Mentice AB (publ)

I'm going to make some initial remarks and we're going to have Ulrike talking about a little bit more of details and then I'm going to go do some final and concluding remarks and then we'll go into questions and answers. So first obviously, my name is Jero Malmberg, I'm the CEO, I've been in this position since 2008. Ulrike?

Yes, and I'm Ulrike Gjelroks-Waksepp, I'm the CFO and I joined in January.

Yeah, all right, so we jump in. So first couple of remarks, I mean, we had a slower start in Q1, mainly related to January and February, while March and the beginning of the second quarter has been in line with our expectations. And obviously, this is no larger trends or no other reasons than our normal variability of orders related to our relationship with large medical advice companies and so on. So that's what we have here in the first quarter. And obviously, this slower performance in the first two months of the quarter also have a direct consequence of overall or intake and net sales and with a direct consequence on profitability for the quarter. While we have to say that despite this, we were able to execute on cash flows, we have a positive cash flow for the quarter, but then I also need to reiterate the fact that as we talk about a bit later, we communicated, updated financial targets, and we are fully confident that we have the ability to continue to deliver on those targets. While we never talk about an individual quarter, we have been able to grow over the last three, four, five years with 22%, 23% CAGR, and that's what our financial targets are indicating. So that's sort of an introductory remark. If you go to some of the business development related highlights from the first quarter, I mean, we have worked a lot on the organizational development. We started off with a global company kickoff, which was always a very important event to build culture and really reconfirm direction for what we're doing. We also have added resources across the organization. I think most significantly we have implemented a global account structure to more strategically interact with our largest medical device companies, and that's also we have backed fill with more space people both in the U.S. and in Europe, but we also have hired across the company both in technology and other functions. So that's important to note that we're really building the organization here for the year, but also for the future. We have seen continued positive development. As you know, we had a very strong year last year with 25% growth on top line, and we're continuing to develop with our larger accounts, building opportunities with these, which is really important to understand. We also seen, as you might have known, that we had a slower performance from the U.S. from the hospital market generally during 2023, and I would say especially from the U.S. But in the end of last year, we added on new resources, and we have continued that in the first quarter here, and we can see that we have already now greatly improved the pipeline, even if that doesn't show in actual business in the first quarter. So that's also important to follow going forward here. We also, partly as a consequence of the acquisition of Biomatics in the fourth quarter of last year, in the fiscal simulation side, we have had a strong start of the year with about 40% improved business for physical, and really this is both from U.S. and Europe, and with the Biomatics acquisition, we have now the ability to produce and deliver fiscal products both from U.S. and from Europe. And as we noted in the Q4 report, we got approval for 510K for Anquiras, or Spanish precision medicine tool, in the end of last year or the first couple of days of this year, and that's really important for the development of the U.S. business where we're now building up reference sites and engaging in discussions with the main potential clients in both U.S. and in Europe. So that's really from a business development point of view. So we go into the details numbers. I mean, I'm not intending to go through these in details. We can just conclude that the top line performance is lower due to what I said, a lower start January, February, and that's having consequences all the way down to EBITDA and net profit, while as you said, we generate a positive cash flow. So that's sort of my 30,000 feet introduction. So I will hand over to Ulrike.

Thank you. And as we've mentioned a couple of times, Joarann mentioned it today, we mentioned that the capital markets stay in March. We have a variability in order intake over the quarters and over the years, and therefore, of course, a order is actually having a very large impact of that specific quarter. And as Joarann mentioned, we had a very slow start at the beginning of the year, especially January, February, and March and beginning of Q2 catching up according to expectation, as Joarann said as well. And what we can see here is that we then obviously look at rolling 12 months, because that gives to us a better picture of how we are performing. And if you look at the graph at the right hand side, you will see that there is an underlying improving trend despite this very slow quarter in Q1 this year. And this slow start is mainly related to the US and the MDI and our VIST product, which is the system solution. And looking at net sales per region with the slow start, obviously, net sales is at a lower point than the corresponding quarter last year. So with 45 million, that also gives an effect of the profitability as you will see later on. And already mentioning the Americas being the biggest region for us with a decrease of net sales in 31%, that is really affecting the full year very much. And we need to look at this in the light of the Americas growing extremely good positive, almost 50% last year for the full year. So we see this as a consequence of that. And again, to highlight, we see the increase at the end of the quarter, according to expectations. Looking at net sales per product area, and maybe some of you remember we used to turn this segmentation based on the hardware software type of product. Now we're looking at the product areas because that makes more sense for us to follow up on how we are looking at the business and our own performance. So here again, we can see it's meant is VIST, it's the system mainly related to the US market, which is affecting the lower net sales for the quarter. Then going to the order book, obviously the order intake is affecting the order book. So looking at the order book compared to the end of last year, we see a decrease of 6%. But looking at the order book in relation to the first quarter in 2023, we have an increase of 16.4%. Of those 147 million, 91 million are really scheduled or estimated for 2024. And with the result from Q1 and the order book, we see that we have a good foundation for the growth going forward. Just to mention very briefly around annual income revenue, as you might know, this is related to the hospital and the healthcare system. And with a slow start that we have seen last year, we see a small decrease in the recurring revenues. And to mention briefly on costs and gross margin, I want to start with the gross margin, which is very, very high for the quarter. This is unusually high, so we don't estimate this going forward. And this is because of the product mix with a bigger share of software sales compared to system sales. And to mention briefly around the other external costs, as you can see, we anticipate around 4 million of the costs to be very specific for this quarter. And we also have costs of above 2 million related to the evaluation of the FX hedging that we're doing. And to add to this, we have a couple of temporary consultants while we are recruiting. So going forward, when these recruitments are done, those costs will then end up in personal costs instead of external costs as they are right now. And finally, a comment on cash flow, despite the lower start of the year with the lower net sales and with the costs, we still have a positive cash flow from operating activities even higher than compared to Q1 2023.

