908 Devices Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; amounts below are in millions of dollars except per-share data. The company sells handheld and desktop mass spectrometry devices, consumables and services for government, life sciences, bioprocessing and related markets.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $15.8 | $12.5 | $35.2 | $26.4 |
| Gross profit | $9.3 | $6.8 | $20.1 | $14.1 |
| Gross margin | 59% | 54% | 57% | 53% |
| Operating expenses | $16.5 | $12.1 | $45.1 | $32.6 |
| Operating loss | $(7.2) | $(5.3) | $(25.0) | $(18.5) |
| Net loss | $(6.3) | $(5.2) | $(23.8) | $(18.7) |
| Net loss per share, diluted | $(0.20) | $(0.19) | $(0.76) | $(0.68) |
- Q3 revenue grew 26% year over year; nine-month revenue grew 34%. Product and service revenue represented nearly all sales, with Q3 growth led by consumables and service revenue, up 103%, while device revenue rose 9%.
- For the first nine months, consumables and service revenue increased 82% to $9.8 million; device revenue increased 20% to $24.2 million. Product and service gross margin improved to 57% from 53%.
- Operating expenses rose 36% in Q3 and 38% year to date, led by higher staffing costs and stock-based compensation. Consequently, operating and net losses widened despite revenue and gross-profit growth.
- Other income was $0.9 million in Q3 and $1.3 million year to date, mainly reflecting interest earned on cash balances. Nine-month interest expense was $0.1 million.
Cash, liquidity and debt
- Cash and cash equivalents were $193.7 million at September 30, 2022, compared with $224.1 million at December 31, 2021. Total assets were $249.3 million; stockholders’ equity was $196.5 million.
- Nine-month operating cash use was $15.8 million, versus $19.9 million in the comparable prior period. Investing cash use was $15.2 million, including $13.8 million net cash paid for the Trace acquisition. Financing provided $0.8 million. Cash, cash equivalents and restricted cash decreased by $30.3 million.
- Inventory increased to $11.7 million from $7.9 million. Current liabilities were $19.1 million; current assets were $223.9 million.
- Debt was $15.0 million at quarter-end under the prior revolving facility. On November 2, 2022, the company repaid it and terminated the facility without penalty, then entered a new revolving line of credit of up to $35.0 million. No amounts were outstanding under the new facility as of November 2. The new agreement includes a minimum liquidity covenant tied to cash burn.
Changes, outlook and risks
- Trace acquisition: Completed August 3 for 100% of Trace Analytics GmbH, a provider of online analysis systems for biotech processes. The transaction involved $14.4 million initial cash consideration, up to $2.0 million in milestone payments and a $0.9 million pension-liability holdback. Purchase accounting remained preliminary. Trace contributed $0.2 million of revenue and $0.2 million of net loss after acquisition.
- Management expects continued operating losses while it expands sales, manufacturing and research and development. It said cash, cash equivalents and product/service revenue should fund operating expenses, capital spending and debt service for at least 12 months from issuance of the statements; this is based on assumptions that may prove incorrect. No specific revenue or profitability guidance was provided.
- Management expects recurring consumables and service revenue to rise as the installed base grows, and sees potential for long-term product/service margin improvement as volume and manufacturing efficiency increase. Device placements and sales may fluctuate because government purchasing cycles and customer sales processes can be lengthy and uneven.
- Risks highlighted include persistent losses and potential future financing needs; inflation, higher interest rates and customer budget pressure; COVID-related or other supply-chain disruptions; dependence on limited-source components; and customer concentration. One customer represented 41% of Q3 revenue and 29% of nine-month revenue. Two customers represented 47% and 11% of gross receivables at quarter-end; the company reported $1.7 million more than 90 days past due in certain EMEA receivables, against which it had recorded a $1.7 million allowance.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors other than risks associated with its new credit facility, additional capital needs and acquisitions. Management concluded disclosure controls were effective.
Investor verification points
- Track whether revenue growth—especially recurring consumables and service sales—continues to outpace operating expense growth and narrows losses.
- Review cash burn, the 12-month liquidity assertion and compliance with the new facility’s minimum liquidity covenant.
- Monitor Trace integration, achievement of earnout milestones, final purchase-price allocation and any resulting impairment or contingent-consideration adjustments.
- Assess customer concentration, collection of overdue receivables and exposure to sole- or limited-source suppliers.
- Compare actual product placements, margins and cash use with management’s stated expectations; the filing provides no quantified forward guidance.