Q1 2024 908 Devices Inc. Earnings Call

Participants

Kelly Gura; IR; 908 Devices Inc.

Kevin Knopp; CEO, Co-Founder; 908 Devices Inc.

Joseph Griffith; CFO; 908 Devices Inc.

Matthew Larew; Analyst; William Blair & Company LLC

Jacob Johnson; Analyst; Stephens Inc

Steven Mah; Analyst; Cowen Inc.

Daniel Arias; Analyst; Stifel Nicolaus & Company Inc

Puneet Souda; Analyst; Leerink Partners LLC

Presentation

Operator

Hello, everyone, and welcome to the 908 Devices first quarter 2024 financial results conference call. My name is Seth, and I'll be the operator for your call today.
(Operator Instructions) I will now hand the floor over to Kelly Gura, Investor Relations to begin the call.

Kelly Gura

Thank you. This morning, 908 Devices released financial results for the first quarter ended March 31, 2024. 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 ir@908devices.com. Joining me today from 908 is Kevin Knopp, Chief Executive Officer and Co-Founder, and Joe Griffith, Chief Financial Officer.
For today's call includes a slide presentation, which is viewable to those joining via webcast slides will also be available after the call and at it.908devices.com under the menu header events and presentations.
Before we begin, I'd like to remind you that management will make statements during the 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 Android devices 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, 2023 and its other filings with the Securities and Exchange Commission. Except as required by law, manually devices disclaims any intention or obligation to update or revise any financial projections or forward-looking statements either because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, April 30, 2024. With that, I would like to turn the call over to Kevin.

