908 Devices (MASS) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

• Vice President, Investor Relations - Matt Roache
• Chief Executive Officer and Co-Founder - Kevin Knopp
• Chief Financial Officer - Joe Griffith

TAKEAWAYS

• Revenue -- $19.0 million, representing 35% year-over-year growth driven by strength in the FTIR portfolio and the addition of NIRLab revenue.
• Installed Base -- 4,409 devices, an increase of 26% year over year reflecting broadened adoption across frontline responders and military customers.
• Handheld Device Shipments -- 308 units, setting a new company record for quarterly shipments excluding NIRLab devices.
• NIRLab Shipments -- approximately 100 units, representing an acceleration from the 35 units shipped in the first two months of ownership.
• FTIR Product Mix -- 55% of total revenue, lead by a significant Asia Pacific corrections agency order.
• Recurring Revenue -- $5.1 million, accounting for 27% of total revenue and supported by increased software subscriptions.
• Adjusted Gross Margin -- 58%, a 40-basis-point decrease from the prior year due to a higher concentration of lower-margin international sales.
• International Revenue -- 40% of total revenue, doubling from the prior year period as a result of expansion into global defense and law enforcement channels.
• Asia Pacific Order Contribution -- $4.0 million, representing two thirds of a total $6.0 million order from a regional corrections agency.
• Net Loss from Continuing Operations -- $4.6 million, narrowing from a $14.9 million loss in the prior year period.
• Adjusted EBITDA Loss -- $1.7 million, compared to an $1.8 million loss last year, as structural changes in 2025 reset the cost base.
• Cash Position -- $99.1 million, with no debt outstanding as of Sept. 30, 2026.
• Full Year 2026 Revenue Guidance -- $68.5 million to $70.0 million, raised from the previous floor of $68.0 million.
• Handheld Product and Service Guidance -- 24% to 27% growth for the full year, equating to a range of $65.5 million to $67.0 million.
• OEM and Funded Partnership Revenue -- $1.1 million, up 42% year over year primarily due to component sales to large analytical instrumentation customers.
• NIRLab Scan Volume -- 1 scan per minute on average, an increase of 74% year over year in daily usage frequency.
• European Framework Agreement -- more than $2 million, involving the replacement of legacy equipment for a defense customer with ProtectIR units.
• VipIR Full Year Target -- more than 100 units, with management confirming the product remains on track to meet this goal in 2026.
• U.S. State and Local Revenue -- 25% of quarterly revenue, representing a 20% year-over-year decline due to the timing of device placements.
• Operating Expenses -- $15.5 million, a decrease from $23.7 million last year reflecting a noncash reduction in the fair value of contingent consideration.

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RISKS

• Griffith stated, "the impact of mix led by lower-margin international product revenues in the quarter," explaining the 40-basis-point decline in adjusted gross margin.
• Griffith reported an "expected reduction in mass spec service revenue," resulting from shifts in customer funding that occurred in late 2025.
• Griffith indicated that strong device placements "lowered recurring as a share of total revenue this quarter," as product sales outpaced growth in service and subscription income.

SUMMARY

908 Devices Inc. (NASDAQ:MASS) achieved record quarterly revenue and expanded its global installed base to more than 4,400 devices, supported by a significant increase in international demand. Management reported that the integration of NIRLab is driving accelerated adoption of cloud-connected identification tools, while the core FTIR portfolio captured meaningful wins within European defense modernization cycles. The company raised the lower end of its full-year revenue guidance and maintained its focus on narrowing adjusted EBITDA losses through disciplined operating expense management. Looking toward 2027, the company is preparing for a potential military procurement cycle and the launch of its next-generation mass spectrometry platform.

• The company is preparing for a new product cycle with the next-generation MX908, which is expected to ship to early access customers by the end of 2026.
• Management delivered MX908 units to the U.S. Army for analytical testing, which Kevin Knopp described as a "constructive signal" for potential commercial-off-the-shelf orders in 2027.
• NIRLab has achieved 1 million cumulative scans, with AI-powered models now being refined through collaboration with U.S. forensic laboratories.
• The chemical threat landscape is shifting toward aerosolized nerve agents, a trend management expects to drive demand for the MX908's trace-level aerosol detection capabilities.
• Federal grant programs supporting state and local customers, such as COPS and HIDTA, were refreshed in mid-2026 with approximately $1 billion in total funding.
• Management is targeting 2027 as a year of significant growth, citing NIRLab's pipeline and potential upgrade opportunities across the existing base of 3,000 MX908 devices.

