908 Devices Inc.

NASDAQ:MASS

Earnings Call Analysis

Revenue Grows; Modest Outlook for 2024

In the fourth quarter of 2023, revenue surged to $14.4 million, a 23% increase from the previous year, driven by a 57% rise in handheld device revenues totaling $11.1 million. However, desktop revenue slightly fell by 2%, standing at $3.2 million. Handheld and desktop devices tallied an installed base of 2,853 units, up from 2,385 the year before. Recurring revenue comprised a third of total revenue but plunged by $1.2 million, mainly due to a drop in handheld accessory and consumable revenue, slightly offset by a service revenue increase. The gross profit reached $7.3 million with a steady gross margin of 51%. For 2024, the company expects revenue in the range of $52 million to $54 million, marking a growth of 4-8%.

Product Innovation and Awards

The company focused on advancing and diversifying its product offerings, particularly in handheld devices, which led to enhanced customer capabilities. A perfect example is the MX908 Beacon, an innovative device for toxic hazard monitoring, which garnered a Homeland Security Award for best CBRNE detection solution.

Launch of MAVEN and MAVERICK

The company launched MAVEN and MAVERICK, trailblazing devices aimed at real-time monitoring and control in cell culture and fermentation processes, with MAVEN offering cell-free, sterile sampling and MAVERICK providing in-line monitoring via Raman spectroscopy. The analytical community took note, naming MAVERICK as one of the top 15 innovations in 2023.

Revenue Growth and Financial Highlights

Fourth quarter 2023 revenue increased by 23% year-over-year to $14.4 million, propelled by a 57% rise in handheld device revenue. Despite a minor decrease in desktop revenue and a contraction in recurring revenue due to the absence of a large prior year order, the net loss for the quarter improved to $7.4 million from $9.8 million. Full-year revenue climbed 7% from 2022, indicating steady growth, and the company projects 2024 revenue to be between $52 million and $54 million, expecting to maintain gross margins in the low 50s range due to price fluctuations, material costs, and product mix.

2024 Revenue Forecast and Seasonality

Revenue for 2024 is anticipated to be more second-half weighted, with a split of about 40% expected in the first half and 60% in the second half, due to pressures such as delays in the U.S. federal budget and the performance momentum from the fourth quarter of 2023.

Anticipating Stronger Growth and Market Expansion

The company expects growth to gather pace as the year progresses, forecasting that the easing of headwinds in life science instrumentation and bioprocessing will lead to robust double-digit growth by 2025. Market expansion efforts will focus on engaging with new key accounts and international growth to increase enterprise potential, which saw a 25% pipeline increase for handheld devices in 2023.

Commitment to Profitability

The company is committed to achieving profitability with its current cash reserves. Operating expenses, excluding stock-based compensation, are projected to stay flat in 2024, building a framework for sustained growth while harnessing cash wisely to enable a pathway to profitability.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, everyone, and welcome to the 908 Devices Fourth Quarter 2023 Financial Results Conference Call. My name is Seb, and I will be the operator for your call today. [Operator Instructions] I will now hand the floor over to Kelly Gora, Investor Relations, to begin. Please go ahead.

[Kelly Gora, executive]

Thank you. This morning, 908 Devices released financial results for the fourth quarter and full year ended December 31, 2023. 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 [e-mail] me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. Before we begin, 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 and is 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, 2022, and in its other filings with the Securities and Exchange Commission.Except as required by law, 908 Devices disclaims any intention or obligation to us to 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, March 5, 2024. With that, I would like to turn the call over to Kevin.

[Kevin Knopp, executive]