Kevin Knopp

Thanks, Kelly. Good morning, and thank you for joining our first quarter 2024 earnings call. We had a solid start to the year, with top line revenue of $10 million for the first quarter, representing 8% product and service growth year over year. We continued to see robust demand for our handheld devices in Q1 and anticipate this trend to persist throughout the year as applications for chemical detection and identification at the point of need gained further traction in the US and internationally.
Over the past several years, our team has built a robust product portfolio. It serves the forensics and bioprocessing markets through both our own innovation as well as through a strategic acquisition. On our last earnings call, we outlined three clear objectives for 2024 first to expand our market reach. Second, to leverage our expanded product portfolio and third to execute under a framework for sustained growth with the path to profitability.
This morning, we are excited to announce the acquisition of Red wave technology. This acquisition is additive to each of our existing initiatives for the year and we believe will be a very strong strategic fit over the near and long term. As you will see momentarily, there's very strong strategic rationale and synergies between the two companies, which makes us a very compelling acquisition. Importantly, our teams have very similar cultures and ethos, which makes me extremely competent of the fit as we welcomed the red wave team into our organization.
908 Devices has a mission of creating positive impact in people's lives with our efforts to help our customers reduce our communities have fentanyl and counterfeit pharmaceuticals and advance life-changing personal medicines similar to our mission, Midwave thrives on helping increase the safety of first responders and other frontline workers that must answer the call each day. It is a founder-led, highly technical organization that we believe matches well culturally with our innovative team at 908 Devices.
Further, our Chief Product Officer, our VP of Government sales and I, along with many others in our management, commercial and technical teams have immense experience with optical spectroscopy from product development to large-scale commercial penetration. This is a well-understood technology space set of products and applications for our team, which we believe will significantly lower the execution risk of the acquisition and enable us to focus on the positive financial impacts we expect to materialize.
So prior to reviewing our first quarter results, I wanted to walk you through a set of slides that outlines why we are so excited about this acquisition and the positive synergies we expect to see for our business. We believe there are many compelling points that highlight the strong rationale for this acquisition, which I will summarize into five key areas.
First, Redwave as a standalone company has an attractive financial profile. It is a profitable, high-growth, privately owned business with unaudited 2023 full year revenues of approximately $13.7 million, attractive gross margins of approximately 52% and a positive operating margin of approximately 15%. Last year, they grew revenue 20% plus year over year and operated as a cash flow positive business.
Second, Redwave expands our tool kit of handheld Chemical Analysis devices to serve broader forensics workflows, spanning unknown solids, liquids gases and aerosols from initial detection through their identification. With this acquisition, our handheld portfolio goes from one to four market-leading handheld product. With the comprehensive capabilities of this expanded and held portfolio. We expect to accelerate penetration of the addressable forensics market, which we estimate to be more than $1.3 billion.
Third, the Radwave products immediately add to the bags of our 98 direct sales and applications team enhancing our efficiency and scale was supporting regulated growth trajectory with our robust commercial platform and global reach.
Fourth, in addition to the synergies for our forensics customers. Redwave's products also bolster our bio processing. Our technology is based on an infrared optical spectroscopy platform called FTRR. That is additive to our newly released Ramen product Maverick that operates on a related scientific principle.
Process analytical technology customers in pharma, often leverage FDR, Rahman and other related infrared spectroscopy technologies for QC, upstream and downstream applications. Radware has a small presence already here today, and we see future opportunity to leverage the red wave technology to further enhance our existing bioprocessing portfolio.
And finally, fifth, this combination significantly enhances our financial profile, Redwood is profitable and cash flow-generating immediately red wave is accretive to our gross margin. We have also identified more than $5 million in forecasted annual cost synergies that we expect to be realized in 2026. The contribution of red wave revenue, the leverage of 908 sales infrastructure and the identified cost synergies are expected to accelerate our path to reach $100 million in annual revenues and accelerate our crossover to cash flow breakeven with a steeper profitability ramp thereafter.
And importantly, we continue to expect that we'll be able to reach breakeven with our cash on hand. The upfront transaction value is $53.5 million, which is comprised of $45 million in cash and $1.5 million shares, representing $8.5 million using our closing stock price as of April 26. In addition, there is the potential for Milestone consideration totaling up to $4 million additional shares, representing $22.7 million using our closing stock price as of April 26 for accelerated growth over the next 24 months.
An annualized approximate 22% growth is required to meet the minimum threshold for these payments as red waves growth then becomes on par with 98 devices historic handheld revenue growth levels. Additional consideration is earned over 24 months, achieving the full earn-out, an approximate 38% annualized growth rate. We believe this structure creates long-term value for our shareholders and rewards red wave for accelerated growth with stock issuance upon performance. Whitewave is a leader of innovation in optical spectroscopy.
The company was founded in 2016, a well-known and respected team in the detection space and is headquartered in a modern and cost-efficient 38,000 square foot facility in Danbury, Connecticut. They've developed a compact and mobile technology variant of infrared spectroscopy called FTIFTIR. is renowned for its specific substance identification abilities across a broad range of bulk materials. Using this technology, Red wave products can identify more than 22,000 chemicals in bulk, including visible amounts of drugs, light powders and other unknown solids and liquids.
This is a very complementary capability as our mass spec technology is highly regarded for its tremendous sensitivity, providing unparalleled detection and identification capabilities at trace and invisible levels for a focused list of chemical species. Given the complementary capabilities of our devices, Lightwave products target the same types of customers as our handheld products, including first responders, law enforcement and other frontline workers, including customs and Postal Inspection agents globally.
There's a long runway of opportunity ahead for growth Redwave products are well positioned to replace more than 15,000 legacy FDR products that are lacking modern conveniences, such as remote connectivity and app integration.
