction was primarily due to decreases in the fair value of contingent consideration, lower facility costs, and a reduction in R&D program spending, offset by operating costs from NEARLAB and transaction costs incurred with the acquisition. Net loss from continuing operations for the second quarter of 2026 was $11.9 million, compared to a net loss of $12.9 million for the prior year period.

This decrease in loss was primarily driven by the $2 million in higher gross profit, net of a $1.2 million reduction in transition services agreement income, and a $0.3 million reduction in non-cast charges for revaluing contingent consideration. Adjusted EBITDA for the second quarter of 2026 was negative 1.9 million compared to a loss of 3.9 million in the prior year period, representing a 2 million improvement. In the second quarter, we cut our adjusted EBITDA loss by more than 50% due to improved margins and a lower operating cost base. We ended the quarter with $101.5 million in cash, cash equivalents, and marketable securities with no debt outstanding. We consumed $10.2 million of cash in the quarter, which was primarily related to the $13.5 million used for the acquisition of NEARLAB, net of the $3.5 million received from the release of the escrow from the desktop divestiture to replicant. Looking ahead in 2026, we have raised the low end of our range and now expect revenue to be $68 to $70 million, representing growth of 21 to 25% over full year 2025. Our guidance range includes the following assumptions.

First, we now expect handheld product and service revenue to grow 23 to 27% year over year, equates to a range of $65 to $67 million. This increase is supported by our performance to date and the recent $6 million protector order. Second, we continue to expect OEM and funded partnerships, including contract revenue, to be approximately $3 million. And third, given that the AFCAD program is still working through next steps, as Kevin will discuss more in a moment, we're excluding it from our core 2026 guidance. any AVCAD contribution would represent upside to our stated range. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid to high 50% range for full year 2026. And on the bottom line, we continue to expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, closing the gap on achieving break-even while balancing investments to enable the growth opportunity. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. As Joe mentioned, the U.S. military AVCAD program is continuing to work through next steps, and we fully support that process. The current contract has run its course, and as part of the next steps, the government is also considering our commercially available product due to a broader procurement reform at the Department of War. that's prioritizing speed and program flexibility. We expect more clarity soon as the government's fiscal year closes and FY27 begins on October 1st. Overall, we believe we have the best in class aerosol and vapor detection technology, which has been extensively government tested and validated and can win this opportunity regardless of the chosen path, either in partnerships with Smith's Detection or directly with our commercial MX-908. We remain excited about the long-term potential of this program. Now stepping back, as I reflect on our second quarter performance and look ahead to the remainder of 2026 and beyond, I'm energized by what we've accomplished and confident in the trajectory we're on. Let me be clear about how I characterize this quarter.

Strong execution across the board. We delivered 23% revenue growth, placed 198% devices and expanded our adjusted gross margin by 85 basis points and cut our adjusted EBITDA loss by more than half, all while successfully integrating a strategic acquisition and continue to invest in our growth initiatives. demonstrates the fundamental strength of our business model, and I believe in our ability to meet our near-term and longer-term objectives. Before I close, I want to express my gratitude to those who have supported us through our strategic transformation over the past year and a half. To our customers who trust us to protect their communities, to our employees who execute with excellence every day, to our partners and distributors who extend our reach into markets worldwide, and to our shareholders who continue to back our vision as we build a category-defying company in handheld detection. We're executing our strategy, we're delivering earned results, and we're building momentum. I look forward to updating you on our continued progress when we report third quarter results later this year. With that, let's open it up for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question. to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Dan Arias with Stifel. Your line is open. Please go ahead.

Yes, good morning, guys. Thanks for the questions here. Kevin, as we think about this broader portfolio that you now have, can you maybe just talk to the extent that you see bundling opportunities as being better than they were and more meaningful? Is there an appetite for multi-system orders across applications when you target these customer groups? Or sort of siloed from an application standpoint. I'm just trying to make sure that I fully appreciate the benefit of just the different product lines that you have and what that might mean when you target some of these government agencies and law enforcement agencies.

Yes, sure thing, Den. Happy to touch on that. So I think that's one of the big advantages we've been having as we scale here with FTR portfolio now coupled with mass spec. And now we have Nearlab thrown in here. We're absolutely seeing and have many examples of bundled orders where they may order a couple of FTR products. or a couple of MX products. Not yet with the near lab, cause that's very new to us, but we absolutely see that pairing well with our MX. And I think if you look at it from a high level, right, we think about law enforcement, we think about their workflow, we think about what they need to do from screening to confirmation. And if you take in total, our MX, our NearLab, as well as the Viper, it creates kind of a complete workflow for those customers.

So absolutely multi-unit, multi-system across there. And then similar on the Hazmat side, so more on the fire services side with our Explorer, with our FTR, our Threat ID device, absolutely those can be bundled offerings.

not. Okay. And then maybe just one on AvCAD. It sounds like there are some alternative courses of action that could come out of the evolution of that opportunity. If something more direct were to be the way that you go, how do you see that impacting a ramp and just the revenue potential that could come out of that in 27 and 28, you've kind of laid out some initial thoughts there. Just curious how that would change. Thanks a bunch.

Yes, absolutely. On on abcad, you know, taking a little bit longer than we in the market expected, but our confidence in winning hasn't moved really the current contract run its course, but and the government's working through those next steps which were fully supportive of. we do in the aerosol vapor detection category and can win this opportunity either way it plays out. And that can be in partnership with Smith Detection, but it also can be through our commercial MX-908. And then as we mentioned, as you probably know, there is a shift underway within the Department of War that's really making sure that they take their moment in time and look at commercial off the shelf products and using that in a preferential way to speed up deployments and speed up getting solutions to the warfighter. So at the moment, the government's working through that process. They're looking at both COPS solutions like our MX-908, these commercial off the shelf solutions, And then of course, continuing with the program we've been working with Smith on the custom development. From an economic side, yes, I think it's clear that the more product content we provide, whichever path they choose is better on the economics for us. From a ramp, as Joe mentioned, we have taken it out of the guide for today and taking it to upside.

We're pleased we're able to do that with the strength of our core business. And as we mentioned, we see this as a $10 million plus opportunity into the future. I don't think our confidence there has changed and how to ramp to that point is TBD here as we sit today. But I think the program is going to be good for us over the long term.

Your next question comes from the line of Brendan Smith with TD Cowan. Your line is open. Please go ahead.

Great. Thanks for taking the questions, guys. Maybe just first on NearLab, can you speak a little bit more to what kind of potential cross-selling opportunities you're now seeing in these first 60 days and maybe even broadly, more qualitatively how conversations with new customers are going now that you've got this arguably broader portfolio of products, I guess, are they coming to you with one in mind? Are they looking for a more comprehensive set of tools? Just trying to understand how kind of demand here is evolving across these different end markets as your catalog grows.

Yes, sure thing, Brendan. Thanks for the question. We're very happy with how the NearLab integration is going. We've really been working hard to get out there fast. Part of the thesis was bringing this product into the US markets where they've had very, very little to none penetration. And to your point, right, we can bring that right to the customers of our core flagship MX-908, right to those law enforcement customers. And we closed here in early, but the team's been moving fast and we really hit that ground running. We've engaged about 30 agencies, hundreds of prospects across about 20 states in those first 60 days.

That includes these seven HIDA regions. These are multi-agency task force. These are the ones that really are on the front lines. They elicit drug crisis. They really set kind of the tone for what gets adopted in their regions. So we've been doing a lot of engagement with those groups there and we're pleased with where we're at. You know, absolutely, as you mentioned, there can be a bundling as we move forward and there is an analyte compatibility, complementary compatibility there. So if you think on the THC side and cannabis, the NEAR lab is the product in our portfolio that can quantify that. And we can't do that with our MX.

So those you can imagine being paired very well. The prescription side we think is very exciting for the NearLab products. We think that's also a great, that we should work to get our other products in over time and making sure that we really provide that excellent service support and doing so on an ongoing recurring basis. But I'd say the last point on NEARLAB is really excited about a tailwind in the regulations that are changing. And that's really been going away from colometric kits, which have expiration dates, have usage issues, and have been causing some false pauses and wrongful arrest and starting to get banned in different states. So we're excited. to see where that will play out by having a call at a lower price point offering with our near lab that can help us there and in the colorado is is one of the first states to ban such things and in the quarter uh we did receive orders from colorado and california so i think overall we're pleased with it and do see a portfolio effect developing.

Got it. That's great. And maybe if I could just a quick follow-up on your point about that kind of recurring revenues here. I appreciate all the color on kind of growing that as a proportional part of the total revs. I guess as we look at our model for maybe the next, I don't know, couple of years, how should we think about that relatively? proportion of total revenues coming from that recurring bucket just that some of the more recent launches scale up i mean you're talking about near lab here so i guess is it like an ideal ratio between core recurring you guys have in mind that's feasible over the medium term just any any color there would be great.

I'm going to give a little bit of color and feel free to chime in, Kevin. But, you know, Brendan, we were about 30%, you know, for the current quarter. You know, we're a little over 30% last year. That's kind of our current baseline as we drive initial devices. You know, example, the protector order that we talked about doesn't have recurring revenue. So in any given quarter, or a year, there can be a shift, right? You might end up in the high 20s, low 30s. But over time, I think that's where it gets exciting, especially with NearLab and the subscription model.

More and more of a... It carries 50% of recurring revenue opportunity with those subscriptions, you have the snowball effect of the install base. So I think starting to creep up into the 30s, kind of approaching that 40% is what we aspire to. But it is good to sell those devices and build the opportunity, which we're focused on today.

Your next question comes from the line of Matt LaRue with William Blair. Your line is open. Please go ahead.

Hi, good morning. I just wanted to circle back on AVCAD. if indeed a different path is chosen by a, Department of War, would there be another pilot phase where they trial a variety of different technologies? In other words, would sort of reopen a different RFP or, you know, based on the success of the first project where you were a sub and it's the same technology from your standpoint, would it be sort of the immediate opportunity? I just wanted to be curious a little bit more on how you expect things to play out and I guess how that informs the,.

your perspective on timing. Thanks. Yes, absolutely, Matt. Great question. So you're right. We've been performing for a long time now under the APCAD program in partnership with Smiths. We've done a lot of testing of the base HVMS, a lot of analytical testing, a lot of rigorous testing of that. But similarly, if you think about our commercial product, our MX908, we have more than of those devices out there. We estimate that about 1,200 are within the U.S. federal military. We have quite an extensive test record for that that also parallels what's been done in the ADCAT program. So I think it's a bifurcated path.

I think they can choose to continue with the path we're on. and or a hybrid path where potentially they continue with the program and the development or some custom modifications there along the same lines and then use COTS products such as our MX-908 to fill the gap to get again, their desire is to move the program faster here. So I know that you see a timing delay from this lens, but their desire is to ultimately move the program faster.

Okay, and then Joe, just thinking about the the guide implies, I think, you know, sort of high teens or $20 million of revenue per quarter in the back half. You did 16 in Q2. It sounds like AFCAD has moved out of the guide. Could you just talk just a little bit about what the progression will look like? And I guess in particular, I'm thinking of the large order, $6 million order you got in July. know if all of that or some of that might be coming in in 26 versus perhaps more in 27. thanks.

Absolutely. I can give a few different data points there. Yes, last year in H2, we were 45% in Q3, 55% in Q4, a little bit more heavy weighted in Q4 with the VIPER ramp up and a little bit of ASCAD revenue. As I think about this year, it's probably a little bit more in Q3 on a percent basis, maybe a few hundred basis points in Q3 versus Q4. Specifically on the $6 million protector order, we do anticipate that to be split over Q3 and Q4. So we'll see some revenues here in Q3 as we build the number of devices and some go out in the fourth quarter. more broadly as we think about the guide and our confidence is high and growth levers we feel are performing this year for each one. As you mentioned, our growth was 19%, 23% in Q2. We expect that to ramp here in the second half and potentially get to the higher end of 25% for the full year growth.

We rely about 29% at the high end for H2. And we think our growth to date has been impressive and see our key growth areas and enabling that high 20% growth. We've talked about some of these, I think over the past two quarters, we expect Viper to be a key contributor to the full year post-launch. and see a path where device placements can exceed 100 and maybe approach 150 for the full year, doubling or tripling our 25 levels. Explore to drive growth, similar to 25. As a reminder, we opened a broader fire gas detection market with Explorer, which is exciting. We shipped over 150 devices in 25, and over the last 12 months, it's grown nearly 70%. We talked about Protector, getting that $6 million order, gained us confidence having that order in hand to ship over Q3, Q4.

And in May with the close of NEAR Lab, we expect approximately a million and a quarter in H2 contributing to the growth. So hopefully that's helpful as you think about the multiple levers and our path to achieving the guidance range that we tightened at this quarter.

Yes, very helpful. Thanks, Joe.

Your next question comes from the line of Puneet Soda with Learink. Your line is open. Please go ahead.