INDUSTRY GLOSSARY

• FTIR: Fourier Transform Infrared spectroscopy, a technique used to identify chemicals by measuring how they absorb infrared light.
• MX908: A handheld mass spectrometry device used for the rapid identification of trace-level chemical threats, including synthetic opioids.
• AVCAD: Aerosol and Vapor Chemical Agent Detector, a U.S. Department of Defense program for next-generation chemical detection.
• COTS: Commercial-off-the-shelf, referring to commercially available products that can be purchased and used without custom development.
• NIRLab: A Swiss-based company acquired by 908 Devices that provides AI-powered near-infrared spectroscopy for narcotics and material identification.
• EOD: Explosive Ordnance Disposal, the specialized process of identifying and disposing of explosive hazards.
• Reachback: A 24/7 service where 908 Devices scientists provide expert analysis of data collected by customers in the field.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the 908 Devices Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Matt Roache, Vice President, Investor Relations. Matt, please go ahead.

Matt Roache: Thank you, and good morning. On this call, we will be discussing our financial results for the third quarter of 2026, which were released earlier this morning. Joining me from 908 Devices are Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. During today's call, we will make 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.

For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, November 10, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures.

The non-GAAP reconciliations can be found in today's earnings press release, which is available in the Investor Relations section of our website. With that, I'll now turn the call over to Kevin.

Kevin Knopp: Thanks, Matt. Good morning, and thank you for joining our third quarter 2026 earnings call. Q3 was a strong quarter across the board. We delivered revenue of $19 million, up 35% year-over-year, driven by continued strength in our core business and underscoring the durability and momentum of the platform we've been building. Reflecting that momentum, we're raising the low end of our full year 2026 revenue guidance and now expect revenue of $68.5 million to $70 million. We shipped more than 300 devices in the quarter, a new company record, bringing our installed base to approximately 4,400 devices in the field.

This milestone reflects broadening adoption across frontline responders, fire and hazmat teams, law enforcement and federal and military customers in the U.S. and abroad as customers accelerate efforts to modernize their detection capabilities and stay ahead of an evolving threat landscape. On profitability, the structural changes we made in 2025 fundamentally reset our cost base. We're now operating with the control and discipline to invest behind our growth opportunity without overspending, prioritizing growth while making steady progress towards adjusted EBITDA breakeven. Our Q3 adjusted EBITDA loss was $1.7 million, and we remain on track to reduce our full year loss to the mid-single-digit millions, cutting it roughly by 1/3 from 2025, inclusive of NIRLab. Turning to NIRLab.

The integration is on track and executing well. Commercial synergies are already translating into accelerated adoption and the pipeline continues to build. We're seeing strong interest in the U.S. and are making good progress with international law enforcement agencies, giving us confidence in the trajectory ahead. Stepping back, I'm proud of how our team executed in Q3. We expanded our market footprint and continue to demonstrate operating discipline as we build a category-defining company. In the quarter, we made solid progress on our 3 focus areas for 2026, scaling our proven platforms, extending platform leadership and strengthening revenue durability through connected services, and we're well positioned to deliver a strong finish to the year.

Let me now walk through our progress in each of those areas. First, scale our proven platforms. Our product platforms are the engine of our growth, and Q3 demonstrated what they can deliver. We shipped more than 200 FTIR devices in the quarter, including approximately 2/3 of the $6 million ProtectIR order from an Asia Pacific correction agency we highlighted on our Q2 earnings call. In Europe, we secured 2 meaningful ProtectIR wins with government customers, both with Explosive Ordnance Disposal or EOD teams. The first is a framework agreement worth more than $2 million with a defense customer replacing legacy equipment. The second is a competitive displacement win with another European government.

Together, these wins demonstrate that ProtectIR is earning trust in demanding environments and capturing share in the global EOD modernization cycle. International customers represented 40% of total revenues in the third quarter, double the prior year, reflecting the strength of our technology, our investments in international channels and expanding global defense budgets. VipIR is also scaling. We remain on track to ship more than 100 VipIR units this year. In Q3, a major U.S. transportation agency placed its first VipIR order, notable because it already deploys our MX908, XplorIR and ThreatID devices. This is a land and expand in action. Each of our platforms serves a distinct detection or identification mission and our products don't compete with one another.

They work together. When a customer adds another 908 platform, they're expanding their detection coverage and addressing more of their workflow, not replacing what they already have. This agency is a clear example of that dynamic, multisystem orders and adoption, and it's a pattern we're increasingly seeing across our customer base. Our flagship MX908 is another proven platform that continues to scale with our customers' needs and the illicit drug landscape is making that more apparent than ever. On our last call, we mentioned a new class of synthetic opioids called orphines. The latest example is cychlorphine, estimated to be up to 10x more potent than fentanyl.

