908 Devices Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The company sells handheld and desktop mass-spectrometry devices, consumables and services for government, life-sciences and other markets. This unaudited filing covers the three and nine months ended September 30, 2021; comparisons are with the same 2020 periods. Dollar amounts below are in millions unless stated otherwise.
Financial results and liquidity
- Revenue: Q3 revenue was $12.5 million, up 107% from $6.0 million. Product and service revenue rose 111% to $12.3 million; license and contract revenue was $0.3 million. Nine-month revenue was $26.4 million, up 24% from $21.2 million, as product and service revenue growth more than offset lower license and contract revenue.
- Revenue mix and placements: Q3 device sales were $10.1 million and consumables and service revenue was $2.2 million. Nine-month consumables and service revenue grew 159% to $5.4 million and increased to 21% of product and service revenue, from 11%. The company reported 184 product placements in Q3, versus 85 a year earlier.
- Profit and margins: Q3 gross profit was $6.8 million (about 54% of revenue), versus $3.8 million (about 63%) a year earlier. Operating loss was $5.3 million versus $1.3 million; net loss was $5.2 million versus $1.7 million. Nine-month gross profit was $14.1 million (about 53.5% of revenue), versus $12.3 million (about 58%); operating loss was $18.5 million versus $1.9 million, and net loss was $18.7 million versus $2.6 million. Basic and diluted loss per share for the nine months was $0.68, versus $0.53.
- Expenses: Q3 operating expenses rose to $12.1 million from $5.1 million, including R&D of $3.3 million and SG&A of $8.8 million. Nine-month operating expenses were $32.6 million, up $18.4 million year over year. SG&A growth reflected higher staffing and public-company-related costs, among other items; nine-month expense also included a $1.7 million allowance for doubtful accounts.
- Cash flow: Nine-month operating cash use was $19.9 million, compared with $1.8 million provided in 2020. Investing cash use was $0.7 million. Cash, cash equivalents and restricted cash fell $20.4 million to $138.9 million; balance-sheet cash and cash equivalents were $138.8 million.
- Balance sheet and debt: At September 30, cash and cash equivalents were $138.8 million, current assets $157.5 million, total assets $166.3 million, total liabilities $43.5 million and stockholders’ equity $122.8 million. Debt was $15.0 million, with no current portion reported. The $25.0 million revolving facility matures March 2024; borrowings bear interest at the greater of prime plus 0.5% or 4.0%. The company reported compliance with financial covenants, including a $10.0 million minimum unrestricted cash requirement.
Material changes versus the prior comparable period
- Q3 product and service growth was driven principally by handheld device sales, including approximately 100 MX908 units delivered to a government customer, as well as increased desktop sales and consumables. Nine-month growth included higher Rebel sales and recurring consumables and service revenue.
- Gross margins declined as personnel, facility, service and other operating-capacity costs increased; management also cited product and channel mix. Nine-month license and contract revenue fell 65%, primarily due to reduced subcontract activity.
- Nine-month losses and operating cash use increased substantially as the company expanded sales, R&D, operations and public-company infrastructure. The filing reports an accumulated deficit of $97.2 million.
- One customer represented 58% of Q3 revenue and 36% of nine-month revenue. At September 30, one customer represented 49% of gross accounts receivable.
Outlook, risks and unusual items
- Outlook: No specific quarterly or annual revenue or earnings guidance is provided in this filing. Management expects continued operating losses as it invests in sales, manufacturing capacity and product development. It states that existing cash should fund operating expenses, capital expenditures and debt service into 2023, while cautioning that this estimate depends on assumptions that may prove incorrect. The notes separately state cash is expected to cover requirements for at least 12 months from issuance.
- COVID-19 and supply chain: Management described increased desktop customer activity and continued supply-chain lead-time and travel constraints. Shortages, higher component costs, facility disruption and customer payment or purchasing delays could affect deliveries, revenue and margins.
- Receivables: A $1.7 million bad-debt provision relates to a Middle East customer. Gross receivables from the relevant countries were $2.5 million, the substantial majority more than 90 days past due, with an allowance of $1.7 million.
- Concentration and execution risks: Results can fluctuate with large government orders and lengthy sales cycles. The company also cites reliance on limited or sole-source suppliers, competition, growth-management demands, and risks to adoption of newer desktop products and expansion into life sciences and international markets.
- Other matters: The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the concentrated government-driven Q3 device deliveries recur, and how customer and end-market concentration evolves.
- Whether recurring consumables and service revenue continues to grow and supports improved gross margins as the installed base expands.
- The aging, collectability and subsequent recovery, if any, of the overdue Middle East receivables and the adequacy of the related allowance.
- Whether supply-chain constraints, component availability and operating-capacity investments affect delivery timing, costs and margins.
- Cash burn against management’s runway estimate, revolver availability and terms, covenant compliance, and the reconciliation between the stated “into 2023” outlook and the notes’ minimum 12-month assessment.
- Share-count and dilution developments: 27,865,070 common shares were outstanding at September 30, 2021; 27,899,932 were reported outstanding as of October 31, 2021.