Yes, hi guys. Just wanted to clarify on the protect order, the $6 million, was that something that you were contemplating in the guide before or is that new? Maybe just give us some color on that.

Yes, we did have a level of protector anticipated in the second half and in the opportunity, but it was good to see that this specific opportunity was upsized a bit from the initial thinking in the first half. So I would say it was in our purview, it was in our pipeline, but to be able to get it in hand early and be able to ship it all. here in 26 was a positive that definitely gave us confidence in tightening and pushing the ADCAT opportunity to upside as we've continued to learn more on that opportunity. So we like these big orders on the protector side and it's been a steady product early days from Red Wave and continued under our our.

from commercial perspective. Okay. And then on the cloud attached side, could you, you know, Kevin, because you talk about where your cloud attach rate for devices is today, where you would like that to be. What is the incremental revenue that you think, you know, you can achieve by, you know, integrating these devices into the cloud platform? Clearly, there's, you know, So there's a recurring, there's a subscription model there. I just wanted to understand the approach you're taking here and where you would like to be.

Yes, absolutely. Thanks for that question. And so we're very excited about the more connectivity we can have on our products and the more we can connect it to an ecosystem for our customers to add value, to allow them to share results, manage their fleet, do in-depth analysis, reach AI tools for support, all of those types of features we're working on. We have a product called Team Leader that's out there today that connects to our FTR products and will connect in the future to our next generation of our mass spec products. That product has hundreds of users. It's really provided with service and support today. But where we're really going is looking at the model for NearLab and part of the strategic decision around that M&A was to leverage that model much more broadly across our portfolio over time. So if we zoom into the NearLab model for a moment, moment.

Neuralab is a purchase where 50% is recurring. So, nominally list price around $10,000 for the device and nominally around $5,000 per year for the subscription and being able to support that customer with upgrades, new threat assessments, new drugs, new analytes that can be added over time. So that's a 50% target. They've shown and demonstrated that we're able to achieve annual recurring revenues that are quite high, you know, and obviously early days, but greater than the 90% level. And that comes from the stickiness of the product, right? It really gets designed in with those customers for drug screening applications across a set of very common illicit substances. And people will sign up for one-year subscriptions, two, three, five, and even as many as, say, seven years up front of subscription. We really like that. That's visibility. That's very much a complementary way to what we're selling our MX. 908, so 50% is an aspiration there on that single product.

If you look where Joe mentioned today, we're calling it more in the 30% and that ebbs and flows a little bit with the size of a number of new placements that are done in a particular quarter. But that's the direction we're going. I mean, I think NEAR Lab is a great example, great model, and if you start looking looking across the industry of public safety companies, you'll see many of the best in class companies have been quite successful across state and local customers using such a model. Now, all that said, it's going to take a little bit of time as we work through and get all that into our product portfolio, but we're super happy to have the NearLab team in place. We're super happy those software development resources that are coupling with our team leader group. And I think good things to come there that we'll keep reporting on.

Got it. And then one final one on Nehru Lab. It seems like it helps you get into accounts that you could have. Maybe you've gotten those accounts before, but maybe some of those accounts were inaccessible just given the price point. Just trying to understand what's the upgrade opportunity to more higher-priced devices, how are you thinking about just given the access that you have in the account list there from their lab. Thank you.

Yes, that's also a great question. I think it goes in a few different directions. I mean, absolutely, there are cases, and that's our first job one today, call it 60 days in at the end of the quarter, is to get the NearLab device introduced to all of our MX customers that we've got strong partnerships with. And it has complementary analyte capabilities. It also has a different price point, different complexity that can be used to kind of expand the number of sockets that you can reach. So job one is focused on that today. But the flip side is also true.

They've got a great presence internationally. They've really been doing some good development there over the last two years. A lot of good validation with the University of La Salle. in Switzerland, the Forensics University. So we're looking to do more in that direction internationally, using them as a platform to help us into the reach and validation of our products there too. So I think it's got kind of a bi-directional benefit to us. And as the first question of the day from Dan, as that portfolio grows and we can sort of more of the workflow, we see a great efficiencies, both for our customers to have one number for support and service and training contacts, but also from us, from a feed on the street, a really zoomed in subject matter expert led organization on the sales side for law enforcement, and then similarly on the hazmat fire side. So I think a lot of benefits as we see.

scale with this broader complementary portfolio across the board. Got it. Your next question comes from the line of Max Masucci with Roth Capital Partners. Your line is open. Please go ahead.

Hi, good morning. Nice quarter. First question on VIPER, you look across the first 110 VIPER placements, What trends have you seen in terms of single versus multi-device orders? What percentage of the Viber placements have been to existing FTIR customers versus customers that are new to 908? And more generally, how is the pipeline shaping up ahead of the second half? And is that factoring into the slightly raised expectations on product revenues?.

Yes, thanks Max for the question. I mean, I think Viper is a really successful launch for us. It's the first launch under the red wave with 908 as one here, calling it our Viper product together launch to the market. Super successful thus far, very pleased with those, call it passing 100 units successfully I think we're seeing this take advantage of the modernization cycle that's setting up across the globe, whether it's funded from the state and local and the increase of funding that's available to responders or across NATO entities. And we've certainly seen singles, doubles, tens, even 15-unit type orders coming in one go.

Yes, and it makes a lot of sense as you think about the different sales channels that we're focused in for the Viper, whether it's state and local, kind of one-off agencies, and then more broader potential custom opportunities, both domestically, but really internationally, see a decent opportunity as we highlighted the winning Kevin's prepared remarks. about the back half, you know, it is one of the key growth drivers that I mentioned earlier, and we see that continuing, and at times you might see a big order pop up, but definitely building pipeline. Yes, and Max, if you look over the last 24 months, we've shipped more than 750 FTR devices, which includes the Viper, but, you know, really a great...

clear proof point to us that this modernization cycle is really real and that we can capture it. And the FTR is essentially riding three cycles at once, that equipment modernization, hazmat response, and then defense demand. So they're all kind of compounding together.

Great. The second question on gross margins. So it looks like product gross margins expanded nicely in the quarter, about 700 basis points. So how much of the Q2 product gross margin expansion is structural versus volatile? volume and mix and just curious how the VIPER placement ramp and NeurLab are factoring into your expectations for gross margins for the year.

Yes, a lot of different factors you can imagine, whether it's channel, product mix, etc. But I'd say our margins do remain healthy and the drivers are well understood, different factors there. For reference in 25, our adjusted gross margin was 56.7%. For the second quarter and first half, our adjusted gross margin was 57%. A favorable result based upon channel and product mix. Product gross margin has improved a bit as some of our service revenue, you might recall that federal government contracts that had some funding lapse this year that will go after for next year, took down our service margins. But as we think about the full year of the program, year 26, you know, we see it at a similar level, maybe closer to 56% on a full year basis, you know, the higher product volume and each one lower cost structure are positive drivers as you touched on.

But there are a few H2 factors, including near lab, which isn't at scale today. It's at a lower gross margin, especially on the device. You know, the protector order, that $6 million order, is at a lower gross margin. It's an international and high volume discounting opportunity. And Viper, which is our, beyond NearLab, our lowest product gross margin contributor, in timing a build plan, et cetera. So a lot of different factors, I think volume helps. We have some other things that may temper our adjusted margin expansion, but being in that mid to high 50s, kind of 56, 57%, yes, it's pretty attractive.

Great. Thanks for taking the questions. You're welcome.

There are no further questions at this time. I will now turn the call back to Kevin Knopf for closing remarks.

Well, thank you. Thank you very much for your time this morning. We appreciate your being on the line and for us to give you an update and look forward to the next one. Take care.

This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Hello, everyone. Thank you for joining us, and welcome to the 908 Devices First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Barbara Russo in Investor Relations. Barbara, please go ahead.

Thank you, and good morning. On this call, we will be discussing our financial results for the first quarter ending March 31, 2026, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. During today's call, we will make 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. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as in our most recent annual report on Form 10-K and other SEC filings.

These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, May 6, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available on the Investor Relations section of our website. With that, I now turn the call over to Kevin.

Thanks, Barbara. Good morning, and thank you for joining our first quarter 2026 earnings call. We entered 2026 from a position of strength with a streamlined cost structure, a solid balance sheet and an expanding recurring revenue opportunity. In the first quarter, we continued to build on that momentum, delivering $13.4 million in revenue, up 14% year-over-year. Sales to U.S. state and local customers remained a key driver, representing approximately 50% of our first quarter revenues. This marks the third consecutive quarter that orders from these customers have exceeded our internal targets. And based on our current pipeline visibility, we believe we can continue this trend in the second quarter.

Importantly, this channel is delivering consistent high-quality run rate demand, helping to drive greater visibility and predictability while complementing larger international and U.S. federal enterprise opportunities. Over the past 24 months, we have made deliberate investments to scale this segment alongside the successful integration of our RedWave FTIR portfolio, and we are now seeing those efforts translate into sustained durable growth. FTIR products are becoming a meaningful contributor to [indiscernible] expanding their approach nationally, reinforcing a broader and accelerating demand environment.

In parallel, we anticipate that the passage last week of the Department of Homeland Security funding bill will provide additional support for our second half objectives. And to kick things off here in Q2, we closed a $3 million order in April with another state Department of Corrections. We are continuing to drive momentum as we execute our law enforcement narcotic strategy. On our last earnings call, we outlined 3 focus areas for 2026, scaling our proven platforms, extending our handheld leadership through differentiated capabilities and disciplined innovation and strengthening revenue durability through recurring and program-based opportunities.

This morning, we are excited to announce the acquisition of NIRLAB AG. We believe this acquisition is additive to each of our existing initiatives for the year and will be a very strong strategic fit over the short and long term. This acquisition brings together highly complementary drug detection capabilities, increases our international revenue mix and provides a high retention recurring software subscription model. Just as important as the strategic fit is the cultural alignment. NIRLAB is a founder-led, highly technical organization with deep expertise in spectroscopy, data science and cloud-based AI analytics.

Their mission-driven focus on enabling safer, faster decision-making in the field closely aligns with our purpose of protecting frontline responders and addressing critical public health challenges. So prior to reviewing our first quarter financial results, I wanted to walk you through a handful of slides about this acquisition and how it aligns to our focus areas and with our broader law enforcement narcotic strategy. Very simply, this acquisition does 4 things for 908. First, it expands our handheld franchise into a high-volume, widely deployable sub-$40,000 segment, unlocking about a $200 million market. This is a solution purpose-built for frontline narcotics detection, increasing accessibility and driving unit volumes in markets we know well and already serve.

And while not yet at scale, it's already validated with 100-plus active customers and approximately $2 million in law enforcement revenue. Second, it strengthens and extends our leadership in narcotics for law enforcement. It builds directly on the momentum we're seeing with MX908 and complements VipIR, expanding a market-leading portfolio that's driving growth at the state and local level. Just as importantly, it completes our end-to-end coverage. With nearIR-based optical spectroscopy, which we have core expertise, we now span from everyday screening to confirmatory analysis, driving higher customer value and deeper adoption.

Third, it accelerates our software and recurring revenue strategy. This is a proven high-retention subscription model, about 50% recurring revenue with a demonstrated annual retention of greater than 99%. It fits directly into our connected services vision with Team leader and NIRALAB's live cloud-connected AI-driven analysis. This gives us a faster path to scaling recurring revenue, increasing lifetime customer value and improving visibility.

And fourth, this is a highly levered growth opportunity. The business today is largely international, and we see a clear path to accelerate U.S. adoption using our commercial infrastructure while also benefiting from the technical know-how to further advance our platform. So taken together, we believe this deal expands our market, strengthens our portfolio, completes our workflow and accelerates our software strategy, all tightly aligned to where we're taking 908. From a financial standpoint, NIRALAB's growth and recurring revenue mix are accretive and support our long-term margin targets as high-margin software subscriptions scale.

For the remaining 8 months of 2026, we expect approximately $2.5 million in revenue, growing under our model to more than $5 million in 2027. We do expect a modest roughly $1 million adjusted EBITDA headwind in 2026 with the business planned to be profitable and contributing positively in 2027. The upfront transaction value is $15 million, $13 million in cash and $2 million in equity with up to $8 million in additional equity tied to recurring revenue and customer capture performance milestones over the next 20 months. As we step back and look at what we're acquiring, it's important to recognize that this is not just a single product or point solution, but a fully integrated platform that is ready to scale.

At its core, NIRLAB combines purpose-built hardware with a cloud-connected software ecosystem and a subscription model, enabling rapid field-based chemical analysis with a simple, scalable workflow. This platform approach is what drives both adoption and long-term customer value. A key component of that value is the underlying data, know-how and IP. NIRLAB has built what we believe is the world's largest nearIR spectral database for narcotics, supported by proprietary AI and machine learning models informed by tens of thousands of laboratory characterized seized drug samples. This creates a meaningful and defensible data moat that strengthens over time as more data is collected in the field.