A recent Newsweek article highlighted that has been linked to deaths across the U.S. and detected in 17 countries. It's frequently found in counterfeit pills and often requires multiple doses of Narcan to reverse and overdose. What makes cychlorphine and the many new synthetic compounds like it, particularly dangerous is that they can outpace fixed field detection methods. Responders need programmable technology that evolves the threat, and that's what MX908 uniquely delivers. Because it uses mass spectrometry to identify substances by molecular signature, we can update its library as new threats emerge, giving frontline responders the ability to identify these drugs in the field at trace levels in real time.

This is a compelling example of how our installed base becomes more valuable over time. The same device helping responders address fentanyl today is already helping them get ahead of the next wave of threats. As we extend connected services across our portfolio, cloud subscriptions will make keeping customers current faster and more seamless, a model NIRLab already delivers today, as I'll discuss later in my remarks. Turning to our second focus area, extend platform leadership. A clear example of our differentiated capabilities is in aerosol detection. The chemical threat landscape is shifting. A-Series nerve agents and pharmaceutical-based agents are a growing concern, and they can be deployed as aerosols, a form that conventional vapor detectors aren't designed to catch.

As a handheld mass spectrometer, MX908 is uniquely able to detect and identify these threats at trace levels in both aerosol and vapor form, and that capability is resonating with customers. In Q3, a U.S. military customer purchased dozens of MX908 devices to close an immediate capability gap, working to get the technology quickly into the hands of war fighters, and we're already discussing follow-on orders. In parallel and building on the next steps we outlined last quarter, we made tangible progress on AVCAD. We delivered MX908 devices to the office of the U.S. Army's Capability Program Executive, for CBRN Defense for analytical testing and evaluation. This is the organization responsible for the AVCAD program.

And as we discussed last quarter, the government is considering commercially available products as part of a broader Department of Defense procurement reform, prioritizing speed and program flexibility. We view this testing as a constructive signal for the program's trajectory and believe it positions us well for potential commercial-off-the-shelf or COTS orders in 2027. We believe our aerosol and vapor detection technology is best-in-class, extensively government tested and validated and can win this opportunity regardless of the chosen path. We continue to see meeting the military's next-generation aerosol and vapor detection needs as a significant long-term opportunity. And with the commercial path, more of the program economics would come to 908 devices.

Meeting next-generation needs is what drives our road map, starting with our next-generation MX908, which we're targeting to begin shipping to early access customers by year-end. It is significantly smaller and lighter, more selective, simpler to operate and features enhanced connected services, building on the capabilities that make MX908 the trusted choice in the field today. Pilot manufacturing is underway, beta feedback from users in the U.S. and internationally has been overwhelmingly positive, and our partners across Europe, the Middle East and Latin America are already asking for demo units.

We expect the next-generation MX908 to be a meaningful growth driver in 2027, winning new customers and over time, driving upgrades across our installed base of more than 3,000 MX908 devices. Finally, our third strategic focus area is strengthening revenue durability, building a more predictable revenue mix through recurring revenue from connected services alongside our OEM and funded partnerships. Today, I'll focus on NIRLab, which is central to our connected services vision and Q3 showed real momentum. We sold approximately 100 NIRLab devices in the quarter, up from approximately 35 devices in the first 2 months of ownership.

More than half went to customers new to NIRLab, including U.S. state and local agencies, some of them new to 908 devices entirely as well as law enforcement agencies across Europe, Australia, Africa and Asia. Demand is broad-based, not concentrated in any single market. Platform usage is growing even faster, and that's a key metric for us. The more agencies rely on NIRLab every day, the more durable and valuable the subscription becomes. In Q3, we surpassed 1 million cumulative scans on the NIRLab narcotics platform. Daily scan volume now averages roughly 1 per minute, up 74% year-over-year. We've also begun collaborating with U.S. forensics labs, giving NIRLab's AI-powered models more U.S. data to train on.

So identification keeps getting more refined and stays current as we grow in the U.S. That matters because the drug landscape changes quickly, and NIRLab's cloud-connected architecture is purpose-built for exactly that reality. The deaths of 2 Mississippi college students in September linked by authorities to synthetic kratom are another tragic reminder of how rapidly new threats emerge. Policy is responding. Earlier this year, a bipartisan group of U.S. senators urged the DEA and FDA to accelerate controls on synthetic kratom compounds, and the DEA has since proposed new federal limits. As regulation tightens, agencies will need fast, reliable field identification.

NIRLab has unique capabilities to detect kratom today and its cloud-connected library allows us to push updates to customers as new threats emerge without requiring new hardware. Longer term, we envision a connected experience where customers can share results and trends, manage their fleet and analyze data across every 908 device, one workflow, whichever device is in hand. Team Leader connects our FTIR products today and will extend to our next-generation MX908 with NIRLab's cloud infrastructure and advancements helping us bring that experience across the entire portfolio.