Thanks, Kelly. Good morning, and thank you for joining our fourth quarter 2023 earnings call. We ended the fourth quarter with $14.4 million in revenue, up 23% from the prior year.Total revenue for 2023 was $50.2 million, up 7% from the prior year, with product and service revenue up 12%. I'm very pleased with how our team has continued to execute, stay focused on our customers and deliver a solid close to the year.The variety in our product portfolio and our presence in multiple markets have been a strength and distinct advantage. Revenue from our handheld devices that serve the forensics market grew 28% in 2023 with consistent year-over-year growth each quarter.This growth significantly offset the macro headwinds that have pressured the life science instrumentation and bioprocessing market, which includes revenue from our desktop devices.While we expect these headwinds to continue in the near term, particularly in the first half of 2024, we are encouraged by 3 indicators. First, we saw an uptick in fourth quarter bookings, resulting in our best desktop bookings quarter since Q4 2021, helped in part by contributions from our new products, Maven and Maverick.A second indicator is that, we generated 25% more opportunities in the second half of 2023 for our desktop devices compared to the first half of the year, helped in part by our new product launches.And third, we generated 50% more leads in the second half of the year than over the first half, helping us fill the top of our funnel. We saw strong demand for our handheld devices throughout 2023 and expect demand will continue this year as applications for chemical detection and identification at the point of need continued to gain traction in the U.S. and internationally.We ended the year with 16 pilot accounts, which have potential for more than 100 unit placements and 22 enterprise accounts, which have potential for more than 1,000 unit placements, an increase of 25% year-over-year.Key drivers of handheld adoption continue to be a significant level of ongoing geopolitical risk with conflicts in Europe and the Middle East, along with rising tensions in other areas such as in Southeast Asia with Taiwan.The ever-expanding fentanyl crisis is another key driver, including its unfortunate attempted use to disrupt elections with fentanyl being sent in the mail to election centers and officials.Between 2020, the year of our IPO and 2023, revenues for our handheld portfolio have grown at a 29% CAGR, serving as a consistent contributor to top line growth. We finished 2023 with 0 debt and a healthy cash balance of over $145 million.We remain laser-focused on balancing prudent cash management with necessary spending to support our top line growth objectives. As mentioned during our call a year ago, we set a target to ensure that our 2023 operating expense growth was paced with our revenue growth, which I'm proud to say we achieved.Entering 2024, we intend to remain good stewards of our cash as we continue our push into underserved handheld and desktop market opportunities.Now, I'd like to provide a bit more detail on the progress we have made across our 3 focus areas during the past year. Starting with our first objective, penetrate and radiate across key accounts. Our focus is to penetrate new accounts to create a foothold and then radiate across these accounts to drive broader enterprise adoption.For our handheld, we steadily expanded our international presence and our MX908 device is now being deployed in 56 countries, up from 45 countries at the end of 2022. In 2023, 25% of our MX908 device sales were from outside North America compared to 20% in 2022.We anticipate further growth in our international opportunities. In the fourth quarter of 2023, we were awarded a contract from Drug Detect EU, an innovative procurement project co-funded by the European Union for drug inspection in correctional institutions and prisons.The project requires detection solutions to be available 24/7 to prevent delays to internal processes, and it also mandates that solutions must be noninvasive and compliant with European data privacy laws.Our MX908 proudly meets these requirements. Our initial contract includes multiple devices for correctional facilities in Greece and Belgium. After personnel were trained on a unit at the Gent Prison, the Belgian Minister of Justice publicly noted that they now can use our device continuously to combat drug use in prison, removing the need to call in a police stock.We look forward to partnering with the Belgian Ministry as they deploy our MX908 as well as supporting the drug detect project more broadly across the EU.Closer to home, the ongoing fentanyl crisis shows no signs of abating. The U.S. Drug Enforcement Administration, or DEA seized more than 77 million fentanyl-lased baked prescription pills in 2023, up over 50% from 2021.DEA laboratory testing also showed that 7 out of 10 pills tested contained a potential deadly dose of fentanyl, an increase from 6 out of 10 pills in 2022 and 4 out of 10 pills in 2021. To meet this overwhelming need, we continue to partner with state and local law enforcement agencies as they grapple with identifying and removing lethal counterfeit pharmaceuticals, often mixed with fentanyl from our communities.In August of 2023, we announced a pilot program with several Tennessee Law Enforcement Agencies and drug task forces to enhance the speed and efficiency of the state's drug identification process.The program's primary objective is to decrease the quantity of illicit drug samples sent to central labs for testing similar to our successful multiyear program in Ohio, which has resulted in significant reduction in evidence testing backlogs.The Tennessee pilot program began with an initial seed of 8 MX908 devices, and we recently received an order for 3 additional devices in January of 2024 with more being planned this year.During 2023, we also made significant progress with a multiyear project for the United States Department of Defense. In conjunction with our partner of the project, Smiths Detection, we were selected to provide an initial production of 