As part of the acquisition, we're also integrating a highly specialized and mission-driven team of 15 people based in Switzerland with deep expertise across spectroscopy, software, cloud infrastructure and machine learning. Their scientific foundation anchored through the relationship with the University of Lausanne brings both credibility and continued innovation to the platform. The NIRLAB experience is designed to be simple, fast and highly accessible for frontline users with a straightforward workflow of just downloading the app from the App Store, pairing the device, analyzing a sample and then receiving results in seconds, users can detect, identify and quantify the most common illicit drug directly in the field, approximately 400 substances, including THC and CBD in cannabis, which are important analytes not covered by our Mass Spec or other optical products.

For reference, the initial device will be roughly $10,000 and its required subscription will be roughly half that again per year. Note, these are approximate as pricing varies by market and is still being established. We believe nearIR's ease of use on top of that, the platform leverages AI and advanced compute to continuously improve performance. As more data is collected, the system becomes more accurate, more robust and more valuable to the end user. This creates a powerful flywheel effect with increased usage driving more data, more data driving better insights and better insights driving further adoption.

From a strategic perspective, this is also highly aligned with our broader team leader software vision. It strengthens our ability to deliver connected data-driven solutions, expands our recurring revenue opportunities and enhances the overall value of our ecosystem to customers. NIRLAB is embedded in the day-to-day workflows of customers with over 1 million analyses performed to date. This level of usage demonstrates both reliability of the technology and the value it delivers in operational settings. NIRLAB's customer base spans across continents from the Australian Federal Police and Oceania to state police forces in Switzerland and Germany, local police forces in the Netherlands, Italy and Spain and more broadly across Europe to a forensics laboratory in Malaysia, customs authorities in Mauritius and anti-narcotics units in Nigeria, among many others.

These are not pilot programs or limited trials. This is an active recurring use by frontline personnel who rely on the platform to make fast informed decisions in the field. That consistency of use underpins the strong retention and subscription model we discussed earlier. At the same time, this platform is early in its broader market adoption. It has not yet been scaled globally, has not penetrated the U.S. and has not been fully leveraged through a larger commercial engine, which creates a significant opportunity ahead for us. From our perspective, this combination of proven validation and early-stage scale is particularly compelling. It reduces execution risk while preserving meaningful upside as we expand adoption, especially in the U.S. and connect this installed base into our broader ecosystem.

Our combined platforms provide end-to-end coverage for narcotics detection supporting the law enforcement market broadly. This is timely for 2 reasons. One, global drug markets are expanding in both scale and complexity with cocaine seizures up 68% over the past 4 years and more than 55 tons of new psychoactive substances seized in Europe alone in 2024. At the same time, over 1,000 emerging compounds, including highly potent synthetic opioids like nitazenes are driving a growing need for traceable detection in complex and hazardous environments.

And two, low-cost, widely deployable colorimetric field tests are increasingly falling out of favor and a growing number of U.S. states and jurisdictions are restricting their use for arrest decisions due to accuracy concerns and lack of an electronic record. This is expected to drive a shift towards scientifically validated field-ready alternatives such as our products. With NIRLAB, we now address the full spectrum of use cases from high-frequency in-field screening to advanced confirmatory analysis. NIRLAB enables rapid frontline awareness. Our flagship MX908 supports trace level detection for high-consequence scenarios, including fentanyl and the synthetic opioid crisis and our new product, VipIR, expands our capability in bulk and unknown substance identification with its ability to identify 39,000-plus chemicals, cutting agents and more in customs and clandestine lab response settings.

These platforms are becoming increasingly connected through our software ecosystem, enabling data sharing and coordination and insight across users and environments. This transforms isolated measurements into a unified actionable workflow. Importantly, this drives pull-through across the portfolio where routine screening can lead to demand for more advanced capabilities or the opposite, increasing both utilization and customer lifetime value. Overall, this positions us with a differentiated full stack solution that spans everyday to specialist use cases and is difficult to replicate.

The acquisition directly aligns with the 3 strategic priorities we outlined for 2026. First, it scales our proven handheld platforms by expanding to low-cost, widely deployable segment, enabling broader adoption across law enforcement and global frontline users. Second, it extends our handheld leadership by completing the end-to-end workflow from screening to confirmatory analysis, strengthening what we believe is the most comprehensive handheld detection portfolio in the market. And third, it strengthened the quarter and our updated outlook.

Thanks, Kevin. Total revenue was $13.4 million for the first quarter 2026, increasing 14% from $11.8 million in the prior year period. Handheld product and service revenue was $12.8 million for the first quarter 2026, up 16% from $11 million for the first quarter 2025. The increase was primarily driven by our FTIR products, including more than 25 VipIR shipments, which offset a reduction in protector shipments. MX908 product and service revenue was up overall, driven by an increase in device placements but was offset by a $0.7 million decrease in service revenue.

In total, we shipped 167 devices in the first quarter, bringing our installed base to 3,903. As anticipated, program product and service revenues was 0 in the first quarter of 2026 as we await funding for the next phase of the AVCAD program, and it was $0.1 million in the first quarter of 2025. OEM and funded partnership revenue was $0.6 million for the first quarter of 2026 compared to $0.7 million in the prior year period. Recurring revenue, which consists of consumables, accessories, software and service revenue represented 30% of total revenues this quarter and was $4 million, a 7% decrease over the prior year period, primarily related to the expected reduction in Mass Spec service revenue.

Gross profit was $6.9 million for the first quarter of 2026 compared to $5.5 million for the prior year period. Gross margin was 51% for the first quarter of 2026 compared to 47% for the prior year period. The increase was driven by several factors: one, higher product revenue volume; two, a shift in channel mix with fewer international placements that are at a lower gross margin; and three, the decreased facility costs related to the move of our Boston facility in 2025. This was offset in part by a lower service gross margin related to the decreased service contract revenue in the first quarter of 2026.

Adjusted gross profit was $7.7 million for the first quarter of 2026 compared to $6.4 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 290 basis points compared to the prior year period. The increase in adjusted gross margin was driven by the higher revenues, channel mix and the reduced facility costs, as mentioned above. Total operating expenses for the first quarter of 2026 were $19.8 million compared to $16.6 million in the prior year period. The increase was due to a noncash $3.9 million increase in the fair value of contingent consideration. All other operating expenses for the first quarter decreased year-over-year by $0.7 million, driven by a reduction in facility expenses and a $0.2 million decrease in acquisition and integration costs.

Net loss from continuing operations for the first quarter of 2026 was $12 million compared to a net loss of $9.8 million in the prior year period. This increase was primarily driven by the $3.9 million noncash charge for revaluing contingent consideration, offset in part by the improved gross margins and reduced operating expenses. Adjusted EBITDA for the first quarter of 2026 was a negative $2.5 million compared to a loss of $4.6 million in the prior year period, representing a $2.1 million improvement. In the first quarter, we cut our adjusted EBITDA loss by 45% due to realizing growth at improved margins with a lower operating cost base. We ended the quarter with $111.7 million in cash, cash equivalents and marketable securities with no debt outstanding.

Operationally, we are executing with discipline using only $1.2 million of cash in the quarter. Looking ahead in 2026, we now expect revenue to be in the range of $67 million to $70 million, representing growth of 19% to 25% over full year 2025. Our guidance range has increased $2.5 million and includes the following assumptions. First, we now expect handheld product and service revenue to grow 18% to 21% year-over-year, which equates to a range of $62 million to $64 million. The increase in guidance reflects initial expectations around our acquisition of NIRLAB as we integrate it into our commercial model.

Second, we continue to expect OEM and funded partnerships, including contract revenue to be approximately $3 million. And third, we continue to expect revenue contribution from the AVCAD program to be in the range of $2 million to $3 million, likely in the second half of 2026. As previously stated, Smiths Detection has responded to a request for proposal and are negotiating for an anticipated spring award for an initial production run of approximately a few hundred systems with component and subsystem contributions from 908 Devices. This timing and quantities are validated by the Department of War's fiscal year 2027 Chemical and Biological Defense program public request to Congress just last week.

Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50% range for full year 2026. And on the bottom line, we expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, making another significant step down year-over-year while we go after the growth opportunity. We expect that NIRLAB will represent approximately $1 million of the adjusted EBITDA loss in 2026. However, as Kevin mentioned, we anticipate it to be adjusted EBITDA positive in 2027. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. The progress we're seeing is a direct result of disciplined execution and a strategy that is working. Only 4 months into the year, and we're encouraged by the trajectory of the business. We're executing well, building momentum and expanding from a position of strength. Our end goal is clear to be the #1 provider of handheld detection solutions globally. And every move we're making from organic investments to tuck-in M&A is reinforcing that leadership. We're broadening the portfolio with purpose, extending beyond MX and assembling what we believe is the strongest and most comprehensive suite of handhelds in this market. In parallel, we're scaling our commercial organization to match the opportunity and drive consistent execution.

Every piece ties back to our narcotics and chemical detection strategy, addressing real pain points across performance and price points, expanding the market while taking share as we solve more of the problem. RedWave is a clear proof point. We identified a unique asset, moved early, integrated successfully, and we're now scaling the business through our sales model. As of March 31, 2026, RedWave exceeded its earn-out threshold, delivering more than $37 million in cumulative revenue over the past 2 years compared to $13.7 million for the full year prior to our acquisition. This demonstrates our ability to create value through integration and execution under our model.

We're also adding depth to our leadership team with the addition of Kola Otitoju as Chief Business and Strategy Officer, bringing proven execution across both organic and inorganic initiatives following 6 successful years at Repligen, including growing the analytics technology business and executing more than 15 M&A transactions and strategic partnerships for the company. The takeaway is we're building a scaled category-defining handheld platform with greater recurring opportunity positioned to deliver a higher quality, more predictable and more durable growth profile. With that, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Matt Larew with William Blair.

Joe, I wanted to follow up on NIRLAB. It looks like a really interesting acquisition. Just curious what sort of investments you think you're going to be making this year, maybe from the team perspective, the 15 people, what the mix looks like in terms of product folks versus sales, what they're doing today from a manufacturing perspective and how you might be able to achieve some synergies there? Yes. So just thinking through sort of what the next 12 months looks like as they brought in-house and scale revenue even further.

Yes. Thanks, Matt. I appreciate the question. Yes, we're very excited to now have NIRLAB under the fold of 908 Devices. And we're really excited because it fits very clearly into our already established narcotics detection strategy. And so because of that, it really dropped right into the resources we have on the commercial side. So we're really able to leverage the great talent that we've been developing.

We've seen great strength across the U.S. state and local market as we articulated in the prepared remarks and are seeing good scale across Department of Corrections and others. So we really feel that with the existing resources we have on hand from the commercial side, it's going to really be able to accelerate because they have had very little penetration in the United States.

And as Kevin mentioned, I mean, NIRLAB is subscale today, and it is mainly international revenues. In 2026 and beyond, we see it as accretive to the top line. And I know the team is excited to get their hands on the product and visit the customers. We saw a path that NIRLAB can be -- maybe breakeven in 2027 for adjusted EBITDA, leveraging the 908 channel and those investments in the software model. And on the cash flow side, with the multi-year upfront commitments on software and subscriptions, we expect the cash burn to be minimal here in 2026 and positive thereafter. So it's an exciting opportunity, existing product, solid channel to get access to the devices that really can be accretive over the longer term.

Yes. So not a significant up of investments that can all fit in with the profile Joe just described.

Okay. That's great. And then just asking on the VipIR launch, 40 units in Q4 and you did over 25 in Q1. I know that was something you were excited about really ramping this year. So just curious how that kind of that first quarter matched up versus your expectations and what maybe the pipeline or funnel looks like for the balance of the year?

Yes, absolutely. So VipIR is our newest product that does unknown and solid and liquid ID. And it integrates, as you recall, probably the 2 technologies of FTIR and Raman and puts it together with what we call Smart Spectral Processing to give a nice increased capability and increased confidence of an answer. Yes, we launched it in July. We shipped approximately 50 devices in 2025. And in the first quarter of '26, we did -- as you mentioned, we shipped about 25 devices there.

And our expectation is that, that will double or potentially triple the placements for 2025. So essentially, we're on track to meet that as we've previously articulated. So we do expect and continue to expect the full year impact from VipIR to be significant for us in 2026 for the FTIR growth profile. And then I also get excited from the technology front because we've got a great road map of features and enhancements planned that we think that's going to continue to increase the product value over time and make it even more compelling out there. So a lot of good things to come on that.

Your next question comes from the line of Puneet Souda with Leerink.

You have Michael on for Puneet. Congrats on the quarter. My first question has to do with NIRLAB and your recurring revenue mix. I'm curious how material you think it will be to recurring revenue in 2026, what you're thinking as far as the mix? And as you're augmenting your Team Leader and software capabilities, like how should we think about maybe sort of the near-term ramp for the recurring mix growth?

