What Management Said
Read the full Q1 2026 transcript ↗The non-GAAP reconciliations can be found in today's earnings press release, which is available in the Investor Relations section of our website. We entered 2026 from a position of strength with a streamlined cost structure, a solid balance sheet, and an expanding recurring revenue opportunity. In the first quarter, we continued to build on that momentum, delivering $13.4 million in revenue, up 14% year-over-year. This marks the third consecutive quarter that orders from these customers have exceeded our internal targets, and based on our current pipeline visibility, we believe we can continue this trend in the second quarter.
Importantly, this channel is delivering consistent, high-quality run rate demand, helping to drive greater visibility and predictability while complementing larger international and U.S. Now, I want to highlight an example that captures both the real-world impact of our products and the positive demand environment we're seeing. The leaders behind Operation Free are now expanding their approach nationally, reinforcing a broader and accelerating demand environment. This morning, we are excited to announce the acquisition of NIRLAB AG.
We believe this acquisition is additive to each of our existing initiatives for the year and will be a very strong strategic fit over the short and long term. This acquisition brings together highly complementary drug detection capabilities, increases our international revenue mix, and provides a high retention recurring software subscription model. First, it expands our handheld franchise into a high volume, widely deployable sub $40,000 segment, unlocking about a $200 million market. While not yet at scale, it's already validated with 100+ active customers and approximately $2 million of law enforcement revenue.
- First-quarter revenue was $13.4 million, up 14% year over year, with U.S. state and local customers about 50% of revenue and the third consecutive quarter of state/local orders exceeding internal targets.
- Adjusted EBITDA loss narrowed 45% to $2.5 million (a $2.1 million year-over-year improvement) on revenue growth, better margins and a lower operating-cost base.
- Gross margin rose to 51% from 47% and adjusted gross margin expanded about 290 basis points to 57%, aided by lower facility costs after the Boston move and favorable channel mix.
- Announced the acquisition of NIRLAB AG, a Swiss near-infrared narcotics-detection platform that opens an approximately $200 million sub-$40,000 market, brings a ~50%-recurring software subscription model with greater than 99% annual retention, more than 1 million analyses performed and 100+ active customers.
- Raised full-year 2026 revenue guidance by $2.5 million to $67-$70 million (19%-25% growth), reflecting the NIRLAB acquisition.
- Shipped more than 25 VipIR units and closed a $3 million order in April with a state department of corrections.
- RedWave exceeded its earn-out threshold, delivering more than $37 million of cumulative revenue over two years versus $13.7 million in the full year before the acquisition - a proof point for the M&A-and-integrate model.
- Added Kola Otitoju as Chief Business and Strategy Officer; ended the quarter with $111.7 million in cash and no debt, using only $1.2 million of cash.
- Recurring revenue declined 7% to $4.0 million (30% of revenue), primarily on an expected reduction in mass spec service revenue.
- Net loss from continuing operations widened to $12.0 million from $9.8 million, driven by a $3.9 million non-cash contingent-consideration charge.
- OEM and funded-partnership revenue slipped to $0.6 million from $0.7 million.
- ProtectIR shipments declined (offset by VipIR growth).
- NIRLAB is expected to add roughly a $1 million adjusted-EBITDA headwind in 2026, only becoming profitable and contributing positively in 2027.
- Program (AVCAD) revenue was zero in the quarter as the company awaited government funding for the next phase.
Guidance Changes
| Metric | Period | Current guidance |
|---|---|---|
| FY2026 revenue | FY2026 | $67-$70 million (19%-25% growth); raised $2.5 million for NIRLAB |
| FY2026 handheld product & service revenue | FY2026 | grow 18%-21% ($62-$64 million), reflecting NIRLAB integration |
| FY2026 OEM & funded partnerships (incl. contract revenue) | FY2026 | ~$3 million |
| FY2026 AVCAD program revenue | FY2026 | $2-$3 million, likely in H2; Smiths Detection RFP with an anticipated spring award for ~a few hundred systems |
| FY2026 adjusted gross margin | FY2026 | mid-to-high 50% range |
| FY2026 adjusted EBITDA | FY2026 | loss reduced to mid-single-digit millions; NIRLAB ~$1 million of the loss; adjusted-EBITDA positive expected in 2027 |
Performance Breakdown
| Metric | YoY | Note |
|---|---|---|
| Total revenue | +14% to $13.4 million | FTIR products including VipIR and strong state/local demand (~50% of revenue) |
| Handheld product & service revenue | +16% to $12.8 million | FTIR products (>25 VipIR shipments) offsetting lower ProtectIR shipments |
| Recurring revenue | -7% to $4.0 million (30% of revenue) | Expected reduction in mass spec service revenue |
| Adjusted EBITDA | loss of $2.5 million (-45%) | Revenue growth, improved margins and a lower operating-cost base |
| Adjusted gross margin | 57%, +~290 bps | Higher revenue, channel mix and reduced facility costs |
| Installed base | 3,903 devices (167 shipped) | Continued FTIR and mass spec placements |
Earnings Call Themes & Trends
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| NIRLAB acquisition and software/recurring strategy | Team Leader connected-services vision | $15M upfront ($13M cash + $2M equity, up to $8M earnout); near-IR narcotics platform with ~50% recurring revenue, >99% retention and a large spectral-data moat | — |
| State and local durability | Growing share | ~50% of Q1 revenue; third straight quarter above internal targets; $3M state DOC order closed in April | — |
| Law-enforcement narcotics strategy | MX908 trace detection | Virginia 'Operation Free' using MX908 helped cut correctional overdose deaths from 24 (2024) to 0 (2025); expanding nationally | — |
| M&A-and-integrate proof points | RedWave integration | RedWave exceeded its earn-out with >$37M cumulative two-year revenue vs. $13.7M pre-acquisition | — |
| AVCAD next phase | Awaiting RFP feedback | Smiths Detection negotiating an anticipated spring award for ~a few hundred systems, validated by the DoD FY2027 program request | — |
Q&A Summary
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