In addition to the significant opportunity to replace legacy FTR products. There's an opportunity to address an expanded use case for unknown gas identification. Red wave offers products that can identify 5,500 toxic and VOC gases to help track down the source of the leak in industrial and hazardous materials situations. They've built three innovative handheld products that pair well with our MX nine weight and fortify our MX aero offerings and our road map in the air monitoring space.
Our sales team is excited to add these complementary red wave products to our handheld product offerings immediately as I mentioned a moment ago, our products are highly complementary for analyte detection and identification. Forensics. Customers use both mass-spec and FTR to rapidly assess and monitor their environment for dangerous trace chemicals and possible bulk chemical hazards. In the most general sense, our MX mass spec handheld focuses on invisible and unseen targeting Sentinel many analogs and hundreds of such highly toxic Andalay.
Radware's FDR based products expand our detection capability to more than 22,000 and are ideally suited for visible bulk sample identification together, the two technologies offer a fast and comprehensive field forensics toolkit, supporting our customers' broader workflow. By bringing red wave market leading handheld technology to nine or eight devices, we can leverage our existing scale and platform to serve both new and existing customers more efficiently. Strong relations and support through the sales cycle are key to our customers.
By bringing their team onto our existing commercial platform. We can better serve customers across the sales cycle from technology and application to offering world-class support and service. And we can now offer a combined situational awareness view through our 24/7 reach back service with multiple data modalities available. Additionally, with scale, hybrid Wave's cloud-based fleet management offering, we have the potential to offer new value add data services for additional recurring revenue.
The existing Redwave devices already in the field, significantly expand our base. Collectively, we now have over 3,600 units fielded and more than 18,000 trained users over the last few years, we focused on creating a portfolio of desktop devices to serve biopharma. And we released two products just last year as we believe it desktops will be a significant contributor going forward with this acquisition, we are adding three products to create a light portfolio of handhelds, first forensics to gain efficiency and scale in that space as well for both their desktops and handhelds.
We see great benefits by having complete and complementary suites of products to offer our customers. We believe the strategic rationale here is incredibly clear. First, we believe this acquisition will meaningfully accelerate our revenue growth and an end market that has been performing well. Second, the overlapping customers and call points enables significant sales and marketing synergies. Third, it is projected to improve scale and efficiency in a large addressable forensics market, opening access with a broader portfolio of capabilities for our customers.
Fourth, it expands our tech toolbox and have now created a leading point of need analysis platform, mass spec, Robin and FTR three lab great technologies supporting a robust road map long term in forensics and bioprocessing. And finally, it is forecasted to be accretive to both the top line and gross margins. We are acquiring a profitable cash generating business, which accelerates our path to breakeven.
As I touched on earlier, Radware offers a compelling financial profile with meaningful revenue and margins, growth rate and earnings above our own corporate averages. Red wave and 98 devices have an overlapping customer base and call points, supporting improved scale and leverage of sales and marketing efforts. Red wave has just begun to make sales into US federal government accounts, and we believe that our success with large enterprise accounts will help to further penetrate this opportunity.
Internationally, Redwave and nine awake devices share many of the same channel partners, we estimate an 80% overlap again, creating efficiencies of scale. As mentioned, beyond mass spec pharma, PAT customers often leveraged after ROM and related infrared spectroscopy technologies for applications in QC, upstream and downstream. 908 Devices desktop portfolio includes our new Rahman based Maverick device for upstream bioprocessing and Redwave now adds a line of bromine and FTR accessories for PAT and industrial QC with the potential for optionality to extend FIGR devices into downstream Pharma.
These accessories represented approximately $2 million of their full year 2023 sale. We are positioning ourselves for accelerated growth through our selective acquisition strategy and new product launches. Red wave is our second acquisition as an organization. Following the successful acquisition and technology integration of trace analytics GmbH in 2022.
Since our IPO in late 2020, we developed and launched a suite of innovative desktop devices. Two just last year positioned us for growth as the headwinds for life science instrumentation and bioprocessing subside and advanced therapeutic modalities take hold over time. We have grown total top-line revenue had a three year kegger of 23%, supported in large part by our flagship handheld device for the detection of federal and related trace applications in 2023 and health represented 76% of our revenues and grew 28% year over year.
We absolutely want to continue to win in that space. While we nurture and grow our desktops for bioprocessing, we believe the acquisition of Bread wave does just that by solidifying our handheld market position and driving accelerated growth in the market. We have seen with durable success with the contributions from eight months of red wave revenue for 2024 we now expect full year reported revenues to be between $63 million to $65 million, an increase of 25% to 29% compared to 2023.
Joe will address the details of this guidance in a moment. We project favorable financial impact from this acquisition, including higher growth, improved margins and a faster path to profitability. In 2024 we expect to add $11 million in revenue, representing eight months of ownership on top of the revenue guidance we provided for the Core nine oh eight business earlier this year over time, we expect Red wave to contribute strong gross margins above 908 Devices, corporate average, we are absorbing a cash flow-positive business and going forward, we've identified more than 5 million in forecasted annual cost synergies to be realized in 2026.
The acquisition is fully funded with the cash from our balance sheet. An additional consideration will be paid in stock contingent on Red wave meeting a minimum annual growth target of approximately 22% over 24 months. We continue to believe that our cash on hand is sufficient to reach cash flow breakeven.
At 908 Devices, we have always operated our business with the goal to build a solid financial foundation for durable, long-term profitable growth. This acquisition is squarely in line with that vision and further fortify the foundation we are building. We now have multiple lab grade analytical platforms at hand, PowerPoint of need chemical analysis today and well into the future. We have a consolidated portfolio of handheld and desktop devices to address greater than $6 billion of forensics research, QA, QC and bio processing tests.
And we believe we have accelerated our path to reach more than $100 million in annualized revenues with improved US and international scale. Further, we continue to project the ability to reach cash flow breakeven with our current cash on hand. I'm so proud of what our team has been able to accomplish over the last several years. And with the addition of red wave technology, I am even more excited for what's next.
With that, I'll now turn the call over to Joe for more details on our first quarter and on our updated guidance.