Maybe I'll start with the Team Leader side and pass it to Joe on the numbers of the recurring. But thank you, Michael, for that question. I mean we're very excited because it fits very well in with Team Leader. So together, NIRLAB and Team Leader both create that connected services vision that we've been talking about. So it really accelerates our access on Team Leader.

As you may recall, we've got hundreds of devices now with Team Leader and now NIRLAB really adds to that. And together, being able to position that and create more features on Team Leader that makes it a paid additional offering. So our recurring revenue over time, we think we're really putting the pieces together to drive it significantly as we go forward. But Joe, do you want to?

Yes. Maybe touching on the NIRLAB revenues as a whole, and we'll own NIRLAB for 8 months, and we increased our guidance by $2.5 million. And we see that growth to be accretive to our portfolio overall. It will likely double our current growth on our base products. Given the scale, we feel there is a healthy growth opportunity, and we expect this to really kick in, in 2027 as we plug in our U.S. sales team and build pipeline. We expect the revenues to be north of $5 million in 2027 and good growth thereafter.

You asked specifically about kind of the mix of recurring and the impact to '26. So on that $2.5 million, maybe 40% to 50% is kind of recurring from the existing installed base and ramping device sales, and we'll really be focused on driving the penetration of the device placements and the ultimate opportunity of scaling that recurring revenue in the future. So definitely some pickup on the recurring side, but much more so as we get to '27 and beyond.

I got it. And then you talked about the state and local momentum you're seeing. I'm curious if you have any visibility on flow-through from the One Big Beautiful Act grant funding or if that's still to come? And what do you think about the sustainability of the growth momentum throughout 2026 based on the booking?

Yes. It's a great question. We certainly are encouraged that we now have all the appropriations bills were complete all but one essentially earlier this year. And then now as of last week, we've got the DHS department funded. As you know, DHS provides significant funding from the federal level to state and local entities. Often, that funding is multiyear funding. So we really didn't see any suppression of interest over the first 4 months of this year. I do think by having that complete, it enables some of our pipeline that we anticipate for the second half of the year, whether that's across the DHS or other related large federal and military accounts.

So I think it's all very, very supportive and better than it's been in past years. Now some of that is a direct result of increased funding that's flowing down to our customers, but it's usually trickling down through a grant program metric or we'll see what continues to happen in the U.S. military side with some of the reconciliation bills and some of the increases there as well as the international conflicts that inevitably, over time, create opportunity for our types of technologies as people prepare and modernize.

Your next question comes from the line of Brendan Smith with TD Cowen.

Congrats on the deal. I wanted to ask maybe kind of a follow-up on kind of combining a couple of the last questions here. But can you just help us maybe understand really from kind of a pricing power standpoint, how some of these planned updates and rollouts even within VipIR and your lab integrating in, but also with Team Leader, like if you're able to squeeze some pricing premiums into any of these and really just how we should think about that over the coming quarters as some of those get to customers?

Yes. A great question. Thank you, Brendan. The pricing power, I think we are very fortunate across the portfolio to have very differentiated products and that bring a lot of value to our customers. So whether it be VipIR, very unique in the marketplace on how it combines the results, integrated them from 2 technologies to give a more confident answer, whether it's our MX, which is really the only handheld Mass Spec that's on the market. And NIRLAB, we think as well, it's quite differentiated in its capabilities, and it has a lower price point that's very, very different there.

So it's about a $10,000 upfront device and then it has a required subscription that's about half of that again per year. So that then implies that each in the following years, it's 100% recurring, right, because you're just buying a subscription on a device per device look and basis. So yes, I think collectively, we feel we have a lot of levers on the pricing side. And we are combining your questions, as you said, we are really looking at this as a strategic way to increase our recurring percentage.

We've talked last year that we're kind of operating in about 1/3 of our revenues. Q1 was about 30%. A lot of that was driven by service and consumables, some accessories that are in there. And we really look at NIRLAB and Team Leader and the other software components as great ways to increase the stickiness of this over time and at the same time, provide a lot of value to the customers that want that interconnectivity and want the ability to share that data.

Your next question comes from the line of Dan Arias with Stifel.

This is Rohan on for Dan. Thinking about synergies, how quickly do you think your domestic sales force can begin cross-selling NIRLAB products to your U.S. and local customers?

Yes, I think it can be relatively quickly. We're super excited to plug in the -- especially our U.S. channel that is very experienced, has a great proof point that as we brought on the RedWave products, we're able to plug it in and drive growth over the last 2 years. And NIRLAB has had very few sales to date here in North America and really see it as an opportunity. So I expect to get the products in our customers' hands or I should say, in our salespeople's hands in the next week or 2 and then out on the road with customers.

And it is a lot of the same customers, right? It's more that end-to-end workflow from a narcotics detection perspective. So talking to our existing customers, driving the penetration. So super excited to get out there and see a lot of synergies that we can start to plug in, and we put out that initial assessment of the $2.5 million. A good chunk of that is international, but it does assume some level of ramp-up here in the U.S., but I think there's a lot of opportunity as we move forward.

Yes. And I would just further add, it's really about that people and culture. And I think we have a good combination there and the team at NIRLAB is ready really to jump in on that. That said, it does take a couple of quarters to kind of get our arms fully around it and get it into the our understanding and get it into the U.S. markets. I think RedWave, though, is a great example, and we're going to execute that same playbook. We integrated very efficiently, and we're going to apply that same playbook here because I think that we've demonstrated that we've been able to drive a lot of growth that way and a lot of efficiencies and scale.

Okay. And you previously used your manufacturing to the U.S. to mitigate tariff impacts. With the current geopolitical climate, do you see any risk to your European supply chain for NIRLAB components? Or is this business sort of fully insulated?

Yes. It is -- a lot of the sales today are Europe-based. And as Kevin mentioned, in Oceania and APAC and not much in the U.S. We also have an avenue to source the product here in the U.S., which protects some of the device opportunities, too. So I think from a tariff perspective, it's a bit insulated, but we'll continue to monitor and learn as we integrate and ramp up. But don't see it as a major impact.

There are no further questions at this time. I will now hand the call over to Kevin Knopp for closing statements. Kevin, please go ahead.

Okay. Thank you. Thank you all for your attendance today. And hopefully, you can understand that we are feeling pretty good about our momentum and trajectory and very excited to have NIRLAB and welcome them on to the team. So thank you all for the time today.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the 908 Devices Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions]

I will now hand the call over to Barbara Russo, Vice President of Marketing and Corporate Communications. Please go ahead.

Thank you, and good morning. On this call, we will be discussing our financial results for the fourth quarter and full year ending December 31, 2025, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer.

During today's call, we will make 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. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as in our most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, March 3, 2026.

Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available in the Investor Relations section of our website.

With that, I'll now turn the call over to Kevin.

Thanks, Barbara. Good morning, and thank you for joining our fourth quarter and full year 2025 earnings call. I want to start by expressing my sincere appreciation for entire team for their exceptional execution and unwavering commitment to our strategic transformation throughout 2025. The momentum we've built and the progress we've achieved reflect our disciplined focus on delivering innovative chemical analysis devices that protect frontline responders worldwide. I'm pleased to report that we achieved $17.4 million in revenue from continuing operations in Q4, representing robust 21% [indiscernible] year-over-year growth.

This performance was driven primarily by 3 factors: one, continued demand for our Explorer gas identification device by firefighters and hazmat response teams; two, strong initial demand for VipIR, our new product that provides simple and fast chemical analysis of solids and liquids; and three, continued strong adoption of all of our products by U.S. state and local customers. Most importantly, we achieved positive adjusted EBITDA in the fourth quarter of $0.7 million, which is a remarkable improvement from the prior year's loss of $4 million. This achievement validates the structural initiatives we implemented as part of our transformation. For the full year 2025, I'm proud to report that we delivered $56.2 million in revenue from continuing operations, representing strong 18% year-over-year growth and in line with our 5-year CAGR performance.

This strong performance validates our focus on vital health, safety and defense tech applications. A key highlight was our team's execution of replacing outdated FTIR equipment with modern devices, one of our growth catalysts. In 2025, more than 50% of device placements came from FTIR, led by the full year impact of our EXPLORER device. Another highlight is our achievement of 22% year-over-year growth in recurring revenue, which represents 35% of our 2025 revenues. This growth reflects our ongoing efforts to offer more value to our customers through service, support, software and accessory offerings, strengthening revenue visibility and long-term predictability.

I would now like to highlight our progress during 2025 across our 3 strategic focus areas. Our #1 focus has been to increase adoption of our devices to address global threats to public health and safety. Our EXPLORER device continues to be a standout performer with its unique capability to detect, identify and quantify over 5,000 unknown gas and vapor chemical threats in seconds. The market response has been exceptional across buyer and Hazmat teams worldwide who recognized the device's value in filling a critical gap in on-site gas identification to better inform decision-making and accelerate action.

In its first full year of commercial sales, the quantification enabled Explorer, we delivered over 150 units to high-quality accounts, including the counsel of governments serving the broader Washington, D.C. area and the U.S. Marine Corps CBRNE installation and protection program. These wins underscore the growing adoption of EXPLORER among premier federal and regional response organizations. As a result, Explorer achieved standout growth of more than 40% year-over-year, reflecting both the strength of demand and the impact of introducing quantification capability into the field.

To help drive procurement efficiency and predictability in our U.S. federal government business, we consolidated contracting partners in the fourth quarter from 4 to 1. For 2026, we are now working with Mountain Horse Solutions, who specializes in supplying mission-critical equipment, such as our portfolio of devices to all levels of the U.S. government and military. By leveraging their strong procurement relationships, contracting expertise and integrated logistics and kitting capabilities we improve forecasting accuracy and level load production as a supplier while enabling government customers to receive fully configured mission-ready solutions more quickly and reliably. We look forward to the benefits of coupling our demand generation with their procurement expertise.

Outside the U.S., we saw traction for our devices accelerate, especially in Europe as NATO countries have begun increasing their defense budgets due to the ongoing war in Ukraine and other global concerns. For the full year of 2025, 27% of revenues came from outside the United States. This is an increase from 25% in 2024 with an even stronger increase in sales along NATO's Eastern Flank. We ship chemical detection devices to Poland, Czech Republic, Finland, Ukraine and others in the region. This international expansion, we believe, is just beginning and our progress in 2025 validates the need for our technology in protecting frontline responders in the public globally from unintentional disasters or intentional attacks. Our combination of advanced technology and our product's operational simplicity is what sets us apart and drives the demand we're experiencing across all customer segments.

Moving to our second objective, advancing our next-gen analytical tools portfolio. Our newest device, VipIR, which we launched in July 2025 represents a breakthrough in simple field-based chemical identification of unknown box substances by combining FTIR and Raman spectroscopy technologies with our proprietary smart spectra processing capability. The device is simple and smart workflow is a game-changing capability for customs and border personnel as well as hazardous response teams when connected with our team leader app VipIR allows field teams to instantly share results with command centers and subject matter experts, dramatically improving response coordination and decision-making speed.

Overall, we are excited about the positive market reception for VipIR with early deployments across state and local [indiscernible] teams and international customers. In the fourth quarter, we shipped more than 40 VipIR units, over $3 million in revenue. We are encouraged by the ultimate potential of this new product and the full year impact that VipIR will have in 2026. We also enhanced our flagship MX 908 platform in 2025 and recently released several usability improvements, including the new tick Hunter mission mode that provides first responders with a more guided and purpose-built tool for hazardous vapor detection.

Additionally, we expanded the devices drug detection capabilities by adding 5 new priority targets including medatomidine, a veterinary sedative estimated to be 200x more potent than Xylazine, and which is increasingly being mixed with [indiscernible] as the illicit drug landscape continues to evolve, our software-updatable platform enables us to rapidly deploy new target libraries and capability enhancements ensuring law enforcement remains current and equipped to address emerging threats in real time.

And finally, our third focus has been to strengthen our financial position and accelerate profitability. The operational improvements we implemented throughout 2025 have solidified our financial position. Our manufacturing consolidation into Danbury, Connecticut and our move to a cost-efficient headquarters in Burlington, Massachusetts, have created meaningful efficiencies across our operations. These initiatives, combined with our disciplined cost management approach enabled us to achieve our goal of positive adjusted EBITDA, which was $0.7 million in the fourth quarter. This achievement demonstrates that our cost structure is now rightsized, disciplined and fully within our control.

Compared to our year-end 2024 position, we also strengthened our balance sheet materially, exiting 2025 with $113 million in cash. With this solid financial foundation, we now have the flexibility to invest in the expanding growth opportunities ahead, driven by developing secular tailwinds such as increased funding to combat the fentanyl and illicit drug crisis and increased global defense budgets. To that end, we've established 3 strategic focus areas for 2026. First, scale-proven platforms. We will sustain growth by continuing to modernize legacy detection equipment, especially FTIR across global fire, law enforcement and defense enterprise accounts. We believe we have only made a dent in the overall potential and expect 2026 to benefit from a full year of growth of our newest product, VipIR.