122 portable aerosol and vapor chemical agent detectors otherwise known as AVCAD.Our high-pressure mass spectrometry technology enables these next-generation chemical detector systems, which will support worldwide missions for the U.S. military. This is also a precursor to a potential full-rate production award in 2025 that has the potential of providing over $10 million of revenue per year.Turning to our desktops. We are excited about our progress in cell therapies as tools that provide real-time analytics are pivotal and helping manufacturers develop more robust and reproducible processes.In November, we announced a collaboration with Terumo Blood and Cell Technologies to integrate our Maven device with Terumo's Quantum Flex expansion system for real-time monitoring and control of glucose and lactate without the risk of manual sampling and with less labor.With Maven, lactase take concentrations, which are highly correlated to indicator of cell viability can be continuously monitored to inform feeding strategies and when to harvest, both critical as they can vary patient by patient.Recently, we were thrilled to announce another collaboration with a leading cell therapy developer and manufacturer, Cellares to integrate in-line monitoring of key cell culture parameters.We are partnering with Cellares to adopt our MAVERICK in-line optical analyzer to be compatible with Cellares' cell shuttle system, which is a fully integrated, scalable cell therapy manufacturing platform.The benefit of real-time monitoring allows for immediate corrective action while maintaining sample integrity and reducing contamination risk. This collaboration, along with Terumo BCT demonstrates the complementary nature of our new and existing capabilities when used alongside other cell therapy biomanufacturing enablers.According to recently released data from the American Society of Gene and Cell Therapy, the number of Phase III trials increased for the first time in a year as 2024 is shaping up to be a pivotal year, particularly for CAR-T therapies. We are proud to partner with Terumo BCT and Cellares, to further advance the efficiency, safety and cost effectiveness of these life-saving cell therapies.Turning to our second objective, advancing and broadening our product portfolio. Our product strategy is to develop devices that are simple to use and that provide customers with robust answers at the point of need.We continue to enhance the value of our flagship handheld device with software and hardware accessories that provide our customers with additional capabilities. Last year, we introduced the MX908 Beacon for moat area monitoring of toxic aerosol and vapor hazards.Beacon leverages our MX908 device and Aero module and adds a cloud-based solution that enables first responders to gather intelligence remotely and continuously while ensuring public safety at large events and a key infrastructure.In November, our MX908 Beacon was awarded a Gold Aster's Homeland Security Award from the American Security today for best CBRNE detection solution. In 2023, we significantly advanced and broadened our bioprocess portfolio with the launch of 2 devices.In January, we launched Maven, our first online device that connects directly to the bioreactor, providing real-time monitoring and control of glucose and lactate in cell culture and fermentation processes. With its novel ACEP exampling probe, Maven enables cell-free, sterile and safe sampling with no volume loss or prep required.Later in September, we launched Maverick, the first turnkey device that utilizes Raman spectroscopy for real-time in-line monitoring and control of multiple bioprocess parameters with no modeling or development required.As an inline device, Maverick is directly connected to the bioreactor, enabling scientists to take immediate corrective actions that improve product quality and process efficiency. We are honored that the analytical scientist named Maverick, one of the top 15 innovations in 2023.MAVEN, MAVERICK and our REBEL at-line cell culture analyzer enabled process scientists to monitor and control critical process parameters and their ZipChip interface enables scientists to measure critical quality attributes.Taken together, we now have a complementary suite of PAT desktop devices, which we plan to use to deepen our engagement with biopharma customers this year and position us advantageously to seize opportunities as the current macro headwinds subside.And finally, turning to our third objective, laying an OMC foundation. There's a clear need for accelerating MASS spec-based workflows to address proteomic and metabolomic opportunities.We believe our ZipChip device, along with our prototype microfluidic chips can ultimately meet this need for speed. During the fourth quarter, there were several peer-reviewed articles published in scientific journals that noted the speed of our ZipChip device for high-resolution separations, and here are highlights from 2 articles.In a publication in the Journal of analytical and bioanalytical chemistry, scientists from Ireland's National Institute for Bioprocessing Research and Trading or NIBR, highlighted the use of Zip chip for rapid characterization of AAV capsid proteins with runs performed in as little as 5 minutes.Researchers concluded that ZipChip's rapid characterization illustrates its strength in monitoring product quality during AAV production. In a publication in the Journal of American Society for MASS Spectrometry, scientists from Amgen employed our ZipChip technology to enable rapid intact mass analysis of oligonucleotide single strands.Baseline separation of equal length Oligos was achieved in less than 4 minutes compared to run times of 15 minutes with LC-MS analysis. In addition, with ZipChip, no method development or in pairing reagents are required.Overall, I'm pleased with the progress we made on our stated objectives in 2023, including the launch of 2 devices in the process analytical technology space and the continued penetration of our handheld and enterprise accounts.With that, I'll now turn the call over to Joe for more details on our financials.