Joseph Griffith

Thanks, Kevin. Revenue for the first quarter 2024 was $10 million, up 5% from $9.5 million in the prior year period, primarily driven by an increase in handheld device revenue. Handheld revenue was $7.4 million for the first quarter 2024, up 20% from $6.2 million for the first quarter 2023. This increase was driven primarily by component shipments in support of the initial production phase of the US Department of Defense next-gen chemical detector program, also known as have had an increase in service revenue.
We shipped 53 MX. nine oh eight handheld devices in the first quarter. Our pipeline remains strong for our handheld devices in the US and internationally, the fentanyl crisis and the emergence of new and evolving analogs has been a key driver of handheld adoption in the US. We are now seeing this crisis expand and drive urgency internationally. This was confirmed by US Secretary of State Anthony Boynton, who warned of exactly this in March during a United Nations conference.
Now turning to our desktop, serving the life science instrumentation and bioprocessing markets. Revenue from our desktop products for the first quarter 2024 was $2.6 million, down 17% from $3.1 million in the prior year period, primarily related to a decrease in device sales with eight desktop devices placed in the first quarter comprised of Rebel Zip chip and May, even despite customers continuing to remain cautious in their first half capital expenditures, we are seeing positive engagement. One of our core objectives has been to launch and leverage an expanded product portfolio to maximize opportunities and strengthen customer engagement.
Our product portfolio now includes four desktop devices in the T space to launch just last year. And we are seeing quoting activity reflect combination of products. Now one product driving another, for instance, in the first quarter, we received an order from a top 20 biopharma customer from multiple desktop devices, Rebel and May, even demonstrating the value of our expanded portfolio and validating the complementary nature of our PAT desktop devices. And over the first quarter, our sales engagements reflected this trend with an approximate two to one weighting toward our newest products, which is also consistent with trends seen in the second half of 2023.
Although it is still early days, we continue to see traction and positive engagement with Maverick. In early April, we hosted a successful webinar with over 250 registrants, highlighting how process control impacts critical quality attributes or CQ. A's We reviewed our Maverick was readily deployed in cell culture monitoring and control without any bioprocess specific model building, we showcased a strategy of continuous dynamic seating to enhance process performance and improve product quality.
Further, we have engaged in a number of qualified evaluations for biopharma customers installing MAVERICK and test across multiple bioreactors. Maverick's ability to connect to multiple bioreactors is a key capability, and we are encouraged to see customers supporting and prioritizing evaluations for this novel technology.
We ended the first quarter 2024 with a cumulative handheld and desktop installed base of 2,914 devices up 18% from 2,468 at the end of the first quarter 2023. Recurring revenue, which consists of consumables, accessories and service revenue, represented 45% of total revenues this quarter was $4.5 million or $0.4 million increase over the prior year period, driven by service and rubber consumables.
Recurring revenue in the first quarter consisted of $2.8 million related to handhelds and $1.7 million related to desktop. Rental utilization remained at approximately half the kit per month for active users, which has been a consistent run rate for nine quarters.
Looking ahead, we continue to expect recurring revenue for our product portfolio to be around a third of product and service revenue for the full year 2024. Gross profit was $5 million for the first quarter of 2024 compared to $4.4 million for the prior year period. Gross margin was 50% for the first quarter of 2024 compared to 46% for the prior year period.
The increase in gross margin was largely due to favorable timing of production, driving higher absorption and lower material costs during the first quarter of 2024. Over the longer term, we expect volume-based improvements to our gross margins as we achieve better leverage over fixed costs. Additionally, with the integration of red wave, we expect modest benefit in the back half of 2024 and further impact in 2025.
Total operating expenses for the first quarter of 2024 were $17.7 million compared to $17.4 million in the prior year period. This increase was driven by a $0.4 million increase in noncash stock-based compensation and $0.3 million in legal fees related to our acquisition, offset in part by a reduction in third-party commissions and salary and related costs.
Net loss for the first quarter of 2024 was $10.9 million compared to $12.5 million in the prior year period, a 13% improvement. We ended the first quarter of 2024 with $134.2 million in cash. Cash equivalents and marketable securities with no debt outstanding. Subsequent to quarter end, we used an additional $45 million for our acquisition of Redwave. We anticipate exiting 2024 with multiple years of cash to support our path to cash flow breakeven.
Looking ahead, in 2024, we now expect revenue to be in the range of $63 million to $65 million, representing reported growth of 25% to 29% over full year 2023. Our updated revenue guidance includes an expected $11 million of revenue from Red wave representing eight months of ownership layered on top of our prior guidance of $52 million to $54 million for the Core nine oh eight business.
Our updated revenue guidance includes the following assumptions. First, we expect $11 million in 2024 reported revenue from roadmap, which reflects eight months of ownership. On an annualized basis, this represents approximately 20% growth for 2024 Redwave revenues, in line with the company's 2023 growth profile. We see potential for Radware's growth to accelerate once the company's products and services gain traction within nine awaits commercial engine likely by the end of 2024.
Our second quarter results will include two months of revenue contribution from Red wave and given similar customer and funding dynamics. We anticipate roadway seasonality to mirror that of our handhelds being back-half weighted.
Second, we are reiterating our $52 million to $54 million revenue guidance for the core nine oh eight business. While we continue to see some indicators of positivity for the life science instrumentation and bioprocessing markets, the pressures we experienced in 2023 have as expected persisted and likely will continue through at least the first half. The industry is reporting some promising signs related to bioprocessing inventory destocking in Q1.
However, nine awaits bioprocessing recovery will be driven by a rebound in CapEx spending for instrumentation and preclinical biopharma, which has remained relatively muted to this point. But we do continue to expect a step-up in total desktop device placements during 2024 with sales of newer products building through the year as our sales engagements convert to orders.
And lastly, we expect the strength of our handheld devices which serve the forensics market to continue to bolster our overall growth. However, the delay in approval of the US federal government budget may result in some of our enterprise opportunities shifting into the second half of the year.
With the timing of the US federal government budget and the acquisition of Redwave, we expect a slight shift from our previous assumptions for 2024 revenue split. We now expect revenue to be slightly more back-half weighted compared to our prior assumption of a 40% to 60% first half to second half split touching on gross margins. We continue to expect 2024 to be in the low $50 millions range due to the impact of pricing, higher material costs and overall product service and channel mix.
We anticipate that red wave will have a small positive benefit to second half gross margins with rising contributions expected in 2025. At this point, I would like to turn the call back Kevin.

Kevin Knopp

Thanks, Joe. Again, as previously communicated on our fourth quarter call, we are laser focused on three key areas for 2024, including market expansion, leveraging our expanded product portfolio and executing to a framework for sustained growth with a path to profitability.
Our acquisition announcement today directly and meaningfully addresses each of these three key areas. Further, we are pleased with our on-plan Q1 results and the new trajectory we have set for 2024 and beyond. I'd like to thank our team for their hard work towards our Q1 achievements.
Lastly, let me say to welcome our new colleagues from Radwave technology to the 908 Devices team, and I look forward to our bright future together. With that we'll now open it up questions.

Question and Answer Session

Operator

(Operator Instructions) Matt Larew, William Blair.

Matthew Larew

Hi, good morning. And wanted to start on RentWay and two things. One would be I think back to last acquisition and trace, obviously, we just on the product and Maverick that features the aseptic sample technology from Trace. So clearly at incorporating the technology and product development.
And you referenced obviously the impressive portfolio that Radware has of their own products and how the sales channels overlap. But I'm just curious, as you looked at the deal, what you're thinking about from potential collaboration on the R&D or product development side and over time?

Kevin Knopp

Yes. Hi, Matt. Thanks for the question. And you're right, I mean, we did the acquisition of trace analytics GmbH in 2022 and really a successful one that we're really happy. We did it. It is fully integrated now, as you know, it's become our base of operations in Europe and allowing us to take orders direct across Europe.
And then as you mentioned, technology, we took a sampling technology and release the product made, and then that's on the market. And it's the basis of the online capabilities for next generations of Rebel when we get to that point. So lots and lots of good there on the R & D side and then plugging it in and having a base of operations in Europe.
From the read rate perspective, we're super excited that now we have a portfolio of products in the bio processing life science instrumentation space for certain products. And we really built a nice foundation for that growth as we as we move along. But if you look at our handhelds. We've had one product and a series of accessories. So with Redwave that adds three additional products that have that high overlap with our customers and sales channel, which we can get immediately into the bag of our team from a R&D collaboration perspective.
We briefly touched on it in the prepared remarks, but we're also excited that regulators have approximately $2 million of their sales last year in the pharma PAT. space, selling accessories and selling around improved FTR approach and the like heightened to industrial QHTC and pharma PAT application. So I would imagine as we continue to grow and the market justifies that, we'll be able to work more together on integrating and looking to offer additional FTIR based products into our desktop portfolio.