Second, extend platform leadership, we will also drive growth with greenfield placements, differentiated capabilities and disciplined product introductions. New capabilities drive new opportunities. Our Explorer product is a great example of this. with the differentiated gas quantification and identification capabilities is quickly penetrating the broader gas detection market. Similarly, our MX 908 is now the proven device for trace chemical identification and our law enforcement customers continue to rely on its unique capabilities. We expect to build on this and raise the bar further with our next-gen mass spec platform.

And our third focus is to strengthen revenue durability. We are building a predictable revenue mix by pursuing recurring revenue opportunities with connected services, expanding OEM-based revenue and through long-term programs. To that end, our [ DoD AVCAD ] program in partnership with [ Smiths Detection ] is nearing its next phase. Field testing was completed in late fall. And as of today, we believe all material issues have been deemed addressed. Smiths Detection has responded to an RFP for a next phase and is awaiting feedback from the government. This next phase quoted is for an initial production run of approximately a few hundred systems with component and subsystem contributions from 908 devices being potentially delivered throughout the second half of this year. We remain committed to support this detection and DoD on this important national defense effort. We look forward to updating you on our progress in each of these focus areas on future calls.

And now I'll turn it over to Joe to review our financial performance.

Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter of 2025, the financials we are reporting today are for continuing operations only. All current and historical activity related to our desktops including the gain on sale are captured in a single discontinued operations line in our financial statements. Total revenue was $17.4 million for the fourth quarter 2025 and increasing 21% from $14.3 million in the prior year period. Handheld product and service revenue was $16 million for the fourth quarter of 2025, up 18% from $13.6 million for the fourth quarter 2024. The increase was primarily driven by our FTIR products, including more than 40 VipIR shipments and Explorer, which more than doubled its placements in the fourth quarter versus the prior year period.

MX 908 product and service revenue was relatively flat with an increase in U.S. orders that offset fewer international device shipments. In total, we shipped 224 devices in the fourth quarter, bringing our installed base to 3,736. Program product and service revenue was $0.3 million in the fourth quarter of 2025 as we receive funding for [ AVCAD ] program services performed in 2025 and was $17,000 in the fourth quarter of 2024. OEM and funded partnership revenue was $1 million for the fourth quarter 2025 compared to $0.7 million in the prior year period. Revenue growth was led by component sales to pharma and industrial QA/QC customers, leveraging our new precision machining capabilities as well as component deliveries to Repligen under our supply agreement.

Recurring revenue, which consists of consumables, accessories, software and service revenue represented 32% of total revenues this quarter and was $5.5 million, an 11% increase over the prior year period. Gross profit was $9.2 million for the fourth quarter of 2025 compared to $6.7 million for the prior year period. Gross margin was 53% for the fourth quarter 2025 and compared to 47% for the prior year period. The increase was driven primarily by higher volume, along with the shift in channel mix to state and local and defense sales during the fourth quarter 2025 compared to international sales in the fourth quarter of 2024 that have a lower average selling price.

Adjusted gross profit was $10 million for the fourth quarter of 2025 compared to $7.5 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 530 basis points compared to the prior year period. The increase in adjusted gross margin was driven by the channel mix and leverage, as mentioned above. Total operating expenses for the fourth quarter of 2025 were $6.1 million compared to $23.4 million in the prior year period. The decrease was largely a result of a $5.1 million reduction in the fair value of contingent consideration and a $10.1 million goodwill impairment charge in the fourth quarter of 2024. Excluding the impact of these 2 noncash items, operating expenses for the fourth quarter decreased year-over-year by $2 million due to a reduction in head count and facility expenses.

Net income from continuing operations for the fourth quarter of 2025 was $4.4 million, compared to a net loss of $16 million in the prior year period. This increase was primarily driven by the $15.2 million decrease in noncash goodwill and contingent consideration and was additionally due to improved gross margins and reduced operating expenses. Adjusted EBITDA for the fourth quarter of 2025 was a positive $0.7 million compared to a loss of $4 million in the prior year period, representing a $4.7 million improvement and achievement of the goal we set at the beginning of 2025. This significant improvement was related to our aggressive cost initiatives, resulting in reduced operating expenses across the board, including headcount, facilities, R&D costs and professional fees. We structurally changed our cost basis and expect to see the benefits of these efficiencies continue.

Now moving on to our full year results. Revenue for the full year 2025 was $56.2 million, increasing 18% from $47.7 million for the full year 2024. This was primarily driven by an increase in revenues from our FTIR products led by our recently launched VipIR and our EXPLORER device, but also partly due to the impact of ownership for the full year period in 2025 compared to 8 months in 2024. An element of our growth in 2025 was driven by our state and local sales channel, which grew 38% to approximately $24 million, representing 43% of revenues for the full year 2025 compared to 37% for the full year 2024. [indiscernible] local deals are generally smaller in size and more frequent, which is a more predictable balance to large, potentially lumpy federal and military enterprise sales.

Recurring revenue, which consists of consumables, accessories, software and service revenue represent 35% of total revenues this year and was $19.5 million a 22% or a $3.5 million increase over the prior year period, largely driven by FTIR service and OEM revenues. Gross profit was $28.4 million for the full year 2025, and compared to $24.5 million for the full year 2024. Gross margin was 51% for both the full year 2025 and 2024. Adjusted gross profit was $31.9 million for the full year 2025 compared to $26.7 million for the full year 2024. Adjusted gross margin was 57% as compared to 56% for the full year 2024. The increase in gross margin was primarily due to improved service and contract gross margins.

Total operating expenses for the full year 2025 were $67.8 million compared to $81.9 million in full year 2024. The decrease in operating expenses was driven primarily by a $40.7 million noncash goodwill impairment charge, offset in part by a $27 million change in the fair value of the contingent consideration liability where it was a charge in 2025 and a credit in 2024. Net loss from continuing operations for the full year 2025 was $33.3 million compared to $53.1 million in the full year 2024. This increase was largely due to the noncash charge for the impairment of goodwill and change in valuation of the contingent consideration just mentioned.

Adjusted EBITDA for the full year 2025 was a loss of $9.6 million marking a meaningful 39% reduction compared to full year 2024. We ended the year with $113 million in cash, cash equivalents and marketable securities with no debt outstanding. We generated approximately $0.9 million in cash in the fourth quarter of 2025. The increase was primarily related to collection efforts and timing of working capital.

Looking ahead in 2026, we expect revenue to be in the range of $64.5 million to $67.5 million, representing growth of 15% to 20% over full year 2025. Our guidance range includes the following assumptions. First, we expect handheld product and service revenue to grow 13% to 17% year-over-year, which equates to a range of $59.5 million to $61.5 million. The increase reflects expectations around the full year impact of VipIR and growth of our MX 908. Second, we expect OEM and funded partnerships, including contract revenue to be approximately $3 million. And third, we expect revenue contribution from the AVCAD program to be in the range of $2 million to $3 million, likely in the second half of 2026.

Moving down the P&L, we expect adjusted gross margins to be in the mid- to high 50% range for full year 2026 and are targeting margin expansion of at least 100 basis points with our increased volume. Channel and product mix play a key part in our adjusted gross margin, and we'll look to balance this with our first full year of manufacturing in Danbury and in-sourcing initiatives with our precision machining capabilities. During 2025, we were able to streamline our research and development and selling, general and administrative costs. We will continue to be thoughtful on investments in 2026, and likely, we'll see an increase in selling and marketing expenses as we look to drive revenue growth with targeted head count investments. And on the bottom line, we expect to cut our 2025 adjusted EBITDA loss in half for 2026, reducing it to the mid-single-digit millions making another significant step down year-over-year while we go after the growth opportunity.

At this point, I would like to turn the call back to Kevin.

Thanks, Joe. As we wrap up today's call, I want to emphasize that 2025 was a defining year for 908 devices. The results we've delivered demonstrate that our strategic transformation is working. With our lower cost structure and healthy balance sheet, our trajectory is firmly within our control as we balance disciplined growth investments with profitability. I'm confident in our ability to capitalize on the significant and growing opportunity in front of us. We have entered 2026 with a late-stage pipeline that is double the size it was at the start of 2025 which is a tangible reflection of stronger customer demand.

With funding momentum building and favorable U.S. poly decisions reinforcing the priorities of our end markets we believe we are well positioned to translate this demand into sustained growth in the year ahead. Lastly, and perhaps most importantly, we're executing a mission that matters. Every device we deploy helps protect frontline responders who put their lives on the line to keep our communities safe. This purpose-driven focus, combined with our technology leadership and operational excellence creates a powerful foundation for continued success.

Thank you for your continued support and confidence in 908 Devices, we look forward to updating you on our progress as we continue executing this transformation strategy. With that, let's open it up for questions.

[Operator Instructions] Your first question comes from the line of Matt Larew with William Blair.

The first 1 on the relationship with Mountain Horse, Kevin, that you referenced. I'm just curious why you decided this was the right time to kind of work with an external partner. How much volume if there's particular products that you're trying to work with them on. And Joe, I think you referenced sort of the change in economics that might be involved there relative to margin expansion from being in your first full year [indiscernible]. So just kind of curious how the economics will look without rates as well.

Yes, absolutely. Happy to take that question. Thank you. As a reminder, as I think you know, but we drive the demand for all our products, right? We've got direct employees that are across United States working with the federal and military accounts and they work very closely with those end customers. But in many cases, these larger U.S. military and federal customers, they really need to work with -- we need to work with the procurement specialist. We need to work with the contracting partner. Primary factor behind that consolidation from 4 partners to 1 for the federal and military size was really to drive some procurement efficiencies, some predictability, help us improve forecasting. As you know, historically, it could be lumpy. Some of these large U.S. federal opportunities.

So Mountain Horse is very unique. They've been a great partner for us. They're led by U.S. veterans. They've got great procurement relationships across all levels of the U.S. government, which gives us wonderful visibility and helps us move those along. And various contracting vehicles. They've got experts on their team that help us get through the contracting, help us get through any integrations that are required. They can do kitting. They also do logistics. If you think about some of our orders, they may have to go and then be shipped to bases across the globe. There's a lot of complexities around that. So they do a great job for us.

And we thought now is really the right time to consolidate to one because we can gain commitments, we can gain forecasting visibility. We can gain mix and some volume incentives. And it also is very helpful to the U.S. government because they can get these more fully configured ready-to-go solutions out of the box and in some cases, at a lower cost. So certainly helps us, certainly has helped us here in 2025, and we do expect them to continue to be a great partner in 2026, and we're really excited about it.

Matt, you were asking about kind of the benefits of Danbury and a lot of efforts went into that. And I think it translates across the [indiscernible] areas, but primarily within the adjusted gross margin. And -- we were pleased with the way the 2025 results fell out. I hope it becomes a baseline to drive it up over time. For '26, we're targeting margin expansion of about 100 basis points from the 56.7% adjusted gross margin that we did achieve. We certainly have operational momentum now resulting from last year's structural improvements. That full year of manufacturing Danbury being a key, something expanded in sourcing that we can do with our precision machining capabilities. And these efficiencies to really drive -- create a strong foundation to absorb the quarterly variability of channels and products.

Yes. And Matt, maybe I'll just also add in. I mean we're really at a point in our business with the transformation. We've done a ton to make the business much more predictable. We talked today about recurring revenue increases. We talked today about we have so many more state and local sales, and that was a big driver of our Q4. So we're having maybe a smaller percentage now of exposure to these large, lumpy potential federal opportunities. We like them. it's just -- it can be difficult to get through contracting, and that's another reason that Mountain Horse helps us.

Okay. That's great. And then I just wanted to ask on the new next-gen manage platform. I think that is still on schedule for 2026, but curious sort of from a [indiscernible] perspective, what do you think that might appear, how to think about adoption, you have more than 3,000 placements out there?

Yes, that's all remains accurate. We're really continuing to advance that next-gen platform with the commercial launch here later this year. We're excited about the progress the team has made. But obviously, for commercial and competitive reasons, we're providing really specifics today. What I'd say is that we're really disrupting ourselves, right? We're not reacting to a competitive pressure. MX 908 really remains a very highly differentiated product. And really limited direct competition. So we're really working on that product. We think it can be compelling. But we also want to make sure right now, we're focused on really dialing it in before broad commercialization.

So we do see demand coming as we go from both existing and also opening up some new customers due to its step change in simplicity and size and goals that we've set for ourselves. And you're right, we've got more than 3,100 MX 908 devices out there. The advantage of the MX 908 is it's been tested from A to Z. We have something that's very thick, probably a 2-inch binder of various third-party test reports. So obviously, we're going to be very thoughtful with the pacing and the transition and some enterprise accounts likely are going to continue with our MX 908 for some time, and then we'll be getting this out to disrupt ourselves and take us further.

We absolutely believe there's a lot of opportunity there with the increased funding in the opioid crisis, fentanyl listed drug area, the rising of global defense spending, particularly across these NATO countries. So Absolutely, the MX 908 today remains a great growth driver as we see it for 2026. But the next-gen will help us set up. And if we do our jobs right, it could be pretty impactful to next year on a full year basis.