[Joseph Griffith, executive]

Thanks, Kevin. Starting with our fourth quarter results. Revenue for the fourth quarter 2023 was $14.4 million, up 23% from $11.6 million in the prior year period, primarily driven by an increase in handheld device revenue.Handheld revenue was $11.1 million for the fourth quarter 2023, up 57% from $7.1 million for the fourth quarter of 2022, primarily related to an increase in device sales with 116 MX908 handheld device shipments in the fourth quarter.Desktop revenue from our products serving the life science instrumentation and bioprocessing markets for the fourth quarter of 2023 was $3.2 million, down 2% from $3.3 million in the prior year period. This included 5 ZipChip interfaces, 3 REBEL, 10 MAVEN and 5 MAVERICK device shipments.As a reminder, starting next quarter, we will no longer break out placements by device, we'll focus more on overall revenue and combined desktop placements as the key metrics for growth for our broadening desktop portfolio.We exited 2023 with a cumulative handheld and desktop installed base of 2,853 devices, up from 2,385 exiting 2022. Recurring revenue, which consists of consumables, accessories and service revenue represented 1/3 of total revenue in the quarter and was $4.7 million, a $1.2 million decrease over the prior year period.This decrease was driven by a decline in handheld accessory and consumable revenue, offset in part by growth in service revenue. As a reminder, in the prior year period, we had $2.2 million in recurring revenue from a large enterprise order with the U.S. Army.Gross profit was $7.3 million for the fourth quarter of 2023 compared to $5.9 million for the prior year period. Gross margin was 51% for the fourth quarter 2023, consistent with the prior year period.For the fourth quarter of 2023, product and service gross margin improved to 51% compared to 46% for the prior year period, which helped to offset $1.2 million of favorable gross margin from contract revenue in the prior year period.Total operating expenses for the fourth quarter of 2023 were $17 million compared to $16.3 million in the prior year period. This increase was driven by stock-based compensation and an increase in commission expenses related to handheld revenues, offset in part by a reduction in G&A expenses.Net loss for the fourth quarter of 2023 was $7.4 million compared to $9.8 million in the prior year period.Now, moving on to our full year results. Total revenue for the full year 2023 was $50.2 million, up 7% from $46.9 million in 2022. This was primarily driven by an $8.3 million increase in handheld revenues, offset by a $3 million decrease in desktop revenues and a $2 million decrease in contract revenues.Total 2023 product and service revenues were $49.9 million, up 12% from $44.5 million in 2022, and $9 million for the full year 2023 compared to $29.5 million in the prior year period, representing growth of 28% year-over-year, primarily driven by an increase in device sales.Desktop revenue was $12 million for the full year 2023, a 20% decline compared to $14.9 million in the prior year period as customers remain cautious in their capital expenditures. Recurring revenue for the full year was 1/3 of product and service revenue and was $16.5 million compared to $15.7 million in the prior year period, representing growth of 5% year-over-year.Recurring revenue growth was driven primarily by strong service revenue, which grew to 38% year-over-year, offset in part by $3.5 million in recurring revenue from a large enterprise order with the U.S. Army in the prior year period.Looking ahead, we expect recurring revenue for our product portfolio to continue to be around 1/3 of product and service revenue for the full year 2024.Gross profit for the full year 2023 was $25.3 million as compared to $26 million in the prior year period. Gross margin was 50% for the full year 2023 as compared to 56% for the full year 2022.Product and service gross margin was 50% for the full year 2023 as compared to 54% for the prior year period. The decrease in product and service gross margin was driven primarily by an increase in spending to reach scale within our operations and service functions.A temporary increase in the use of third-party contractors to train customers on our MX908 and a $0.6 million increase in noncash stock-based compensation and intangible amortization.As we look ahead to 2024, we expect our gross margins to continue to be in the low 50s due to the impact of pricing, higher material costs and overall product, service and channel mix.Operating expenses for the full year 2023 were $68.1 million as compared to $61.4 million in the prior year period. This increase was driven primarily by a $3.3 million increase in salaries and related costs and a $2.3 million increase in stock-based compensation, partially offset by a reduction in G&A expenses.Net loss for the full year 2023 was $36.4 million compared to $33.6 million in the prior year period. We ended 2023 with $145.7 million in cash, cash equivalents and marketable securities with no debt outstanding.In 2023, we consumed $43 million, which includes $15 million used to pay off debt and $1 million used to pay contingent consideration for our prior acquisition. We entered 2024 with a strong cash position and 0 debt, which we believe provides a multiyear runway to support our long-term growth objectives.Looking ahead in 2024, we expect revenue to be in the range of $52 million to $54 million, representing growth of 4% to 8% over full year 2023. This range presents a balanced view of several factors. First, while Q4 had some indicators of positivity for the life science, instrumentation and bioprocessing markets, we're assuming the pressures we saw throughout the year will persist through at least the first half of 2024.Second, despite these headwinds, we anticipate to step-up in total desktop device placements during 2024 with rising contributions from newer products throughout the year as they progress through customer evaluations.And finally, we expect continued strength in our handheld devices, which serve the forensics market to bolster our overall growth as we continue to navigate a challenging macro environment for our desktops.As a result to these factors, taken together with the delay in passing of fiscal year 2024 U.S. federal budget, we expect revenue for 2024 to be slightly more weighted to the second half compared to prior years with an expected split of roughly 40% in the first half and 60% in the second half.Each year, we typically see a step down from Q4 to Q1 due to the seasonality of year-end budget cycles. This year, we expect it to be even more pronounced, largely due to the delay in the passing of the federal budget and the strong performance of handhelds in the fourth quarter of 2023.At this point, I would like to turn the call back to Kevin.