Matthew Larew

Okay. That's great to hear. And you referenced obviously or Joe did I suppose in his comments from a CapEx recovery being key obviously to your own bioprocessing recovery, which just curious what you're hearing from customers about budgets for capital equipment.
Are you any indicators of shifts in sales cycle or availability of capital. And you referenced obviously we placements at a top 20 biopharma. Any patterns or trends that you would call out in terms of customer groups and how they're perhaps have you in their purchasing ability this year?

Kevin Knopp

Yes, sure. I'm happy to give a few comments there on. So yes, absolutely. It's really not the destocking dynamic of consumables that impacts 98 as you know, it's more around the CapEx spending for small-scale instrumentation like nine rate does here in the life science instrumentation market and bioprocessing. As you know, we're very much in the PD. lab process development labs. So that's in upstream preclinical world. So we've been seeing particularly pause there to adopt novel technologies in that space.
I would say two things I mean one from a from open conversations with customers regarding budget, I think there's still uncertainty on the timing of the release of CapEx within the organizations. I've been direct conversations with several customers of hard to draw conclusions by group, as you asked for just because our numbers are fairly modest here, but I have definitely seen larger organizations as well as smaller position showing that uncertainty that last comment on that.
In fact, one of our customers talking to of late is very much ready to pull the trigger but is waiting for their biotech funding to come through and additional series raise for that organization. So it's directly coupled so we are pleased that the world has been showing some positive signs in the bio tech funding arena, as you as you know, over the first quarter. So we're pleased for that.
And what will take some time for that to ripple down? I'm sure but I think that is a positive thing. And the other thing that we mentioned in our prepared remarks, and we are getting a lot of engagement. While that engagement isn't translating directly to desktop orders as fast as we would, of course, all like lots of engagement. Joe called pushing things out in his prepared remarks regarding great engagement on a maverick revenue great engagements with customers doing valuations in some case funded evaluation so. Little color there for you.

Matthew Larew

That's great. I'll jump back in queue. Congrats on what looks like that to really like that in terms of direct retail.

Operator

Jacob Johnson, Stephens.

Jacob Johnson

Hey, thanks.
Good morning and congrats on the deal. I guess I've got a couple on roadway make maybe just first on the red wave technology versus the MX 908 and use applications. Can you just talk about how complementary your products are with theirs? And then is there any risk what kind of cannibalization between these two product portfolios?

Kevin Knopp

Yes. Yes, happy to. Thanks, Jacob, for the congratulations there. The we're really excited for the Red Lake side. I mean, first, from a technology perspective, they are very complementary and very much expands the toolkit. We mentioned that about 80% of our international distributors represent both. And we would only do that if they were not in a competitive situation and that they were in fact complementary.
So it's a little bit of a proof point there. But in its simplest way, you can think of the MX technology has a new product class is taking mass spec. So it has immense sensitivity. So it can measure things at very, very low trace levels. So invisible amounts a residue a minute particulates aerosols in the air.
Now, if you think of the red wave technology, it can measure a bulk quantities, but it can measure many, many more chemicals, 22,000 plus chemicals that can measure. So the two are often used by our customers in concert depending on the situation and where they go. So we really don't see that their competitive nature to those products from there. They're positioning it.
And as you know, obviously, we're excited for them for Redwave as well do its financial profile. We have pretty high benchmarks that we've been trying to stay true to. And this acquisition really kind of showcases those in terms of being very synergistic from a cost perspective that we touched on, as well as the complete financial portfolio profile. That's a bit accretive in many different ways.

Joseph Griffith

And maybe a little bit helpful to us just a little bit more color on the roadway products. As Kevin mentioned, there's three today that threat IDT protect IR and explore IR and those US list prices of those products range from $45 thousand to $75 thousand case at the high end, close to the MX list price on it today. And the majority the regulated for our placements in the US and in Asia have come through distribution channels to date.
Usually comes with discounting rate, lower ASPs kind of discount levels from five, maybe up to 30% on the international sales. In the threat ID, where the majority of the placements have been today, the first launch product by Red wave is where the majority of placements are in are at the higher end of that ASP. range, but maybe you a little bit more color on the products themselves.

Jacob Johnson

Griffith, thanks for that. Kevin and Joe, I guess maybe just kind of following up there, you guys laid out some pretty robust growth outlook potentially for Redwave, at least to get the contingent consideration. It seems to me there's kind of two or three big opportunities there, one, one and two being kind of the buyer processing industrial applications and then the other one kind of leveraging the large enterprise account as we think about the growth outlook going forward for this business, can you just kind of talk about the relative size of those opportunities in terms of growth drivers between kind of bioprocessing, industrial versus the large enterprise accounts?