Your next call comes from the line of Puneet Souda with Leerink.

So first one, Kevin, when we look at the overall growth for this year, [indiscernible] close to almost 18% at the midpoint. You have a number of drivers this year, obviously, including AVCAD. You have a state and local [indiscernible] crisis ongoing still. There is international growth from Eastern Europe with disruption there and conflict. And now we have got a new conflict. So I was just wondering if you can talk to us about what takes you to the higher end versus the lower end of the guidance range on the top line growth?

And then how should we think about the current conflict if that was to expand could that drive additional handheld sales? And obviously, it's very hard to tell with the -- currently where we stand, but I just wanted to get your sense on if there are any prior proceedings that you can point to that help us understand where 908 can be more helpful if this conflict was to get worse?

Yes, absolutely. Maybe I'll start with some of that and then pass to Joe as well for his comments. But yes, we have some great growth drivers in front of us from a macro tailwind perspective. And that's the increased funding that's increased defense budgets, NATO global concerns, as you mentioned, which seems to unfortunately be expanding each day. Those are all drivers for increased defense spending, increased spending on the public safety side. [indiscernible] Is absolutely, as you mentioned in the prepared remarks, a program of record that we've been working on for some time with is detection that we do view as nearing its next phase. And from our survey of those involved, I remain very encouraged and positive that we'll see an award this spring. And hence, we're factoring into some of the guidance discussion today.

Maybe I'll pass to you, Joe for some other.

Yes, absolutely. And maybe to revisit and reinforce some of the drivers that can get you within the range and for us to get to the top end of the range. We do see those multiple paths to drive the organic growth, which will more than double our pro forma growth from 25%, getting us to that 15% to 20% range include the VipIR to be a key contributor, driven by our first full year impact. It was great that we were able to get 40 plus in Q4, which feels meaningful. However, '25 had less than 50%, and we believe it could be 2 to 3x that in 2026. So help get us to the top end of the range.

We expect Explorer again to be a big contributor. It was last year. It's our first full year with [indiscernible] Explorer here in '25, we shipped over 150 devices and had 40% year-over-year growth. And we just started to tap into our federal defense channel and see this as an opportunity for '26 and beyond with EXPLORER and we're opening up a broader fire gas detection market with Explorer, which is exciting. We are continuing to keep extending our platform leadership and trace chemical identification and enterprise accounts and creedfield placements across our state and local, that Kevin touched on international chance, the opportunity there. and our La enforcement customers continue to rely on the MX 908 and excited at the NextGen Gen mass spec platform as it comes out.

In [indiscernible], we just touched on it. We're planning on $2 million to $3 million this year and our guide. I guess I would add, too, just as we think about the full year and maybe provide a little bit of insight on seasonality. For '25, our revenue stepped up each quarter and we had 44% of the revenues in the first half. The fourth quarter was maybe about 31% of our revenues overall. So for '26, I think there are a few factors to consider. I expect H1 and H2 to be comparable to '25 on within H1, we'd expect Q1 growth to be in the low teens, say, maybe 10% maybe getting to the 15% level and then Q2 would be closer to the higher end of our guide of 20% year on growth. So there's some Q1, Q2 timing dynamics partly due to our production limits of our new product, VipIR which I mentioned had a lot of demand in Q4 requires us to replenish material inventory. So a lot to think about a lot of different elements there as we go in to '26, but excited and laying out the 15% to 20% growth and looking to try to achieve that top end where possible.

Got it. That's super helpful. And then just on the adjusted EBITDA side. I just wanted to get a -- you're pointing to 50% improvement, but just wanted to understand any other levers that you have? And how should we think about that cadence as well? And with the DSS shutdown, should we -- I'm just wondering are you accounting for that in sort of the first quarter here?

Great question. I'll start with the funding dynamics and pass it to you, Joe, on the EBITDA remarks. But on the funding [indiscernible], overall, I think we're in a better spot than this time last year, right, because we do have 11 of the 12 roll appropriations builds complete, which means the federal government and agencies are funded through September 30 and you're absolutely right. Homeland Security is the 1 ball there that's in short-term extensions and remains unresolved and unfunded at the moment. So different funding dynamics there.

I think in the state and local markets that rely upon grant funding that often flows through DHS, we haven't seen a slowdown there. It remains active customer application. So I think we also -- we're just entering 2026 with a material stronger late-stage funnel. So DHS, specifically, it's a little hard to quantify the impact here in the first quarter or the first half. But again, many of the adjacent grant preparedness programs are these multiyear funding cycles, which really helps smooth it out. So all in all, I think it's a net positive in where we sit from a funding dynamics today versus a year ago or certainly on our -- earlier in Q4.

And on the adjusted EBITDA for '26, we are committed to cutting our adjusted EBITDA loss in half from that approximately $10 million in 2025, and we think there's another significant step down. We believe we can do it without handicapping our ability to address the expanding opportunity, that we really feel is key. It's such a great opportunity and we need to go after it hard. And getting to the low to mid-single-digit millions of adjusted EBITDA loss for the full year of '26 is huge and monumental with our balance sheet and efficient cost structure, we can firmly control our trajectory. We are focused on that growth and cash runway. It's not as much of a concern at this point. And with some targeted investments in the selling and marketing side, whether it's internationally within specific opportunities on the state and local and making sure that we get the next-gen MX off and running a little bit of investment on the R&D side. So we think the adjusted EBITDA with volume is under our control and excited to be on that journey.

Your next call comes from the line of Dan Arias with Stifel.

Kevin, maybe just going back to the Middle East conflict here. Can you just talk through the way in which these situations at the federal level or the global level tend to impact timing and just the focus of the federal government? I mean another way to say it is when we go to war with a rand, does that sort of stuck up all the air in the room for the defense folks, DHS military in a way that creates some uncertainty when it comes to the stuff that you're working on with them.

Yes. Yes. No, that's a great question. We're not seeing that or feeling that today. I think the government is very large and has many prongs of engagement here with 908 and the increasing amounts on that state and local side, right? It was about maybe 30% of our sales last year were the larger federal and military and 70% was outside. I would say that if you look internationally, certainly in the Middle East, there's a lot of people working from home here right now, right? So can that slow down some of our opportunities in the Middle East. That's possible.

Can that also -- can this conflict increase the demand there? I think that's also highly likely, but those deals take a long time to progress. So we're not particularly seeing a meaningful immediate impact one way or the other on that. From the U.S. government, absolutely, our troops in the U.S. are in harm's way, some of our employees, children are involved in those conflicts. So we very much wish them best. If you think from a demand side, we know some of our customers are there. We do know that some of our customers are involved and where that plays out, we'll see. But I think it's pretty balanced at the moment. We're not really expecting any disruption from it at this time.

Okay. And then, Joe, you mentioned op expenses maybe ticking a little bit higher this year. What specifically are you looking to do when it comes to the commercial efforts? And then how are you thinking about the return on that spend? Is it more immediate? Or is it longer-term investment?

Yes. Great question. I think some of the opportunity we've seen performance on the state and local at a high level, and we see more opportunity there as far as getting more penetration in the field, but also leveraging inside sales capabilities outreach remote demos and opportunities, so adding some folks to support those efforts and drive the need and the funding sources that we're seeing on the state and local side.

I think on the international side, we work with the distribution network over, I think, it's 65, almost 70 countries that we sell through today. And those are supported by 908 employees, I think, opportunity to build out, provide more of a commercial presence internationally, whether it's in Europe, Middle East, and APAC across the board.

Yes. International sales was about 27% of our revenues last year. That's up 25% in 2024 and obviously a larger number. And so we really do believe there's a lot of potential in that area. And Joe said, we've got channel managers and [indiscernible] people across Europe and Middle East and APAC. But we do think it's an area of well worth investing.

And from a timing perspective, I think the state and local can have some more immediate opportunity in contribution with those investments. They turn around a bit quicker. International is a little bit more of the long game. There might be some benefit in the back half, but definitely as we grow and continue to show a growth trajectory in the years to come.

Your next question comes from the line of Chad Wyrowski with TD Cowen.

Joe, obviously, the FTIR replacement cycle as a major driver this year. In your words, you've only made a dent so far. So can you help kind of frame the path forward in light of initial '26 guidance, but even looking at '27, '28, how do you expect this to play out? And is this sort of a durable multiyear driver?

Yes, absolutely. Great question. I mean to us, innovation is absolutely a focus and a multiyear driver for it. So yes, we just launched our VipIR our newest product in, call it, the July time frame, and now we've shipped more than 40 devices in Q4, $3 million of revenue. So we're very excited for that early reception. And those placements in the U.S. and internationally. So we do think about that as a great driver for us for 2026 and beyond, right? There's a pretty large market opportunity we see for that and all of our FTR products in total. And as we called out, Explorer is another great example of that. It delivered 40% year-over-year and last -- in 2025, and we again expect it to be a very significant contributor. So yes, we really do believe the innovation cycle, the modernization, the increased capabilities that we're bringing does drive very durable growth.

And just to recap a bit. So '25, 58% of our revenues was mass spec related, 42% was FTIR and super excited to see that contribution kind of within the first 2 years of acquisition and some of the product traction and Kevin highlighted VipIR. And with our product portfolio, typically, you see some of the initial opportunities being able to be secured within state and local, international. And then Fed and military defense might be a little bit further down the pipeline. So as we think about growth in 2017 and beyond, that would be anticipated through some of those enterprise accounts and adoption that have to go through more of a testing cycle to get adoption. So it's not just the initial but then the longer-term trajectory of things like VipIR and Explorer where we're just getting going.

And on that same theme, I guess, for 2027 and beyond on the deck, I see you referenced integrations with UGV, UAVs and robots. Could you just spend a minute explaining what applications you're referring to there? And what that could actually look like?

Yes, absolutely, Chad. That's an area that we've been planting seeds, and we continue to do that today, and those seeds are working with partners across different countries. We've talked about collaboration with [indiscernible] Defense Group in France, where they've put it on their [indiscernible] we've talked about and showcased an effort at the [indiscernible], where it was -- our gas sensing technology was added to a petroleum quadrabot that went through the tunnels underneath the raceway, looking for toxic industrial chemicals and any leakages or hazardous conditions.

So those are the types of areas that we talk about. As our platforms, all of our platforms, as you look at our road map, we're always thinking about smaller size, weight, power, all that just enables more and more opportunity in those areas. So we're trying to align our engagements out there and call it seating of the market because we do think it opens up even further the number of sockets as we look towards 2027 and beyond.

There are no further questions at this time. I will now turn the call back to Kevin Knopp, CEO and Co-Founder of 908 for closing remarks.

Okay. Well, thank you very much for the thoughtful questions and your time today. We appreciate you listening to our call, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the 908 Devices Third Quarter 2025 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the call over to [ Barbara Russo], Investor Relations. Please go ahead.

Thank you. This morning, 908 Devices released financial results for the third quarter ended September 30, 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 e-mail 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 to 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, November 10, 2025. With that, I'd like to turn the call over to Kevin.

Thanks, Barbara. Good morning, and thank you for joining our third quarter 2025 earnings call. I'm incredibly proud of the momentum we've built and the progress our team is driving. We're executing to plan, sharpening our focus and setting the stage for a stronger, more profitable 908 Devices.

Revenue from continuing operations was $14 million, down 4% year-over-year and up 8% sequentially. Growth was driven this quarter by our FTIR devices which accounted for 42% of revenue as we continue to see very strong demand for our XplorIR gas identification device. Another revenue highlight was the U.S. Coast Guard's purchase of 23 MX908 devices for narcotics introduction efforts and hazardous threat detection. In total, we placed 176 devices during the quarter, growing our installed base 27% year-over-year to over 3,500 devices.

Considering our year-to-date progress, revenues from continuing operations for the first 9 months totaled $38.8 million, representing an increase of 16% year-over-year. Recurring revenue represented 36% of total revenue. Moreover, revenue from our U.S. state and local channel for the first 9 months represented 47% of total revenues. Growth in this channel and in our recurring revenues are key parts of our strategy to enhance predictability as this is more run rate business versus large enterprise device deals, which can be lumpy.

We also made excellent progress towards our adjusted EBITDA target for 2025. Our adjusted EBITDA loss was just $1.8 million for the third quarter, an improvement of more than $5 million year-over-year compared to our previous disclosed adjusted EBITDA for Q3 2024 prior to our transformation. And importantly, the adjusted EBITDA loss reduced by 53% quarter-over-quarter.

I'd like to thank our team for their tremendous effort over the past few months as we realize these savings. This is our lowest adjusted EBITDA loss in our public company's history, demonstrating that the structural changes are working and providing a solid foundation for achieving our goal of becoming adjusted EBITDA positive in Q4.

Overall, I'm pleased with our execution this quarter as we continue to build momentum towards our growth and profitability goals. While our transform strategy is taking hold and our Q4 pipeline remains healthy, we continue to gauge the effects from the protracted U.S. government shutdown in 3 areas of our business.