[Kevin Knopp, executive]

Thanks, Joe. We view 2024 as a transitional year for 908 Devices. We expect solid growth from our products serving the forensics market and overall revenue growth to accelerate throughout the year as the headwinds in the life science instrumentation and bioprocessing market begin to subside.With this anticipated improvement, we are well positioned to capture the opportunity in this market with an expanded product portfolio. We are confident that with an improved macro environment, we'll be able to return to robust double-digit growth in 2025, which will solidify our path to profitability with our existing cash reserves.To get there, we are laser-focused on 3 key areas for 2024. First is market extension. Our focus here will be on broadening our market presence by actively engaging with new key accounts and developing strategic partnerships, while also expanding our reach across global enterprise accounts.In 2023, we saw an increase in the pipeline of opportunities for our handheld devices with a 25% increase in enterprise potential. Given the strong growth of our handheld in forensics, we will invest in areas where we believe we can drive higher growth, both domestically and internationally and explore ways to further leverage our sales and marketing channel.Additionally, planned increases in NATO defense spending and spending in the Middle East are expected to have a positive impact.For our desktop products, we are working to introduce MAVEN and MAVERICK into advanced therapeutic modalities, establishing a presence with design wins and strategic relationships with innovators in the cell therapy space.A second area of focus will be to leverage our expanded product portfolios, to maximize opportunities and strengthen customer engagements. Our PAT portfolio now includes outline, online and in-line analysis capabilities, providing real-time analytics for our customers. This has led us to being increasingly viewed as partners in the cell culture analysis for biologics and cell and gene therapy applications, enabling broader conversations and ultimately larger potential.With all the necessary desktop products in place to address near-term opportunities, we are being selective with our R&D investments, focusing on incremental rather than next-generation advancements in 2024.And finally, we will execute a framework for sustained growth with a path profitability. Our year-over-year operating expenses, excluding stock compensation, are projected to remain flat in 2024 with R&D spend tempering now that major product launches of 2023 are complete.We are committed to reaching profitability with our existing cash reserves, and this path will be solidified as we return to robust double-digit growth rates in 2025. I look forward to updating you on our progress across each of these initiatives throughout the year.With that, we'll now open it up to questions.

[Operator]

[Operator Instructions] The first question comes from Puneet Souda from Leerink Partners.

[Puneet Souda, analyst]

So, first one is a demand question and tied to the guide actually. You have more products than ever before as a company with a number of launches in PAT. So, just help us understand, as we look at 2024, when you look at the funnel, what gives you more opportunity? What gives you more excitement in terms of adoption of these products?And what are you hearing from the field today in terms of REBEL, MAVEN and MAVERICK products gaining more adoption and sort of contributing? And I'm simply asking that because when we look at the bioprocessing industry, we are seeing some signs of recovery, but your products are very nascent still in this marketplace. So, just want to get a more nuanced view there, if I could.

[Kevin Knopp, executive]

Yes, absolutely. Thanks, Puneet, you're right. I mean we feel very happy that we've been able to expand our set of products and kind of go from one product to a complete strategy of PAT products, spanning outline, online and in-line capabilities. And, with that, it gives us a range of price points that are accessible to a customer, a range of capabilities from, call it more than bread-and-butter analytes, glucose and lactate all the way through to a very comprehensive panel with our REBEL outline analyzer.So, I think one of the things we've been seeing from that is, it's across the board despite this environment. We're engaged now and being viewed more as a bit of as a partner in cell culture analysis and really driving conversations perhaps at more of a senior strategic level within these accounts, which I think ultimately is going to lead to more potential on it.More specifically, I think we're seeing MAVEN and MAVERICK get some keen interest in biologics, but also some cell therapy areas. And then REBEL, as well, is in the biologics space predominantly, but interest there as well in the cell therapy space.

[Puneet Souda, analyst]

And if I can follow up on MX908, could you talk about the sort of the puts and takes here? It seems like there is a significant interest just given the political uncertainties were in other situations and as well as sentiment prices.Seems like the need for such a product is strong. But can you maybe take us through sort of the puts and takes of what we need to consider, what could drive expectations towards the higher end of your expectations versus towards the lower end? What are some of the puts and takes there?