Kevin Knopp

Yes, absolutely. I'll start. And then maybe Jochen can add some additional remarks. But yes, you're absolutely right we think there's a lot of growth potential with this business. And you can see there the Resolve that the Radware team has in this combination based on that pay structure and earn-out consideration that's contingent upon bidding approach targets.
So first and foremost, those growth targets are going to be driven back through and pursued through plugging into our commercial engine, which we think is pretty robust on our on our handheld side. So we're working even on day one to make sure that it plugs into that channel. And we mentioned very briefly in the slides that they hadn't really done too much yet in the larger federal accounts, those larger enterprise accounts, and we feel we have a pretty skilled team there.
So we believe we can make good progress getting into those enterprise accounts. They take a little bit of time, but they can be quite large as we go. We think the earn-out structure being cumulative over 24 months is helpful in that regard. And the areas of bio processing, the areas of the PHY. accessories that they sell, particularly into pharma, industrial QA QC. I think that's something that we'll be looking to leverage overtime, but see the biggest benefit coming from putting into our handheld commercial engine.

Joseph Griffith

And then we've provided additional pieces we did highlight in our prepared remarks that regulators have 20% plus year-on-year growth in '23 and '24. Our revenue expectation is that $11 million contemplates read rate growing at that similar level on an annualized basis. There is certainly potential for Redwave revenues to accelerate towards the end of 2024 once the products gain traction within our commercial engine. We won't be measured in our approach.
We are excited by the growth potential that roadway brings, but we're not setting achievable expectations. I believe that we can plan to revisit once these products have a few quarters of integration within our commercial engine and in terms of their their pacing and seasonality were solid on its pricing is similar to our current customers, selling the same customers and working through somewhat budget processes, the MX. So I do expect to see a similar pace and more revenue in the second half as we go.

Jacob Johnson

Got it. Thanks for taking the questions, guys.

Operator

Steven Mah, TD Cowen.

Steven Mah

Great.
Good morning. Can you hear me?

Kevin Knopp

Yes. Hi, Steven. How are you doing?

Steven Mah

Good, thanks for taking the questions. So maybe to build on what Jacob, as there does seem to be some overlap with the hand, handheld MX 908 in terms of like some use cases as such, such as panels.
Okay. --Can you give us a little bit more color on I know you guys said that the customers use both FTR and mass spec, but give us give us a little more color in the marketplace landscape and what percentage of users I use both FTAR and mass spec?

Kevin Knopp

Yes, sure. Happy to. I would say that's a pretty large percentage of customers that have access and use both. And they do often it's a tool kit, right so people will pick pick what's the right tool for the right job at the right time in the cases of something like fat, no mass spec is just absolutely well positioned there because of its extreme sensitivity and the minute quantities in reasonable quantities that are really required to detect or something like that.
Not now if you think about how it complements in applications like that. If you think of a counterfeit pills, the excipients, the binders, the the the mix, what it what you would provide around that satellite can be a unique identifier of that counterfeit construction or and so those box components being measurable on FTIR. is very much complementary even in that one. The use case here really around federal and counterfeit drugs.
And there are many, many applications that people employ FTR for from really unknown materials of all sorts from benign to something toxic that they're looking to us to identify. We spoke that there's about 15,000 as we estimate legacy FDR instruments that are out there in the field. And if you think about a five to 10-year useful life of these came about would imply that there's maybe 1,500 to 3,000 per year as an opportunity to replace or upgrade.
And we really see that the same that you can look at a lot of opportunities and say how many have placed 700 thus far. And we believe just like we've communicated in the past, our MX that as you offer more modern conveniences size reduction, speed improvements, other modern connectivity options that it drives upgrade cycles. And we see that the red Ray's team is able to take advantage of that.
And we're looking forward again, plug it into our commercial engine to see if we can if we can support that and get its growth trajectory to be meaningful here, but that's the same as we've talked about, that as our MX goes to its next generation, we would expect it to respond upgrade cycles as well. So I really do believe the two are actually complementary even in the application and use cases like that said, no counter drug situation. I tried to depict.

Steven Mah

Okay. Yes, that's really helpful. Thanks for that. And I might have misheard, but did you guys say red wave just uses distributors or do they have an internal sales force?

Joseph Griffith

They have both. They have some internal sales folks about four, they plug into our 70 folks that we have across our combined organization coming into the year on the leverage ratio based upon their size and efficiency, a lot of channel managers, channel opportunities here in the US also internationally, which is similar to us internationally for our handhelds, we use distribution channels are very much known within the market and but yes, they do have a sales folks for us, and we're excited to partner with them and get the combined scale to drive the growth of the red wave and MX product.

Steven Mah

Okay, got it. So do they have direct sales versus myself distributors? Or I guess asked a different way, how much of that $13.7 million in revenues last year were from distributors?

Joseph Griffith

Yes, from the direct sales perspective, they do have some direct sales, but it's a low percent, right. I don't know the exact percent on it. It's higher than single digits, but it's low double digit type level, really just from where they are 39 people today have focused on leveraging smartly with distributors out of the box. We think we have an opportunity to go direct, which is part of our synergies as we think about the opportunity to expand our ASP going forward.

Steven Mah

Yes. Okay. You know, that's my next question on the potential revenue alternatives. Yes, it seems like it's very complementary. And when do you think you'll start seeing revenue synergies? You know, I appreciate you said cost synergies, which would hit fully by 2026. But when you think revenue synergies well ahead and I appreciate it takes time to cross train the sales forces across the different products?