First, demand from state and local customers remain strong, supported by multiyear federal grant programs that remain active. Second, international engagement and order flow remained solid However, U.S. export licensing requirements may extend delivery timing in some cases. Third, while smaller federal and defense orders have continued to move forward, larger awards have experienced delays due to constrained staffing and contracting authorities.

We estimate that approximately $4 million of our Q4 revenue could be potentially impacted by delays in these areas. However, our base case remains that we are on track to achieve our full year guidance, and we view any near-term impact as a timing issue as our strategic alignment remains strong. We believe we are well positioned as appropriations advance and contracting activities stabilize as we address mission-critical priorities, such as mental interdiction, border security and chemical threat preparedness.

With that context, I'd like to turn to our progress on the 3 strategic focus areas that are propelling us forward and bringing our 908 Devices 2.0 vision to life. Our first focus is to increase adoption of our devices to address global threats to public health and safety. We equip frontline responders with rapid, reliable chemical identification pools that require minimal training and perform when it matters most.

Our aim is to define the benchmark for advanced chemical detection in the field. A clear example is our XplorIR device which is setting the benchmark for advanced chemical detection of over 5,000 gases and vapors. Q3 was another record-setting quarter for XplorIR shipments, achieving a 30% quarter-over-quarter increase in placement.

We see XplorIR as a strong supporter of our 2026 growth goals, and it builds a critical gap in the market for hazardous material response. Firefighters and hazmat response teams have long used a photo ionization detector or PID, to detect the presence of a subset of gases and vapors. Knowing a gas is present is helpful but limited. Teams must then rely on their experience and educated guesswork to coordinate a response.

But XplorIR changes the game. With XplorIR, first responders can not only detect presence, but more importantly, identify and quantify thousands of unknown gases in seconds, informing decision-making and accelerating action. After encountering unknown gases in several recent incidents, the [ Contra Costa County Hazmat ] team in California purchased 4 XplorIR devices, helping to improve their on-theme response.

Facing similar situations, the Kansas State Fire Marshal's office purchased 3 XplorIR devices and the U.S. Marine Corps CBRE installation and protection program purchased 17 XplorIR devices in the third quarter for potential hazmat incidents and military installations. While the majority of Explorer shipments in Q3 were in the U.S., the need is global. We are seeing early traction internationally in countries such as Italy, Finland, Poland, Taiwan, Korea and Azerbaijan. We are excited to see the continued growth of this game-changing device as the hazmat teams around the world modernize their toolkit with advanced chemical detection and identification.

Civilian hazmat response and military [ subernin ] defense missions are distinct but closely related and our portfolio is purpose-built to serve both markets. As the future of incident response shift towards autonomous ground robots and unmanned aerial system drones, we are extending our analytical platforms to operate on these emerging frontline technologies.

To that end, we are collaborating with multiple partners to demonstrate capability, including most recently the [ Thales ] Group, the global reader in aerospace, defense and security on a next-generation unmanned ground vehicle UGV integration to enhance mission safety and improve situational awareness for operators in the field.

As we build momentum with emerging autonomous defense tech integration, we continue to advance key initiatives with our established partners, including our collaboration with Smiths Detection on DOD's AVCAD program. We completed low rate initial production in late 2024 and delivering over 100 component set to support system builds and government testing in 2025. The program is now concluding a final field validation event, which if successful, is expected to trigger an RFP for a next phase.

While time lines have become affected by program changes in the government shutdown, we continue to expect clarity on next steps by year-end. We stand ready to support [ Smiths Detection ] in the next phase of this important national defense effort.

Our second focus area is advancing our next-gen analytical tools portfolio. At our core, we are an innovation-driven analytical instrumentation company we're committed to the relentless pursuit of higher performance breakthrough capabilities and greater simplicity. In July, we announced the launch of [ Viper], our handheld chemical analyzer that uniquely combines FTR and [ Raman ] spectroscopy into a single seamless workflow powered by our [ Smart Spectra ] processing technology.

During the quarter, we shipped one of our first [ VIPER ] unit to government intelligence agency in Southeast Asia. They selected [ Viper ] to modernize their counter narcotic and counterterrorism capabilities, upgrading from a competitor product. This initial unit serves as a pilot and has the potential to extend into a broader deployment across the country, establishing a new enterprise account.

We also shipped several purchased [ Viper ] units during the quarter to our channel partners, seeding awareness and engagement in the field. Last month, I attended our EMEA Channel Partner Summit, where we had gathered more than 25 partners from across the region to review our latest innovations and compare notes and pipeline opportunities.

The enthusiasm for [ Viper ] was unmistakable, fueled by a clear shift in NATO preparedness and increased spending among nations along the [ Alliance's Eastern Flank]. We are encouraged that [ VIPER ] like XplorIR, will become a ramping contributor through 2026 and a key beneficiary of recent funding improvements.

One of [ Viper's ] differentiated capabilities garnering interest is its integration with our team leader software. Using [ Viper's ] built-in cellular connectivity or Wi-Fi first responders can upload sample data on unknown solids and liquids in real time. Using the team leader app commander leaders outside the hot zone can view this data to make rapid informed decisions on the response based on a clear understanding of the chemical threat.

Team leader is currently integrated with all of our FTIR devices is on the road map for our mass spec devices. We already have more than 700 users on the team leader platform, and over the next year, we plan to add additional compelling functionality.

And finally, our third focus area is strengthening our financial position and accelerating profitability. Under our 908 Devices 2.0 transformation, we set an ambitious target to achieve positive adjusted EBITDA by Q4 of this year, a goal we've been laser-focused on.

As I covered at the outset, and as Joe will detail shortly, we're making meaningful progress towards that target. Our facility consolidation and operational scale up in Danbury, Connecticut are delivering improved productivity and cost structure. For example, our gross margin increased quarter-over-quarter and reached 58% on an adjusted basis, reflecting the first benefits of those efforts. Over the long term, we expect further margin uplift as we in-source precision machining following our acquisition of the assets of the KF manufacturing.

Importantly, our products continue to command premium pricing due to their innovation and market differentiation, a trend we expect to maintain. And as we build more value in our team leader offering, we intend for it to become an incremental contributor to recurring revenue.

Further, we concluded the quarter with approximately $112 million in cash and marketable securities with no debt, providing a strong financial position and optionality as we scale. I'll now hand it over to Joe to review our third quarter financial performance.

Thanks, Kevin. As a result of the sale of our desktop portfolio in the first quarter, the financials we are reporting today are for continuing operations only. All current and historical activity related to our desktops, including the gain on sale, are captured in a single discontinued operations line in our financial statements.

Total revenue was $14 million for the third quarter of 2025, down 4% from $14.5 million in the prior year period, primarily driven by a smaller number of multiunit MX908 device orders to U.S. federal and defense customers, offset by continued momentum in our state and local end users.

Handheld product and service revenue was $13.2 million for the third quarter of 2025, down 5% from $13.9 million for the third quarter 2024. We shipped 176 devices in the third quarter compared to 178 devices shipped in the third quarter of 2024, bringing our installed base to 3,512.

As a reminder, there were approximately 700 FTIR devices placed prior to our acquisition of [ Red ] way. And including these units, our product installed base was greater than 4,200 exiting the third quarter. As expected, program product and service revenue was not material in either the third quarter of 2025 or in 2024. We are not assuming any meaningful revenue contribution from the AVCAD program 2025 and as we completed the initial low rate production deliveries in Q3 2024 and are preparing for the next phase and potential ramp in 2026.

OEM and funded partnership revenue was $0.8 million for the third quarter of 2025 compared to $0.5 million in the prior year period. Revenue growth was led by pharma and industrial [ QA/QC ] customers with an additional lift from component sales tied to our new precision machining capabilities from the KF asset acquisition. Recurring revenue, which consists of consumables, accessories and service revenue, represented 35% of total revenues this quarter and was $4.8 million, a 10% increase over the prior year period.

Looking ahead, we expect recurring revenue to be approximately 1/3 of total revenue for the full year. This factors in anticipated higher device placements in the fourth quarter, which naturally brings down our percent recurring, but also a funding-related pause in service coverage by a U.S. defense customer resulting in a quarterly headwind of approximately $0.5 million beginning in the fourth quarter.

Gross profit was $7.4 million for the third quarter of 2025 compared to $7.8 million for the prior year period. Gross margin was 53% for the third quarter 2025 compared to 54% for the prior year period. The modest decrease was driven by a less favorable product mix with material costs representing a higher percent of revenue, as well as unabsorbed costs from our new precision machining operation during the quarter as production ramps, and we do more in-house, we anticipate a benefit to gross margins in future periods.

Adjusted gross profit was $8.1 million for the third quarter of 2025 compared to $8.5 million for the prior year period. Adjusted gross margin was 58%, a decrease of approximately 60 basis points compared to the prior year period. The slight decrease in adjusted gross margin was driven by the product mix and unabsorbed costs as mentioned above.

Total operating expenses for the third quarter of 2025 were $23.7 million compared to $32.3 million in the prior year period. The decrease in operating expenses was driven by a $30.5 million goodwill impairment charge in the third quarter of 2024, and offset in part by a $22.8 million increase in the fair value of the noncash contingent consideration. Excluding the impact of these 2 items, operating expenses for the third quarter decreased year-over-year by $0.9 million, which is a better proxy for trends in cash-based operating expenses.

Net loss from continuing operations for the third quarter of 2025 was $14.9 million compared to $23.6 million in the prior year period. This decrease was primarily driven by a $7.7 million decrease in noncash items was additionally offset in part by a $0.4 million of income from our transition services agreement with [ Repligen].

Adjusted EBITDA for the third quarter of 2025 was a loss of $1.8 million compared to a loss of $2.7 million in the prior year period, representing a 32% year-over-year reduction and a 53% quarter-over-quarter reduction. The significant improvement was related to our aggressive cost initiatives, resulting in reduced operating expenses across the board, including facilities, R&D costs and professional fees. As we enter the fourth quarter, we will continue to leverage the structural changes to drive positive adjusted EBITDA with our scale and projected high-teens revenue growth.

We ended the third quarter 2025 with $112.1 million in cash, cash equivalents and marketable securities with no debt outstanding. We consumed approximately $6.5 million of cash in the third quarter of 2025. The usage was primarily related to working capital and supporting our operations, but also included the $2 million used for our asset acquisition of [indiscernible].

As we noted last quarter, the combination of proceeds from the desktop portfolio sale, disciplined cost actions and durable growth catalysts for 2025 and beyond, reinforces our confidence in sustaining a healthy cash balance through our transition to profitability.

Looking ahead in 2025, we continue to expect revenue from continuing operations to be in the range of $54 million to $56 million, representing growth of 13% to 17% 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 16% to 20% year-over-year, which equates to a range of $51.5 million to $53.5 million. The $500,000 decrease reflects the funding-related pause in service coverage for U.S. defense customer, as previously mentioned.

Second, we now expect OEM and funded partnerships including contract revenue to be approximately $2.5 million. The $500,000 increase is mainly based on third quarter performance and the inclusion of revenues from the [ KF ] acquisition. And third, as stated all year, we are not assuming any meaningful revenue contribution from the U.S. Department of Defense, AVCAD program in 2025 as we are preparing for a potential next phase and ramp in 2026.

During the quarter, our commercial team made strong progress in advancing large enterprise opportunities across both U.S. and international accounts. We are also encouraged by the early momentum with [ Viper], where we now have secured more than 35 units for Q4 shipment to state, local and international customers.

Securing a few of the larger 20-plus enterprise opportunities in our pipeline is central to achieving our fourth quarter revenue expectations. Our expectations assume that the government resumes normal contracting and operations this quarter. Our operations are nimble, we build to forecast, we have the inventory, and we were able to fulfill most orders as received right through the last days of the year.

Moving down the P&L. We continue to expect adjusted gross margins to be in the mid- to high 50s range for full year 2025, with further opportunity to expand in 2026. With an adjusted gross margin of 56% for the 9 months ended September 30, 2025, we remain confident in our ability to deliver on our expectations for the full year.

And we continue to target adjusted EBITDA positivity in Q4 of this year, supported by our Q4 revenue projection, anticipated mix and resulting gross margin and lower operating costs following our portfolio divestiture and facility consolidation. At this point, I would like to turn the call back to Kevin.

Thanks, Joe. To close, Q3 marked another important step forward in our 908 Devices 2.0 transformation. As planned, we are one, broadening our customer mix and reducing customer concentration; two, expanding our handheld portfolio from 1 product to now 5; and three, increasing the share of recurring revenue.

Together, this strategy reduces our dependency on the timing of larger U.S. federal and defense awards and creates a steadier cadence of orders across a more distributed customer base. Further, we delivered our best adjusted EBITDA results since our IPO, reflecting disciplined execution, cost control and continued progress towards profitability.