[Joseph Griffith, executive]

Sure. You're right. I mean, we definitely saw a strong demand for our handhelds over 2023, and we do expect that to continue through this year. And you're right, that application of trace chemical detection, identification distributed at the point of need.It continues to get traction for us in the U.S. and international. Robust need drivers that we did point out in the script but significant levels as you read in the news every day of geopolitical risk across Europe and Middle East.And then, of course, the fentanyl crisis is not abating unfortunately there, and it just continues to rear its head in a broader way. So, we had some items in the script and in the prepared remarks there, but around seeing more and more adoption internationally.We're seeing larger deals develop internationally. We've seen good growth overall since the IPO. So, really a 29% CAGR we've seen over the time between 2020 and 2023. And likely not the same growth level of 28%. We saw this there, but meaningful opportunity as we put out today in the guide.

[Kevin Knopp, executive]

And maybe, Puneet, to tie together both on the desktop side and the handheld side, as we think about 2024, that's a growth that's expected to be more variable than the handheld growth for reasons we called out in the remarks with rising contributions from those new product launches.We are expecting desktop growth to rebound into positive territory in '24. So, we're encouraged. We're seeing some of those positive indicators and antidotes that things are moving in the right direction.With the Q4 and product adoption, it was solid. Our base case does assume that the desktop spending shows gradual improvement during 2024. So, on the whole, this year, we expect '24 to be better than '23. Likely not a material step change but steady market improvement.And if recovery trends are better than expected and we see a case for accelerating desktop growth in the second half of the year, maybe towards the double-digit range. But as a reminder, desktop revenues really is about 24% of our total '23 revenues.And over the years, this number should rise. And then over the next 2 years, but today, handheld really remains a meaningful contributor. And on the handheld side, we have delivered consistent growth above levels in the traditional Lab MASS Tech market and grown the 14% CAGR over the last 2 years.Maybe a few factors in play for 2024 relate to that growth or we had $2 million year-over-year step down in AVCAD LRIP revenues anticipated in the guide, which translates to roughly a 5% drag on our handheld growth, and we await a potential full rate production award as early as 2025 for AVCAD. There's a bit of a gap in '24.For 2024, the delays in the U.S. federal budget will remain the pressuring our handheld revenue growth. We see an opportunity to recapture maybe Q1 weakness throughout the remainder of the year. So, we do expect our 2024 handheld revenues to be in the kind of mid-single digits in the guidance range that we shared today.

[Operator]

Our next question comes from Dan Arias from Stifel.

[Daniel Arias, analyst]

Joe, maybe just digging into Kevin's comments there and your comment there on bioprocess. When we look at the guide for the year, the 52% to 55% that you're talking about, and we try to sort of impute some placement trend across the year for REBEL, can you maybe just talk about how the year might start versus finish on REBEL if we were to sort of get to the middle of that range?And then did I hear you right when you said desktops might step up this year? Kevin, the rebound that you mentioned, does that refer to instrument revenues for REBEL, MAVEN and MAVERICK relative to 2023? I just want to make sure I clarify the way in which you're thinking about '24 over '23.

[Kevin Knopp, executive]

Yes. I think a few different pieces there, Dan. Yes, with the reference to stepping up throughout the year, we see some continued pressures here in Q1 and Q2 on placements on the device side, both with kind of our ZipChip and REBEL devices, but also the timing of some of the new product adoption and placements on MAVERICK and MAVEN, especially with MAVERICK as we start to get the evaluations out there with the customers.It may take a few weeks, we're excited by some of the conversations we're having with MAVERICK, but the timing is by Q3 and back half. So, seeing some of that accelerated growth as we go throughout the year, more in the back half on the ply processing of products as assumed in the 52% to 54% range.

[Daniel Arias, analyst]

And then just on the handheld side and the funnel that you highlighted, what are you looking at in terms of a mix of bigger enterprise deals versus smaller ones, 10 to 20 system deals? Just trying to think about how the order book could build if we put it in sort of baseball context and think about triples and home runs versus singles?