Joseph Griffith

It does take time. We're looking to hit the ground running now today, but we will give you a little bit of additional details on both the costs and maybe thoughts on top line.
Well, you probably heard that we're forecasting $5 million plus in potential cost synergies in 2026, and we expect roughly $2 million of those synergies to be realized for 2025 kind of in the shorter term. And those $2 million include savings anticipated from prioritization of personnel across organization, mainly now selling, marketing, R&D leverage together, we need to hire less.
It also contemplates an improvement in channel discounts that we were just talking about related to international distributor alignment and some opportunity for margin improvement in our direct sales and the remaining $3 million will probably be realized starting in 2026 related to the utilization of the 38,000 square foot Danbury facility that we're acquiring here today and the manufacturing scale-up of potential high volume programs that we've talked about like outcome versus expanding space here in Boston for that, but a big part of the value in the transaction is what you're asking about is the ability to plug Gregory products into our nine-week sales channel and drive kind of sustainable, exciting growth.
And we're working to get going on that, I'd say immediately expect there is the ability to drive cross selling forensics portfolios and these trends will be easier to understand following few quarters, obviously an opportunity to improve our recurring revenue profile as well after the commercialization of possible cloud-based enterprise management software and potential to increase other regulated participation in our life science instrumentation by processing PAT. space.
So I would expect near term cost synergies that I mentioned, really to show up in OpEx from a longer-term synergies to be more balanced between OpEx and COGS will work to get those top line synergies as simple as we can see.

Kevin Knopp

And maybe just layering into that for a second, Steve, and I hope it's coming across on the call today, but we see so many synergies even beyond what we touched on, and you can you can probably see the dimensions of that from how complementary this is. So we're going to be working on that. Now that's under our ownership to quantify their timing and impact.
We really don't underestimate it because there is so many here. We've quantified some on the call today, but there's a lot that have been called qualified and more qualitative on, but we don't want to underestimate the impact and we'll certainly report as we progress.

Steven Mah

Okay. Great. Thanks for all the questions.

Operator

Dan Rice, Stifel.

Daniel Arias

Good morning, guys. Thank you. Kevin, maybe on desktops, I know you said last quarter that you wouldn't be breaking out system placements by instrument. But is there anything you can say about the Revel in order to put it in some context and spec the product that we have a bit of install history with.
And then I think you said that the total for desktops was made up of Revel and Maven and Zip chip if I'm not mistaken. So no Mavericks paving we can use when it just comes to the mix across the year for the different systems or is it at the end of the day, just sort of up one quarter and down another for the various components of that mix?

Joseph Griffith

Dan, this is Joe. I a little bit of color on Revel that continues to tick along, right, where we've been kind of that low single digit range. As you mentioned, we're not specifically breaking it out from the eight placements, but it is continuing to see some of those pressures. And yes, I did talk to the placements within this specific quarter. We are desktops include Revel, is it chip and may even know, Kevin, you want to give a little bit more color on Maverick excited by that opportunity?

Kevin Knopp

Yes, you're absolutely. I mean, we called out a little bit in the prepared remarks that the sales engagement we're seeing here in Q1 is similar to what we saw in Q4 in terms that it is more weighted more to the one weighted to our newer products in the pipeline as we're gaining momentum and excitement again, just about sales, the gate engagement funnel perspective.
And yes, I think it's absolutely early days, but lots of engagement on Maverick. We mentioned briefly that in April, we had a webinar with 250 some risk register and some that are centered around Maverick and how it impacts our critical quality attributes and how it doesn't take investments in modeling and so good engagement on that.
And then further, we have a number of qualified evaluations ongoing right now being planned and many ongoing. And this is where a biopharma customer and some in some cases will be purchasing or consumables and the like to support a demo across multiple bioreactors and kind of testing and qualifying that and the ability to connect across there.
So lots of encouraging parts to evaluate it. But yes, as we've talked about, certainly the CapEx spending for novel technologies has been muted, but we're really excited that we've seen a lot of this engagement. And then obviously, we've got diversified portfolio and the handhelds have been performing to bolster our overall growth at 8% this quarter of products and services.

Daniel Arias

Okay. And Joe, your point was that total desktop system placements, whatever that mix is just sequentially in March Higher across the year. Correct?

Joseph Griffith

Yes. That's our expectation and not through by the end of the year to see an increase in placements driven mainly by Maverick and maybe that will progress throughout the year.

Daniel Arias

Okay. And then if I could just ask. Yes, I guess just thank you for that. Maybe just on the handheld side, you had mentioned last quarter that the budget delays were a factor when you were thinking about the beginning of the year and 1Q, I'm curious if once the federal budget was released, you saw some loosening when it comes to spending and deals in late March, early April, show any pickup in activity in any way?
And I guess, relatedly, is there anything you could say that help us with the modeling exercise when it comes to MX systems across the year. Thanks.

Joseph Griffith

From a timing perspective, it's good to see you finally get over the line yet because March 22, the funding was released, of course, that's in many ways, just the start of the process with our customers who have lots of conversations with our sales team to tee up funding mechanisms and the timing and understand the procurement cycle, which is likely pushing a lot of those federal government opportunities more into the back half in Q3 versus Q2 opportunities where we really didn't start to free up until March.
So I would say we're seeing the pickup in the conversations on, but the timing is working against us a bit towards the before, I'd say back half Q3 Q4 even more so than we initially thought back in March.

Daniel Arias

Okay. Thank you.

Operator

Puneet Souda, Leerink Partners.