This is the blueprint for where we're taking the broader business, rugged hardware paired with connected software that generates recurring revenue backed by the 24/7 expert Reachback support from our scientists that our customers consistently rank as most valuable. That integrated model of hardware, software and expertise is the template we intend to apply across the portfolio. With that, I will turn it over to Joe to walk through the detailed financial results for the quarter.

Joseph Griffith: Thanks, Kevin. Total revenue was $19 million for the third quarter of 2026, increasing 35% from $14 million in the prior year period, which included $1.2 million from NIRLab. Our FTIR products represented 55% of revenues for the third quarter of 2026. On a year-to-date basis, the mix was more balanced. For the first 9 months of 2026, FTIR was 49%, mass spec was 47% and NIRLab was 4% of total revenue. Handheld product and service revenue was $17.8 million for the third quarter of 2026, up 35% from $13.2 million for the third quarter of 2025. The increase was primarily driven by our FTIR products and NIRLab law enforcement revenue.

In total, we shipped over 300 devices in the third quarter, excluding NIRLab, bringing our installed base to approximately 4,400. OEM and funded partnership revenue was $1.1 million for the third quarter 2026, up 42% from $0.8 million for the third quarter 2025. The increase was primarily driven by revenues from component sales to a large analytical instrumentation customer and $0.1 million from NIRLab OEM channels. Recurring revenue was $5.1 million in the third quarter, an increase of $0.2 million year-over-year and represented 27% of total revenues. This increase was primarily related to software and subscriptions related to NIRLab and higher FTIR service revenue, offset in part by the expected reduction in mass spec service revenue.

Strong device placements lowered recurring as a share of total revenue this quarter, but build our opportunity base for future service and subscription revenue. Gross profit was $10 million for the third quarter of 2026 compared to $7.4 million for the prior year period. Gross margin was 53% for the third quarter of 2026, consistent with the prior year period. Adjusted gross profit was $10.9 million for the third quarter of 2026 compared to $8.1 million for the prior year period. Adjusted gross margin was 58%, a decrease of 40 basis points compared with the prior year period.

The slight decrease in adjusted gross margin despite the higher revenue volume was primarily driven by the impact of mix led by lower-margin international product revenues in the quarter. Total operating expenses for the third quarter of 2026 were $15.5 million compared to $23.7 million in the prior year period. The reduction was primarily driven by an $11 million noncash reduction in expense related to the change in fair value of contingent consideration, partially offset by a $2.8 million increase in selling, general and administrative expenses, which includes NIRLab operating costs. Net loss from continuing operations for the third quarter of 2026 was $4.6 million compared to a net loss of $14.9 million in the prior year period.

This decrease in loss was primarily driven by $2.7 million in higher gross profit and the reduction in noncash charges for revaluing contingent consideration, partially offset by higher selling, general and administrative expenses. Adjusted EBITDA loss for the third quarter of 2026 was $1.7 million compared to a loss of $1.8 million in the prior year period. Within the third quarter of 2026, we consumed $2.4 million in cash and ended the quarter with $99.1 million in cash, cash equivalents and marketable securities with no debt outstanding. Looking ahead in 2026, we now expect revenue to be in the range of $68.5 million to $70 million, representing growth of 22% to 25% over full year 2025.

Our guidance range includes the following assumptions. First, we now expect handheld product and service revenue to grow 24% to 27% year-over-year, which equates to a range of $65.5 million to $67 million. Second, we continue to expect OEM and funded partnerships, including contract revenue to be approximately $3 million. And third, consistent with last quarter, we have not included any AVCAD program revenue given the potential transition to our commercial product. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50% range for full year 2026, with the product and channel mix driving the adjusted gross margin.

For the first 9 months of 2026, adjusted gross margin was 57%, in line with our expectations. And on the bottom line, we continue to expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, cutting it roughly by 1/3 from 2025, closing the gap on achieving breakeven while balancing investments to enable the growth opportunity. At this point, I would like to turn the call back to Kevin.

Kevin Knopp: Thanks, Joe. To wrap up, Q3 was a strong quarter, and we're pleased with the progress across the business. Revenue grew 35% to a record $19 million. We shipped more devices than ever, expanded our installed base to approximately 4,400 devices and made steady progress towards breakeven. We advanced all 3 strategic focus areas. Our proven platforms are winning more orders globally. Our differentiated technology keeps us ahead in the field, and NIRLab is accelerating our connected services vision. In the near-term, our priority is execution with a strong pipeline, healthy customer funding and a team that continues to deliver, we are focused on finishing 2026 on a high note.

