908 Devices Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The company sells handheld and desktop mass-spectrometry devices, consumables and services for government, life-sciences and related markets. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $8.3M | $11.1M | $13.8M | $15.1M |
| Gross profit | $4.4M | $6.4M | $7.3M | $8.5M |
| Gross margin | 52.9% | 57.6% | 52.7% | 56.2% |
| Operating income (loss) | $(7.5)M | $2.1M | $(13.3)M | $(0.6)M |
| Net income (loss) | $(7.4)M | $2.1M | $(13.5)M | $(0.9)M |
| Operating cash flow | Not presented quarterly | $(16.9)M | $(6.4)M |
- Revenue mix: Q2 product and service revenue was $7.9M, down 24%; license and contract revenue was $0.4M, down 52%. For the first half, product and service revenue rose 2% to $13.3M, but license and contract revenue fell 74% to $0.5M.
- Profitability: Q2 R&D expense was $3.1M and selling, general and administrative expense was $8.8M. First-half operating expenses totaled $20.6M, up from $9.1M.
- Cash and debt: Cash and cash equivalents were $141.3M at June 30, versus $159.2M at December 31, 2020. Long-term debt was $15.0M, with no current portion. The company had a $25.0M revolving facility, with $15.0M outstanding; borrowing availability is subject to facility terms and covenants. The facility matures March 11, 2024 and requires at least $10.0M of unrestricted cash. The company reported covenant compliance.
- Balance sheet: Total assets were $166.5M, total liabilities $39.8M and stockholders’ equity $126.7M at June 30. Current assets were $157.2M and current liabilities $11.2M.
Material changes versus comparable periods
- Q2 revenue fell $2.9M year over year, principally because the prior-year quarter included delivery of 150 MX908 handheld devices to a government customer. Q2 device sales were $6.2M versus $9.9M; product placements declined to 103 from 201.
- Consumables and service revenue increased to $1.7M from $0.5M in Q2, supported by Rebel consumables and service sales. Desktop product and service revenue rose to $2.6M from $1.6M, while handheld revenue declined.
- First-half net loss widened to $13.5M from $0.9M. The main pressures included higher R&D and SG&A, lower contract revenue, and a $1.7M provision for doubtful accounts.
- First-half cash used in operations increased to $16.9M from $6.4M, including cash absorbed by inventory and prepaid and other assets. Cash declined $17.9M overall during the half.
Outlook, risks and unusual items
- Management expects continued losses while it expands sales, manufacturing capacity and R&D, and anticipates higher public-company costs. It expects recurring consumables and service revenue to grow with the installed base, but sales can fluctuate with device mix, customer budgets and timing.
- Management said existing cash and cash equivalents should fund operating expenses, capital expenditures and debt service into 2023, while cautioning that this estimate depends on assumptions. The notes also state cash is expected to cover requirements for at least 12 months from issuance of the statements. No specific revenue or earnings guidance was provided.
- COVID-19 continued to cause supply-chain lead-time extensions and travel limitations, although management reported increased desktop-customer activity and more on-site installations and training. A prolonged disruption could affect manufacturing, shipments, demand and collections.
- The company recorded a $1.7M bad-debt provision for a Middle East customer amid credit and economic conditions. Gross receivables from the region were $2.8M, the substantial majority more than 90 days past due; the allowance for doubtful accounts was $1.75M in total.
- Other risks include dependence on a limited number of suppliers, variability and customer concentration in device sales, and funding needs if performance or market uptake disappoints. One customer represented 14% of Q2 revenue; two customers accounted for 19% and 14% of gross receivables at quarter-end.
- The March 2021 refinancing replaced the prior term loan with the revolving facility; the company recorded a $0.2M debt-extinguishment loss in first-half interest expense. No material legal proceedings or off-balance-sheet arrangements were reported. The company stated there were no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether device placements and handheld sales recover from the prior-year comparison, and whether recurring consumables and service revenue continue to grow.
- Collection progress on the overdue Middle East receivables and whether additional credit-loss provisions are needed.
- Cash burn, management’s stated runway into 2023, and compliance with the revolving facility’s minimum-cash and other covenants.
- Supply-chain availability, customer concentration and the effect of COVID-related operating constraints on sales and installations.
- Whether higher operating expenses and weaker gross margins are consistent with the company’s planned growth and eventual path to profitability.