[Joseph Griffith, executive]

Yes. I think, Ben, it's a good mix. I mean, when we think of our funnel, we think of it as the smaller opportunities, called pilots. We've got 100-plus units in that stage of the funnel, and that's crossed 16 accounts up a bit from 2022. And then our enterprise accounts has expanded about 25%.So, those are the larger deal opportunities that you spoke of that could be those 50-unit large or in addition to a previous large opportunity. What I think it's been really great to see is that while we're always going to be dependent on some larger opportunities for a given year.We're also seeing more diversity in the pipeline develop. That's across the state and local accounts where you might see opportunities now that aren't just a single unit, but could be a high handful or a bit more in some unique cases.But then internationally, we've seen us progress from about 20% of sales last year outside of North America and for '22 and then for '23, about 25% of sales. And importantly, if you dig into that a little bit more, we're just seeing that diversity in the size of those opportunities, seeing more larger opportunities develop outside North America as well.So, I think we've got a healthy mix there, but we are dependent on large deals as well.

[Operator]

Our next question is from Jacob Johnson from Stephens.

[Jacob Johnson, analyst]

Maybe starting with a question on the cell and gene therapy side. I'm just curious, you've got 2 partnerships, Terumo is using MAVEN, Cellares is using MAVERICK. I'm just curious why they're using different instruments, maybe it's different unit operations. But I'm curious about that.And then maybe two, as we think about that market, how do you think of the opportunity for MAVEN versus MAVERICK kind of the greater opportunity in cell and gene therapies?

[Kevin Knopp, executive]

Yes. I'd be happy to cover that. We're super excited to announce another collaboration there with the leading cell therapy developer manufacturing, Cellares being very integrated and bringing them in line monitoring of some of these key cell culture parameters.Lots of potential, we believe, in that space and getting designed in and partnered or co-market or otherwise connected to these leading innovators in this case, including Cellares and Terumo and others we're working on, but we haven't yet announced and we're super excited about that.As you know, there's a lot happening in the field at this time and we believe we're bringing a strong value proposition across our set of products, including for our online and in-line connected, where you're doing real-time monitoring without the risk of sampling and with reduced labor.And that benefit allows for immediate corrective action and maintain sample integrity and reduce risk contamination. So, both lacks alot of value there.In the case of MAVERICK, really looking to be compatible with their cell shuttle system and be fully integrated and be a scalable platform form. Obviously, it's quite an automation product that they're developing there and MAVERICK with its scalability of today, a couple of key process analytes, but also some attributes and then they open back end for people to do their own modeling and machine learning and other algorithm development on it.It's a broad set of capabilities, but the price point is different than MAVEN. That price point is more in the $100,000 versus in the $25,000, $30,000 range for MAVEN. So, MAVEN brings a glucose and lactate measure, maybe more direct and applicable to a lower CapEx deployment, where this could be more mated with that.So, I think it also brings the same attributes, but it's more enzymatic-based and it's a complement across that portfolio. So, I think there's a lot of good things there that are being developed. We're also, of course, continuing our efforts on our REBEL development.We are continuing to make sure that we're throttling and managing our R&D expenses, but we've also made great progress there over the last years as part of that portfolio build-out.And REBEL and its future versions, including the online version are very important to us. We're not currently planning to launch our online capable REBEL this year in the year 2024 because we really want to meet the market where it's at.We do have online capabilities of REBEL connected in our in-house bioreactors and fermenters, and we've been selectively showcasing that to customers, and some of those customers are seeking to engage and put it in their labs for 2024.But we really do feel that with MAVEN and MAVERICK and that broader set of products, we have everything we need in place with near-term opportunities, and we are being selective with our R&D, and we're full more focused on the incremental rather than next-generation advancements for '24.Lots of continuous progress across the product suite, REBEL included and the 2024 model of the REBEL is definitely a more capable and broader machine that addresses just analytics, data analysis more than our first incarnation. So, we'll keep that up.

[Jacob Johnson, analyst]

So, maybe going a different direction then. Joe, when you talked about the gross margin outlook this year, I heard you mention kind of pricing as part of that. Maybe curious kind of your thoughts on how you're thinking about pricing this year.

[Joseph Griffith, executive]

Sure. May I touch on a few different things on gross margin, but specifically on pricing each year, we look at the market, and we have implemented price increasing here in '24 to try to offset some of the inflationary impacts.But as we kind of look back on gross margin, we had some pressure on gross margin in the fourth quarter and '23 as a whole. A piece of that was an increase in spending, net treat scale within our operations and service functions. And that was really despite some higher revenues.The cost to deliver the revenue, service personnel, contract trainers, materials, they all increased. We also saw a temporary need an increase in our third-party contractors to train our customers on the MX908 as we saw the increased demand for the use of the device.We're working to reduce the number of contract trainers we use going forward. I mentioned a $0.6 million in noncash stock-based compensation and tangible amortization as a driver, and at least the noncash stock comp will increase a bit in '24 as we get to our fourth year of being public.There are probably 2 other elements within our product gross margins, about $0.5 million in higher materials and supplies on warranty obligations during 2023 and about $300,000 in higher provisions for excess and obsolete materials as our products progress and iterate through the years.