That finish also sets the foundation for 2027, where we see 3 key growth drivers. First, NIRLab with a growing pipeline across federal, state, local and international customers. Second, the next-generation MX908 with early access shipments this year creates opportunities to win new customers and drive upgrades within our installed base. And third, AVCAD, where ongoing testing and evaluation of our MX908 positions us for potential orders as a commercial-off-the-shelf alternative. Together with continued contributions from our newest optical products, VipIR and XplorIR, these drivers give us confidence in sustained growth and long-term value creation for our shareholders. The problems we solve are getting harder.

Drug threats are evolving faster, chemical risks are growing more complex and agencies are being asked to do more with less. Our job is to give frontline responders the answers they need when they need them. Across our portfolio, hardware, connected software and expert Reachback, we are working towards complete situational awareness for every responder at every scene. We intend to keep earning that responsibility. Thank you to our employees for their dedication to that mission and to our customers and shareholders for their continued trust. Operator, please open the line for questions.

Operator: [Operator Instructions] Your first question comes from the line of Puneet Souda with Leerink Partners.

Puneet Souda: Maybe the first one, you're raising the low end of the guide, but I just wanted to focus on the fourth quarter. Was there any pull forward in terms of the instruments in the quarter, 300 devices was good, but you had a higher concentration. I think 41% of your revenue came from 2 customers. So just wondering if there are some order dynamics that we need to keep in mind here? And maybe just remind us what would it take for you to be on the upper end of the full year guide?

Joseph Griffith: Sounds good. Yes, Q3 was a strong quarter, a record quarter, reflecting the strength in the core business, really underscoring the durability and momentum of the platform. We've been building revenue up 35%. It was driven by the FTIR products and NIRLab law enforcement revenue. And you're right, we narrowed the low end aligned with the Q3 performance at the midpoint. So really no order shifts or movement. Q4 would be 20% growth in Q4 at that midpoint. And to get to the high end of our revenue growth, we need to be closer to 24% in the fourth quarter, really require execution across some key customers and opportunities, mainly with VipIR and our mass spec products.

And we like how we're positioned here in November. It's typical as we always were working for a handful of larger enterprise opportunities to deliver on the quarter and where we land will ultimately depend on the securing of the funding and the timing of closure. So we feel good about where we're at and finishing up. As far as customer concentration, we typically use channel partners. We did mention the Asia Pacific, about $4 million came from that ProtectIR opportunity. So that was a high concentration. And we also use some channel partners here in the U.S., which was that other significant customer. But that's often there's multiple end users behind those channel partners, especially in the U.S.

Puneet Souda: Got it. That's helpful. And then as we look to '27, you pointed out NIRLab and also next-generation MX908. Wondering, Kevin, if you could talk about how the replacement cycle for MX908 could look like? And any early thoughts that you're willing to provide in terms of how to think about '27.

Kevin Knopp: Yes, sure. Thanks for the question. We'll provide, obviously, the full outlook for 2027 early next year. But as we head and close out this year, you're right, there's kind of those 3 drivers. One is NIRLab really coming to speed. Super happy with the pipeline there and how it's been developing. Second significant one certainly could be our next-generation MX908. I can give more color on that in a second. And then third, the AVCAD that we've started to do some ongoing testing and evaluation as a potential COTS solution. On next-gen MX, as you know, our current generation MX is really a category-defining product.

We have over 3,000 of them installed out there, and we're really working now to get a new platform that will carry us forward for many, many, many years. Very pleased with the progress on that. We're running to make sure we really get that right. We're getting it out there to early access customers in Q4. And we'll get additional feedback. But at the same time, we're scaling with pilot manufacturing. We've already gotten a lot of beta feedback across our partners in Europe, Middle East, Latin America are asking for their demo units, and we do expect MX908 to be a meaningful growth driver in '27.

In the case of the upgrade cycle, I mean, it is an installed base, it's pretty significant long-term opportunity. We do expect the upgrades to build over time alongside with new customer wins. We do expect to be having the MX908 in the market as well as the next generation, and we'll maintain a commitment to customers on that. So stay tuned, more to come, but definitely a driver for '27.

Operator: Your next question comes from the line of Max Masucci with ROTH Capital Partners.

Max Masucci: It's great to hear about the strong start for NIRLab. Can you just share like how is that sales funnel building? And how much of the Q3 placements went to customers that are new to 908 versus those that are existing FTIR or trace detection users?