With a solid balance sheet, strong year-to-date revenue growth and line of sight to achieving positive adjusted EBITDA in the fourth quarter, we're confident in our trajectory and the foundation we're building for sustained growth in 2026 and beyond.

Thank you for your continued interest in 908 Devices. We look forward to updating you on our progress next quarter. With that, let's open it up for questions.

[Operator Instructions]. Your first question comes from the line of Puneet Souda with Leerink.

So first one, a clarification on the fourth -- on the $4 million. I just wanted to make sure you're accounting for that in the full year guide, if you could confirm that. And then was to come in later than expected, then is this going to be the first -- is it going to be a contribution to the first quarter '26 revenue? And then if I could follow up for the '26, are you expecting 20% growth? Or could this be more than 25% growth year-over-year in '26?

Sure. Absolutely, Puneet. So I guess let me explain it this way for our Q4 guidance. It includes the run rate business and the larger enterprise orders that totaled to about 60-ish units, maybe approximately $3 million. We have the pipeline of those large enterprise opportunities for in the U.S. federal, U.S. defense and international accounts. We do have greater than 3 million of high probability enterprise opportunities from those U.S. federal and defense customers that are held up waiting for the U.S. government to get back to business.

Additionally, we also have about 1 million of international orders that require export licenses. Applications are moving but slower than normal and require an expedite request with the shutdown. To deliver on our guidance, we are assuming the government returns to normalized operations in the quarter and we can land and ship these before year-end.

We built the forecast, we have the inventory, and we can ship right up through the end of the day, the last days of the year. We do have sizable -- additional sizable enterprise opportunities for international customers progressing towards closure. Some require export license and some do not.

Further, we have seen our state and local channel overperform our expectations all year, and we're very pleased with the [ ViPR ] traction to date with now more than 35 units in hand for Q4 shipment, representing about 15% of our Q4. So $4 million revenue in our guidance, it could be impacted if the government has not returned to normal by year-end, but we will be looking to leverage other opportunities in our pipeline to mitigate and importantly, this is a timing thing. These opportunities do not go away and carry over whether in Q1 or early in 2026.

Another way, I guess, to read this is that if the government was fully back to work and operating normally, you'll probably be hearing increased confidence to the high end or even higher in today's call.

Got it. That's very helpful, Joe. And then -- on the AVCAD program and the cost -- I mean Coastguard order, could you update us how should we think about AVCAD in '26? Is this more first half versus second half? And then on the Coast Guard order of 23 MX908, and correct me if I'm wrong on that. When do you expect that to be in the revenue?

Coast Guard was in our shipments for Q3. So it's exciting to get that key win.

Yes. And on the AVCAD side, the program recently completed a final field validation event. So the government is currently working through those results, and we continue to expect clarity on the next steps before the end of the year. And as you know, we engage the government directly for our commercial products, but for AVCAD, we're partnered with [ Smiths Detection], they're the prime, we're the sub so they manage that program.

But we are expecting some feedback in the coming months, and we'll certainly keep all updated there. But yes, it's continue to move forward. Timing is harder to control, especially given the shutdown dynamics here. but we have been engaged with AVCAD over 5 years, and we do anticipate it to be a meaningful growth driver and to scale up and to have a nice run rate for us over potentially a 5- to 7-year horizon.

So as we mentioned before, on AVCAD. [ Smiths ] is working through kind of a handful of small incremental improvements, and that was the goal to demonstrate in this field test, and we'll be looking for that validation that it has occurred. The scientist in me, I remain very encouraged about where we're at because the detection side of it is really some impressive performance levels that had to be hit, and we're doing that.

So -- and with the new administration, certainly, there's changes in the contracting. So could there be an acceleration? Could there be a delay? Probably equally are possible on that -- but at the moment, I think we've got good momentum and they're coming up to a decision point that we should get those next steps clarity. So from a 2026 --

Yes. I think AVCAD creates -- it's one of the levers or catalyst for growth. There's the opportunity as we learn at the end of the year that can contribute to that 20% product growth that we'll continue to evaluate and talk to as we get into March.

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

Can you hear me okay?

Yes. We can hear you, Matt.

Okay. Fair enough. So Joe, I just wanted to ask on -- just you have the breakeven this quarter, obviously, given the government shutdown and AVCAD some moving parts that are big in size in terms of the top line. Just the sensitivities around hitting that number? And maybe more importantly, as you think about taking through the P&L performance into 2026, do you think once you hit the just breakeven that you'll sort of remain at or above that level? Or given some of the first half or second half spend and cash dynamics, could you sort of have 2 steps forward, one step back kind of path from here?

Got it. From a sensitivity perspective, the $4 million of potential risk, it would be impactful if we don't land the $3 million or so in high probability orders anticipated from those federal and defense customers, and maybe the $1 million that need to export licenses. And unless we can partially offset and get to the low end of our revenue range, it will be a challenge.

It's hard to offset the gross margin loss and we need to be at the low end really from the range to achieve our target. But we'll look for ways to minimize the revenue risk, but we do need to scale to get to our Q4 adjusted EBITDA positivity goal. So I mean, just to reiterate a bit, we are holding our revenue guidance steady in our base case, which is the $54 million to $56 million for the year. And a minimum we'll need to be at that low end.

Easier Q4 revenues are near the midpoint of that range or even the higher, but at least at the minimum, the adjusted gross margins in the mid- to high 50s that we've been talking about. And on the Q4 OpEx, excluding noncash stock comp and intangibles in the call it, $11 million range, not far off from where we were in Q3 really benefiting from the impact of the facility transition and other cost savings we've done.

So as you might expect, all those factors driving positive adjusted EBITDA in Q4, revenues are the most critical and crucial. And as we think about 26% and adjusted EBITDA, we'll be working towards getting there on a full year adjusted EBITDA, there is seasonality.

So from a revenue perspective, I would expect it to flip back to negative earlier in the year if we're not at the same scale as Q4 and I think our history has shown that there is a ramp in the back half typically on the adjusted EBITDA.

Okay. Great. And then Kevin, one of the 3 growth catalysts for next year is [ NextGen MX]. And just as you now get closer to that replacement cycle getting going, just kind of curious updated thoughts on that opportunity? And to the extent you've shared any of the new features or form factor with customers, feedback how that's kind of leading to your excitement for the product launch.

Yes, sure thing. You're absolutely right. Innovation, new products is one of our 3 growth catalysts and our XplorIR product is the second newest product and [ Viper], I hope you're hearing on our call today. We're very pleased with that recent launch, and that's a new product for us that we think is going to be compelling contributor here going forward in 2026 and beyond.

And you're right, [ NextGen MX ] as well, right? We've got over 3,000 of those out in the world of our first generation really greenfield placements and us being able to continue that, but also have an upgrade opportunity. We think it will be meaningful over time. Nothing really new to report today on that front.

I would say that we remain on track. Teams working on that program aggressively and very encouraging, I would say, improvements there. But again, we've got a very disruptive product in terms of no direct competition or their current MX. So we'll work through the timing of that launch, but we still expect it in 2026 and again, XplorIR and Viper have really been doing well and was part of the thesis of the RedWave acquisition, of course. And so we're super excited for those contributions as well.

Your next question comes from the line of Brendan Smith with TD Cowen.

So yes, so maybe just putting the shutdown the side, just the time being. I wanted to ask a little bit more about -- and I fully appreciate it, it's still early, but just where you're seeing and expecting to see kind of the most interest in [ Viper ] so far and maybe how we should think about the launch ramp of [ Viper ] relative to kind of your expected growth trajectory for the earlier gen devices. Maybe just if you would expect any potential cannibalization just of the earlier gen growth trajectory as [ Viper ] gets its legs? Or if you're really expecting some of the target customers could continue to persist for both independently?

Yes. No, great question. I think [ Viper], we're really, really pleased with. Last quarter, we highlighted that we expected Viper to be a small contributor in Q4 and then rising contributor in 2026. In the third quarter, we ship that first [ Viper], good feedback on that, another handful or so that went out for demo units to our partners that are that are working to then evangelize that product.

Really excited about -- all about what we're hearing there and that team leader connection. And as we reported today, there's a meaningful amount, 35 or so that are on deck for Q4 shipments. So I think the takeaway is that the engagement is showing great early signs and that we do see Viper playing a good role in supporting our growth goals for 2026.

From a cannibalization, it really doesn't impact our MX. It's a complementary product. It's also complementary in use case with our other products on the FTIR side. So we think this is just great to have in the toolbox. And right now, it seems to be being validated that way. So we remain excited about it.

Okay. Great. And then maybe on [ Team leader ] that you mentioned. Maybe just what are kind of the next steps there in development and thoughts on maybe a broader rollout as that gets integrated a little bit more. Maybe help us understand a little bit more how you're thinking about potentially monetizing that aspect of the system moving forward and maybe when that could start to factor in?

Yes, absolutely. So a team leader is an application software that it connects to all of our FTIR devices and some our mass spec device. And it allows people remotely to see what's going on with the unit, location information, and we're starting to add more and more what we think is compelling features in the fleet management perspective, so you can understand where each of the devices sits, software, training, things of that nature.

And as we do that and that road map, we think of these features is pretty compelling. Yes, the value of that and its contribution, we expect to be incremental to our recurring revenue. So you may know some large caps in the gas detection space and saw some more medium cap device out there in the gas detection space companies do see that working well for them in other segments of the gas detection market. So I think it's early days here, but we see a growing contribution as we go over time with that product, yes.

[Operator Instructions]. Our next question comes from the line of Dan Arias with Stifel.

Kevin or Joe, anything that you guys would consider a risk when it comes to production capabilities or supply chain, et cetera, on full AVCAD, fulfillment. The only reason I ask is because you have a bigger portfolio now, more balls in the air. So just sort of curious if there's anything that you think is worth calling out when it comes to scale-up capabilities that's unique or just sort of require some particular attention.

Yes, great question. As you know, we've done a ton of work over the first half and in the third quarter and moving our production and having it up and running for the third quarter completely in Danbury, Connecticut. That includes our MX908, where those core components and subsystems are in common with many of the elements of the AVCAD product.

So we feel good about it, that we've got a nice base there. We feel good about it that we can handle some of the machining requirements from where we're set to build our pumps at scale from both the KF precision machining asset acquisition and importantly, the machining capabilities that we have here in the Boston area. So nothing of note there.

I think we really stand at ready. And these programs take time. So you do get visibility into revenue ramps or unit volume ramps. So I would expect that as we get clarity as we anticipate over the last few months here, a couple of months of the year, that will help us prepare for what their intended volumes and shipment and plan is. No, I don't expect any supply chain problems there on that for ramp abilities.

Yes. Great to hear. Okay. And then, Joe, maybe just to follow up on the shutdown dynamics. If we do move past the shutdown here, and you get the confidence in 4Q revenue recognition that you mentioned. Does it stand to reason that the first half of 2026 revenues that might be dependent on business development activity that should be taking place now?

Is that still sounding good? Or is there some residual timing risk when you just think about the first quarter or the second quarter of the calendar year? I mean I know we have time to lay out next year. Just trying to make sure that we sort of fully round out the impact of the government stuff here.

Yes, in many ways, with the shutdown, our sales team is kind of cranking along business as usual. Most of them are still around. It's a lot of the contracting folks. So continue to work the pipeline in short-term and longer-term opportunities across the enterprise portfolio. So I do see this as a timing issue and a bit of a pause, but --

Yes. And I think I would just add to that. I mean, Dan, it is unprecedented times there. Certainly, we're encouraged by the news over the weekend of government progress on that. We tried to paint it as a possibility here on the impacts that we're continuously gauging.

But I would clarify that it's probably not a black-and-white situation. As we called out, you kind of have greater than $3 million of these high-probability enterprise orders in the U.S. Fed defense customer bucket that are held up, but each have a shade of gray, some of these can move efficiently in the continuing resolution. Some of these could move and are even when it's completely shut down.

But there's other dynamics that we're always trying to get on top of, for instance, some of our opportunities use [indiscernible] them money, but if the government has shut down, some of that can be redirected temporarily to be used to keep the lights on in other areas. So all of these types of issues. But as we work through each -- it's not a black and white situation.

But yes, I certainly feel good about the pipeline and they would likely manifest itself. If that were to happen, the ones that slipped where it would be into 2026. But as Joe pointed out, I mean, really, the good news is that we build vanilla boxes, right? We're building cots products. We build to forecast. We have the inventory of them based upon that, and we can deliver all the way up through the last days of the year.

So it's really about the government, call it, returning to normal operations. As Joe said, we're actively engaged with customers. Many of our customers are still there, but maybe their contracting colleagues are missing or there's another priority during this more limited resource time. But yes, we remain encouraged about the future and how we're aligned to the appropriations that we anticipate here hopefully in days and for some of the branches that we're hearing about.

There are no further questions at this time. I will now turn the call back to Kevin Knopp for closing remarks.

Yes. Thank you very much. Thank you for joining our Q3 call, and we appreciate your interest in 908. And thank you. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.