Puneet Souda

Yes, I guess thanks for the questions here. So Kevin, it's good to see the acquisition. But on the flip side of it, I'm getting a number of questions here on, you know, what I brought about this acquisition at this point? And sort of why now? And can you talk to us about the level of investments that you might have to do in order to drive the red wave technology into some of the other applications and make the I know you pointed out to some of the cost synergies.
But just I think the big question here is given your cash balance and the unit sort of the dilution you're taking on for this deal, how should we be thinking about the overall sort of cash burn this year? And next?

Kevin Knopp

Yes, Souda. Absolutely. Great. Great questions. I'll start and then I'll pass to Joe.
But yes, we're super excited about the Redwood acquisition. As you know, we have done an acquisition in our past, and that helped grow as a nice portfolio of products in the bioprocessing. So we've got really and life science instrumentation. So we've got a really nice foundation there in a portfolio, but looking to drive scale and benefit from our investments in sales and marketing with our handheld devices, which have been durable in their success and their growth and serving the market's point of need chemical analysis, and we absolutely want to keep winning there.
So when we go out and search from an inorganic perspective and look at this asset was very unique to us. It's profitable. It's highly growing, many, many synergies that directly plug into our sales channels. So we think it's accretive in many different directions. So it's a it's a strong fit for us. And again, it fits well into our drive to win across point of need chemical detection, and that can be in forensics that can be in bioprocessing and there's just a lot of opportunity that we see in that space.

Joseph Griffith

Maybe there and touch on some of the cash or concept and path to cash flow breakeven in 2023. New used to approximately $25 million in operating cash flows as for the business in Q1 is typically our largest quarter for cash flows. During Q1 2024 our cash used for operating purposes was about $10 million, but we'd expect to be in the $30 million range on a full-year basis here in 2024. We do expect to finish 2024 multiple years of cash available to support our operations.
The key factor to our path to profitability is the cash burns is the top line growth. And we're continuing to see a path to double digit top line growth for the core dynamic business unless the bond pricing recovery plays out. And the structure are regulated acquisition reward a strong 22% plus growth over the two year considerations to bottom period. So we expect to improve lowering our burn for scale in 2025 and beyond.
And to think about that as it translates over to possible path to cash flow breakeven. We believe that this acquisition it does pull forward our cash flow breakeven time line, given that we're adding scale with Red radio, Red wave revenues, bolstering our top line growth profile and adding an accretive gross margin and cash flow positive business.
And we previously had indicated we probably used to be a low three digit revenue number to cross into profitability or likely that somewhere less than $150 million in revenue. We can get there with the addition of regulated, we can reach this level faster than before. So definitely excited about that.

Puneet Souda

Got it. That's helpful, Joe. And my follow-up is on you. What are you seeing from the cell therapy accounts and those have been some of the early adopters, but obviously impacted during the biotech impact over the last couple of months and the impact last year. Can you talk a little bit about sort of adoption you're seeing in those accounts?
And I'm wondering, Kevin, you know, how should we think about the closed loop or automated systems. How does how do your products position into BI into bioprocessing applications there? And just lastly, if I could just squeeze in one more on. Is there anything that we ought to think about in terms of both secure impact from both secure? Thank you.

Kevin Knopp

Yes, happy to touch on those. So first, on the cell therapy side, our focus has been the latter. As you mentioned, we do have a dedicated BD professional under our commercial leader. That's engaging the innovative way innovative hardware equipment companies in the cell therapy space as you know, we announced a relationship with Rumo and then in February, we released the relationship with Solaris. And those efforts, Solaris in particular, is really around creating a fully integrated device that automates the whole process and increases the number of dosage available and lowering the cost of goods while doing so.
So that efficiency in our mind is it's very synergistic with our products and very much aligned to our how we're positioning our maiden and Maverick products on to actually help control processes help control and determine when you harvest help improve yields and other quality attributes along the way. So we do have a focused effort to engage such organizations, and we're very pleased to be working with Solaris. You can see in the news.
They're getting good traction with BMS and others they announced here recently. So we're working to get designed into there so their processes, but we have a number of others that we're working with as well. So we're really working between the innovative hardware providers and also the innovators on the therapeutic side. And then we're bringing the innovation on the analytics.
So we're trying to close those move. So it's, again, early days, more of an OEM scale relationships we're looking to build, but I can say that we've had good engagements in the quarter with a number of groups in that area.
Regarding bias, secure real real quickly. We work with the with many organizations in the government with our handheld. So those, of course, are going after the small molecule analysis, drug analysis in many cases, counterfeits and the like. So we work on a variety of additional security applications and are well versed on things like export control and the like.
So I think as biosecurity opportunities develop, we do have a very good dedicated capable government sales channel. We are in some conversations with the US car rental or around some initiatives on the military as well as just for the economy around initiatives to onshore and have a strong vibrant economy here in the United States for biopharma surgical.
So we'll have to see how it develops, you know, as well that we work with groups like National resilience, where this has been a part of their government strategy as well. And they've been a strong partner and customer and collaborator with NIWeek. So maybe not an immediate direct impact we see there, but we certainly stand poised to help out where we can on that.

Puneet Souda

Okay. Thank you.

Operator

We currently have no further questions on the call. So I will hand the floor back to management.

Kevin Knopp

All right. Well, thank you very much. Thank you very much for joining our call today, and we appreciate all the questions. Have a good day.

Operator

This concludes today's conference call. Thank you all very much for joining.