908 Devices Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. The company sells handheld and desktop mass-spectrometry devices, consumables and services, and performs license and contract work, primarily for government and life-sciences customers.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $5.54 million | $4.00 million |
| Gross profit | $2.91 million | $2.10 million |
| Operating expenses | $8.72 million | $4.86 million |
| Loss from operations | $(5.81) million | $(2.76) million |
| Net loss | $(6.10) million | $(2.97) million |
| Net loss per share, basic and diluted | $(0.22) | $(0.60) |
| Cash used in operating activities | $(9.63) million | $(3.17) million |
All amounts are in U.S. dollars. Gross margin was approximately 52% overall in Q1 2021. Product and service gross margin rose to 52% from 41%; license and contract gross margin fell to 60% from 76%. The Q1 2020 per-share loss is not directly comparable because the IPO substantially changed shares outstanding.
Changes versus Q1 2020
- Revenue increased 39% overall. Product and service revenue rose 103% to $5.36 million, with device sales up 97% and consumables and service revenue up 122%.
- License and contract revenue declined 86% to $0.19 million, primarily because of lower activity under a subcontract tied to a U.S. government prime contract.
- Operating expenses increased 79% to $8.72 million. R&D rose 38%; selling, general and administrative expense rose 113%, reflecting expanded headcount and higher insurance, audit, consulting, marketing and stock-based compensation costs.
- Net loss more than doubled, from $2.97 million to $6.10 million, as increased gross profit was outweighed by higher operating expenses and lower license and contract contribution.
- Product placements doubled to 66 units: 53 MX908, 9 Rebel and 4 ZipChip Interface. Cumulative placements reached 1,427, versus 1,004 a year earlier.
Cash, debt and liquidity
- At March 31, 2021, cash and cash equivalents were $148.96 million; cash, cash equivalents and restricted cash totaled $149.02 million. Cash and cash equivalents declined $10.27 million from year-end 2020.
- Current assets were $162.96 million and current liabilities were $9.25 million. Total liabilities were $38.44 million; stockholders’ equity was $133.31 million.
- Inventory increased to $6.82 million from $4.57 million. Deferred revenue totaled $11.79 million, current and noncurrent combined.
- Operating cash use rose to $9.63 million, driven by the net loss and working-capital investment, including higher inventory and prepaid and other assets. Investing cash use was $0.01 million.
- The company replaced its prior term loan with a $25 million revolving credit facility due March 2024. It drew $15 million, used $14.5 million to repay the prior loan and recorded a $0.2 million debt-extinguishment loss. The balance-sheet debt carrying amount was $15 million. The facility includes a $10 million minimum unrestricted-cash covenant; the company reported compliance at quarter-end.
- Management said existing cash and cash equivalents were expected to fund operating expenses, capital spending and debt service into 2023. The filing also cautions that this estimate depends on assumptions and cash could be exhausted sooner.
Outlook, commentary and risks
- No specific quarterly or full-year revenue or earnings guidance is provided. Management expects continued losses as it expands sales, manufacturing and R&D, and incurs public-company costs; it could not predict when, or whether, profitability will be achieved.
- Management reported increased desktop-customer activity and more on-site installations and training in 2021, but continued extended supplier lead times and travel limitations related to COVID-19. Further disruption could impair manufacturing, supply, customer access or demand.
- Sales can fluctuate materially because government orders may be large and dependent on budget timing, while desktop-device sales cycles vary. The company expects recurring consumables and service revenue to grow with the installed base, but purchasing patterns, particularly for Rebel, are still developing.
- Customer and collection concentration is significant: two customers represented 19% and 10% of Q1 revenue; two customers accounted for 39% and 14% of gross receivables at quarter-end. Gross receivables from EMEA were $2.2 million, the majority more than 90 days past due; collection shortfalls could require an allowance.
- Some product components come from sole, single or limited-source suppliers. The company also cites competitive, product-adoption, financing and COVID-19 uncertainties. No material legal proceedings were reported; management said there were no material changes to the risk factors in its 2020 Form 10-K.
- The company completed its IPO in December 2020, receiving $136.6 million in net proceeds. It reported no material change in the planned use of those proceeds. Disclosure controls were assessed as effective at a reasonable assurance level, with no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- Whether device growth and placements translate into sustained consumables and service revenue, particularly as the installed base and Rebel usage mature.
- Whether the sharp decline in license and contract revenue persists and how much future results depend on particular government-linked contracts or customers.
- Collection progress on the overdue EMEA receivables and exposure to concentrated customers and suppliers.
- Cash burn, working-capital needs, the assumptions behind the stated runway into 2023, and ongoing compliance with the revolver’s minimum-cash covenant.
- Whether COVID-related supply-chain and travel constraints, plus higher selling and administrative costs, affect growth, margins and the path to profitability.