Kevin Knopp: Yes. The pipeline for NIRLab, Max, has been going really well. I think we're super pleased with how the integration has been going. Yes, we've sold a product in the quarter to customers that are completely new to 908 and then also certainly to customers of 908 that have had some of our other products. So we really like to see that mix. More than half of those placements went to customers that were new to NIRLab, including U.S. state and local agencies and then some, as I mentioned, that are entirely new to 908. So we think that's a great, call it, gateway, right, to our broader portfolio. So good pipeline development there.

We are seeing enterprise scale opportunities develop domestically and internationally. As we mentioned on the call, we saw a nice step-up in unit volume in the quarter here for our first full quarter of ownership. And as you know, there's a great opportunity there because there's connected services, cloud subscription platform that really can demonstrate some great value to these customers by having that continued connection, the data sharing, the model updates, target updates, lots of interesting vectors there for us to build on with recurring revenue over time.

Joseph Griffith: And definitely a solid quarter as we saw about 100 devices in the quarter. That's on top of our 308 for all of our rest of our devices. As a reminder, we don't count that in our device track. But seeing $1.2 million in Q3. If we can repeat that in Q4, we're kind of getting closer to $3 million for the year, which is great out of the box and see an opportunity as a key growth driver to get to $5 million plus in 2027. So still early, but it's looking like NIRLab will be another strong contributor over time, just like our RedWave acquisition has become with FTIR.

Max Masucci: That's great. And on AVCAD, it sounds like you see the program progressing towards a commercial-off-the-shelf approach. So how does that factor into the potential timing for an official full rate production decision and just even the margin that you could see on AVCAD revenues under that COTS approach?

Kevin Knopp: Yes, absolutely. We feel we've made some tangible progress in the quarter on AVCAD within Q3. As we mentioned, we delivered some MX908 devices, our COTS product to the office responsible there for analytical testing and evaluation. We do view this as a very constructive signal that the program's trajectory is seriously considering a COTS solution, and that would impact us most likely in 2027, should they decide to go that route. Absolutely happy to continue on the route with Smiths. As you know, the contract did close as we stated last quarter and has run its course. But if they choose that way, we really feel we're positioned to win either way.

You are right that if it is a COTS solution, we're providing more of the content of that solution of that product. So you would expect the economics to be more favorable in that solution for 908 because we wouldn't be providing just subsystems and components, we'd be providing the finished COTS commercial product that's already at nice scale.

Joseph Griffith: You'd expect the commercial margins to be more in that mid-50s, mid- to high 50s that we see with our other products under COTS versus more OEM level margins that might have been in the 30% to 40% range.

Operator: Your next question comes from the line of Chad Wiatrowski with TD Cowen.

Chad Wiatrowski: I appreciate the strategy with software and service as often an underappreciated aspect of the competitive moat. But I guess, are there any software offerings today that you see a potential to monetize? Or looking down the line, is that sort of a growing area of the R&D spend? And do you expect maybe next year to continue to build out capabilities there?

Kevin Knopp: Yes. No, great question, Chad. Yes, I mean, so starting -- yes, I mean, from an R&D perspective, very much it's getting a lot of our R&D team's attention. It's an area that's really resonating with customers as we get more and more of these nodes out there. We mentioned some great stats on NIRLab in terms of its usage frequency. That is monetized today, right? You sell a device and then it's about -- after that, it's about 50%, then again in a subscription fee each year thereafter to maintain connection to get into the AI models to get the latest secure cloud storage, getting a complete chain of custody of the data, et cetera, all in the cloud.

So very much that is a step we're pursuing aggressively with the NIRLab product. And then we're learning from that and putting it across our entire portfolio. We have a product called Team Leader today that interfaces with our FTIR product line. And then as we roll out our next-generation MX, we expect Team Leader to connect there. So we're really working to have this connection across all our devices. In some cases, it kind of accelerates the need and driver to be on support service. And with our next-generation MX, we'll be looking to ascribe more value to that going forward as we get more features rolled out for our next-gen mass spec devices.

So yes, lots of excitement there around where that could go because people really want the ability to manage the fleet and see the trends of what's happening in their regions.

Chad Wiatrowski: That's helpful. And just on MX908 2.0, is this a commercial effort that's going to require any additional sales reps? If not, can you just remind us kind of the commercial footprint today and maybe where the emphasis will be in terms of geographies? You mentioned new customers. So how do you kind of penetrate the MX908 naive prospective customers?

Joseph Griffith: Yes, [ Steven ]. Yes, great question. As we roll out the next-generation MX, it will plug right into our sales channel today, be sold alongside probably MX908, especially in '27 and then over time. And it is nice having a portfolio of products. I think with any launch, we'll look at does it make sense to layer in maybe some inside sales resources or maybe some additional regions. I think more broadly across our portfolio, we've been investing on the international side here in 2026 to set us up for growth in '27 and start to see some of that in Q3 and the back half.