[Kevin Knopp, executive]

Pricing is definitely helping but we have some headwinds across the board.

[Operator]

The next question is from Matt Larew of William Blair.

[Matthew Larew, analyst]

Kevin, I wanted to ask you if you have reference to Terumo and Cellares, but you've had a partnership with Sartorius here for some time, selling MAVEN. So, I just want to make a sense for how that has progressed FRACS as a way for us to gauge how these newer partnerships might progress as well?

[Kevin Knopp, executive]

Yes, absolutely. We do very much enjoy our partnership with Sartorius. We do have a previous generation of the MAVEN product that's for sale through that channel. And that's been a good relationship.We're continuing to see that for glucose control and really kind of part of their system to allow a full offering to our customer to a large pharma for biologics in particular. And need there is across from the small volume benchtop bioreactors all the way up to pilot scale and beyond. So, we're very much engaged working with them and developing a successful partnership there.And as you know, we do have Sartorius Korea as part of our distribution channel for that defined unique territory where they've got a very, very strong footprint. In that case, they're representing as a distribution partner for us, our MAVEN, our MAVERICK and our REBEL products.

[Joseph Griffith, executive]

Yes. I'd just maybe add that on the Sartorius side, it has been great OEM partner and kind of collaborator and proof point for the technology. And we look for those not only on the desktop side, but across on the handheld side, too, as far as different ways to get our product in the market AVCAD as an example of that on the handheld side, and we'll look for ways to enable that in the future.We have a really talented sales team across the board, especially on the government side, and we'll look to utilize where we see technology to be able to plug it in and get more top line contribution.

[Matthew Larew, analyst]

And then, Kevin, you gave some data points in the prepared remarks around bookings and leads generated in the second half versus the first half of the year.Any additional comments you can give on what the composition of those leads are both from a product perspective in terms of the influence of new products, but perhaps also from a customer perspective in the sense of existing MAVERICK customers, either with REBEL or another product to or you now have an opportunity to build the desk type ecosystem with versus perhaps new customers who were particularly attracted to one of the products that you launched last year?

[Kevin Knopp, executive]

Yes, absolutely. I can give you some more color on that, happy to. If you think first from kind of the bookings and where we landed for Q4, shipments of the new desktop devices, maybe in MAVERICK, we're absolutely key drivers to that uptick that we spoke of there in the Q4 desktop bookings and took it to be the largest booking quarter we had since Q4 2021.Maybe and, of course, was really just launched in January of '23 and Q4 did represent its best quarter since launch. That being said, we had some favorable timing there, right? Because as Joe had mentioned previously in an answer that you really see as you launch a new product, you get some initial placements, you work through customer evaluations and then you see that revenue uptick, and we saw some of that happening with our MAVEN.And then, we also had our MAVERICK, our first shipments of MAVERICK occur in Q4 to customers and partners, distributors there, those adoptions. And then recurring revenue was also strong.We saw across the board, both in large pharma accounts that have been established users for, say, a REBEL product there as a big driver, but also in some newer customer adoptions there.So, we had at least a couple of, call it, $50,000 to $100,000 consumable kit orders by large pharma customers, and that's kind of in that 12 to 24 kits to be delivered throughout the year. So, we do expect that as we've seen in past years, but we do like to see that again.And our installed base really just continues to build across the board there and gaining some visibility into service and desktop consumable sales here. But with the launch of MAVEN and MAVERICK, now with the REBEL Analyzer, device placements are still our priority, but it is nice to see some of those consumables service recurring elements contributing to our Q4 bookings.From our distribution of customers, if I look back at our desktop sales over the '22 and '23, the bulk of it is into the biopharma biotech customer space. We have less penetration in the academic, government and CDMO CRO space.So, I would say we've got about 50% to 70% in that biopharma biotech space and maybe only 15%, 20% in the academics. And where we have seen some increases would be really more in the life science suppliers, media providers and importantly, some of the things we touched on, the Sartorius relationship, the innovators in the bioprocessing equipment for biologics and selling genes.So, as we become part of other systems or do more of these partnerships, likely that will continue.

[Operator]

[Operator Instructions] We have no further questions on the call. So, I will hand the floor back to Kevin to wrap up.

[Kevin Knopp, executive]

All right. Well, thank you all for your time, and we appreciate you tuning in today and look forward to giving you further updates as we progress across 2024. Thank you.

[Operator]

This concludes today's conference call. Thank you all very much for joining. You may now disconnect your lines.