So I think we'll balance across our primary channels of federal defense, state and local and international and look to go direct where we can. Our footprint today, really, I think we're in the mid-40s from a selling and marketing, and that includes everything from sales, direct inside sales, marketing, product management, really a top-notch team going after the opportunity with our customers.

Kevin Knopp: Yes. And just to clarify, Chad, they're selling not just the MX, but selling the entire portfolio. So that really is what helps us get scale and get some synergies across the team.

Operator: Your next question comes from the line of Austin Moeller with Canaccord Genuity.

Austin Moeller: I was just wondering if you've heard anything about the reimbursement funds and block grants to the states and municipalities from the DHS reconciliation bill. Is that starting to become available to some of your customers?

Kevin Knopp: Yes. Austin, it's a great question. The funding environment is something we stay very, very close to, especially with the post-election side of things. I think on a general comment to that, I would say that generally, we're working on applications and priorities that have a broad bipartisan support. So we've been kind of running the traps with existing customers and confirming exactly that. On the grant basis, you're right, a lot of our state and local funding comes from a variety of grant sources, federal grants and state municipal budgets, et cetera. But a lot are from those grants from the federal government side.

I think the really good thing there is that the major grant programs like UASI and AFG and COPS and the HIDTA programs, they were all refreshed in June and July, and they were funded over multiple years to about $1 billion in total across those grant programs that our customers pursue. So we do think they're a bit insulated from the federal budget timeline, and they can keep going during a CR. Yes, grant funding is multiyear. So it has been flowing. And yes, there were some of those grants, COPS in particular, that had more recent activity and releases to our customers that should be a positive for us here in Q4.

Austin Moeller: Okay. And I was wondering if you could talk about how the establishment of the U.S. sales channel is going for NIRLab and maybe where some of those 100 NIRLab devices were shipped or to what customer?

Kevin Knopp: Yes, absolutely. I mean I think the great thing about the NIRLab product is that tremendous channel synergy. So we're able to really put it in the exact team that's performing that's really been focused on the U.S. markets. And then as Joe mentioned, we've been doing more investments internationally. So it's great to see our team have this in their offering and being able to put it in the hands of our existing customers. I would say that it was pretty broad-based, the demand for the customers for the NIRLab product over Q3.

We definitely saw across U.S. state and local, but we also saw international law enforcement agencies across Europe and Asia adopting the product and platform and very happy that we're seeing that. It's got really some very unique capabilities. And as you know, the kratom has been in the news a lot lately and an unfortunate tragedy in Mississippi and cannabis is a continued concern and the regulatory controls are continuing to evolve on that. So yes, we think that it's going to have a continued big impact. But from a sales side, it's great to see the team being able to execute with it, and it just naturally fits right next in the rest of the portfolio.

Operator: Your next question comes from the line of Matt Larew with William Blair.

Matthew Larew: A couple more questions on next-gen MX908. You referenced doing some pilot manufacturing. So just curious kind of what capacity will look like at the start and how comfortable you feel with sort of supply chain ability to scale up with demand. That's kind of part one. The second piece of it would be, I guess I imagine you've as maybe a part of some of the beta discussions floated sort of the Team Leader and what the new capabilities of Team Leader might look like and how you might want to monetize that.

And just would be curious what customers' response has been as they think about purchasing a next-gen MX and then potentially starting to pay a subscription for Team Leader.

Kevin Knopp: Yes, absolutely. I'll start with the Team Leader aspects and then pass to Joe here in a moment. But yes, across all of our devices, particularly new devices like our next-gen MX, like the discussion is becoming more and more about the data, the trends, the fleet, how do they know their investment is being used by the purchaser is handing it out or the manager is handing it out to many field offices, right? These are field tools where do they see, what units being productive, what units are being maybe underutilized, which ones are maxed out? And then importantly, what are they seeing in those regions and geographies and how do they connect the dots?

And we just had some nice discussions last week with customers on this that are enterprise-level customers that are really trying to piece together all of that data to give them a more coherent picture. So that resonates for the next-generation of our mass spec, but also resonates for VipIR and also very much resonates for NIRLab. So very excited about that. From a pricing, you can expect that we'll be ascribing more value to that as we go and then particularly bundling it with support and service packages. As you know, today, we offer something called Reachback, which is really an expert service that we do some of these functions for them, but in a more manual way.

And so we're very excited to have Team Leader connected and the features it's going to offer.

Joseph Griffith: And related to kind of pilot manufacturing and supply chain, I mean, manufacturing is underway. We have it up and running down in Danbury, Connecticut, where all of our manufacturing takes place. The beta feedback has been very positive on the device and partners in Europe, Middle East, Latin America are already asking for demo units. And as Kevin mentioned, we'll share that pricing and positioning post full launch, but we expect next-gen MX to be a meaningful growth driver in '27. But we do expect some first sales here in late 2026.

Matthew Larew: Okay. That's great to hear. And then I guess maybe a slightly higher level. If I think back just over the last several years of 908, the commercial goal has sort of to move from pilot to enterprise sales, and we've seen that successfully occur. And I think if I go back to kind of 2024 was the first multisystem MX FTIR order, you've continued -- that was after RedWave, but then you've continued to add new products in the portfolio. Just curious because I know there can be a long timeline sometimes pilot to enterprise.

Just curious as you've added things into the portfolio, what kind of the funnel looks like from things in pilot stage up to getting closer to what might be an enterprise type sale from a multisystem standpoint, multi-technology standpoint. And it sounds like you're really seeing the benefits of the broader portfolio kind of manifest now in the commercial opportunity?

Kevin Knopp: Yes, for sure. We've been doing a ton of work to, call it, diversify our revenue streams. And some of that comes from having that broader portfolio. Some of that is coming from channels, which is becoming much more balanced between state and local, international and federal and military. Very pleased to see, as Joe stated, that we're getting more traction internationally and expect that to be helpful to us in the back half of this year, but also into '27. So I think those things really help a lot recurring revenue, right? You're hearing us amplify a lot around the software, the expert Reachback services, the more support and infrastructure that we can help customers with.

That helps with our recurring, which was around 27% this quarter, and we see definitely roads to expanding that. And then you are right, we're always working these, call it, smaller [ 1 to 5 ] more stochastic run rate orders at the same time, developing larger enterprise orders. And enterprise order could be someone that's buying 50 units, but we know they've got need for 300 units, and they're going to work on that over time. We do historically put out pipeline metrics for the pilot and enterprise accounts at year-end because there's a lot of ebbs and flows throughout the year. So we'll be working on tallying those up as we enter the new year.

What we put out there in the past is that there's more than 1,000 units in pilot stage, and then there's over 1,300 units in those enterprise accounts with ongoing potential. So a lot of action and opportunity there.

Operator: Your next question comes from the line of Dan Arias with Stifel.

Rohan Walcott: This is Rohan on for Dan. Kevin, I think you noted international was 40% of revenue. On the other side, state and local revenue was down about 20% year-over-year. Setting the ProtectIR order aside, how did state and local orders trend in the quarter and so far in Q4? Is that mainly timing? Or has anything changed in funding or demand?

Joseph Griffith: Yes. Rohan, thanks for the question. On the U.S. state and local side, it did represent approximately 25% of the revenues in Q3. Year-to-date, it's over 40% of total revenues, which is in line with our expectations. And as I looked at the team and they're tracking above their internal sales target year-to-date. So we're continuing to see that momentum with the funding and should enable growth as we look out into the future in Q4 and 2027. So the decrease in state and local in Q3 was mainly driven by some MX908 placements where they had a really strong first half with some large wins, 10-plus per customer over Q1 and Q2.

So still pretty energized on the state and local side. And we also had that factor of the focus on getting the international ProtectIRs out the door, a good chunk of them here in the third quarter.

Rohan Walcott: Okay. For my next question, on the mass spec service decline you called expected, has the paused defense service coverage resumed? I'm sorry if I missed that. And as you lap it in Q4, when should recurring revenue, excluding NIRLab return to growth?

Joseph Griffith: Yes, you're right. I mean FTIR service has been growing. The mass spec has been decreasing here. And you're right, that's related to that customer funding that went away, and I think it was December of 2025. So we'll be lapsing that here in Q4, so less of an impact. We're working with that customer on opportunities to potentially get them back under contract in some form or fashion. So that's something we're looking at for 2027 as an opportunity. But mass spec, excluding that has been growing. FTIR service has been growing.

On the overall recurring revenue metric, I get excited on the number of device placements and the opportunity to sell service in the future and especially NIRLab with that 50% recurring opportunity. So I think good times ahead there. But you're right, that was a bit of a drag on service historically.

Kevin Knopp: Yes. And I think over our long-term goal, it really hasn't changed, and that's to be in the 30s and see if we can bring that up into the 40s as these subscriptions and connected services continue to grow with the installed base.

Operator: There are no further questions at this time. I will now turn the call back to Kevin Knopp for closing remarks.

Kevin Knopp: Thank you. Thank you all for your time today. Really pleased with being able to give you the report, and thank you for the questions.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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