Thank you, Rika. So I'm just going to go back and comment on the updated financial targets that we communicated in our capital markets day back in March and March. And I think it's important here to note that we have the ambition to continue to grow at a very high level. We have, as I said, experienced -23% CAGR over the last four or five years. And we expect that to continue. So we adjusted the financial target slightly downwards just to reflect on our ability to grow. We are obviously a much larger company now compared to four or five years back. So this is really for us to communicate that we believe we can continue to grow at a very high level. And with profitability, we are saying that we, which I will talk about in the next slide, we will continue to invest heavily in technology but also market development. So that's why we are clarifying our say to say that we have a path up to 20% EBITDA within the next year. So actually, the ambition is to continue to improve our efficiency to generate positive operational cash flow. Hence, we believe we can finance this growth by ourselves. So I'm just going to touch on the strategic directions here. I mean, we have communicated since the end of 2022 how we work on improving efficiency, all what we do. We are moving into standard applications. These are just a couple of cornerstones on our strategy that we talked more in detail about during the capital markets day. One, the first point here, also still true, our core focus is to expand what we call vertically in the image guided therapy arena. So add more solutions, expand our solutions. We also have a firm belief that we can continue to develop our core technology around the high fidelity virtual simulation products and move more into what's relevant for experienced physicians in the daily clinical practice. So that's a big effort has been for some time, a couple of years. We also continue to see a very large opportunity on two areas. One is to develop a more strategic channel. And the other one is to, as I talked about initially, to really more strategically work together with our larger medical device accounts to really be seen as trusted partners and to be able to expand with them with new solutions for this area. And then obviously we still always monitoring the market for opportunity for further acquisitions. I mean, we have done seven acquisitions since the start of the company and a handful over the last four or five years. And we will continue to look for that to really make sure we are building the unique portfolio products in this space. So my final slide is really to conclude on where we are. I mean, we have a clear confirmation from key people leaders and clients and the market generally that we are moving in the right direction, that our products make sense. We can also see that we have a very scattered or I would say unstructured competition in the space. We are a clear market leader and we have a lot of opportunities to continue to expand and both gain market share, but also to develop the market. And with that is just to say that we are the market leader in the specific space. So from a business point of view, important to note that with the updated financial targets from the capital markets day, we have a confidence in our ability to deliver on that. With as we see high level of growth and continuously increasing profitability. We see opportunities developing in a rapid speed, both on the industry side and hospital side. So we have a positive view of our future. And I think it's important to see how we invest in the organizational development. The strategic account structure is an important part of that, but also overall how we develop our organization. So with that, I am done and hand over to Klaus again for some questions.

Okay, thank you so much, Jörn. And I'm actually stepping in for Richard Engberg, who's the main analyst of Menti. So I have some good questions sent in from him. But if we could start off with the Q1 and you mentioned that during your presentation that it was quite slow in January, February. If you could give us some further granularity, what happened in January and February?

Is it possible? You want to say me too? You can

start.

All right. No, but as I said, we have a high dependency to our lottery accounts. And there's a lot of different reasons why a audit happened in January versus February or March or April. So it's really, and we operate with fairly large individual orders compared to the overall amount. So if we have two or three orders that move from one quarter to another, that's really what we're seeing. So I think it's important, as I said, this is not an underlying trend or change of demand or change in the market. This is the lumpiness or the variability of our business.

So no shift in the decision process? Absolutely not. No. And we

can see that in the strong underlying pipeline we have. I think it's a bit, as Eureka said, it's a bit of a reaction to 2023, where we had, US had a fantastic year, with more than 50% increase on our intake. And it's a little bit of a reaction to that. This is mainly US. So again, nothing that worries me as well, or at least.

And do you feel as confident in all your markets? Do you see a good customer demand everywhere or is there any differences? No,

I think generally, we have had some macro geopolitical issues in APAC, in Asia, in China especially, that we've been working with. That's hard to forecast, obviously. So we had a slower 2023 and we're not going to probably be significantly above 2022. Now I'm talking forward looking, I shouldn't do that. But we see that there's a solid business in APAC, but a bit softer, I would say. Europe is overall strong and I think is probably a better balance between hospital and industry. And we see a good demand on both sides there. Latin America has also been moving in a good way. We had a decent year last year and we started off this year in a good way. And that's obviously across this South American region, I mean, many of the countries there. So that's also positive.

And you had a sort of fantastic gross margin during QM. If you could focus a little bit on that. You touched upon that and told us about the product mix, obviously, an important factor. But where should we, if you could just put it in a 12-month perspective perhaps about the gross margin?

To avoid to make forecasts, I think we should look at the average from last year because as I said, the average for Q1 is so extremely affected by the high percentage of sales where we have a higher margin. And it's very clear also that the sales that is missing in Q1 is then related to the system sales with a lower margin. So this is merely a product mix effect. So I think what we saw last year is probably a more normal gross margin.

If you look historically, we have said that 83.5%, 84%, 85% is probably where we should be. The last one, one and a half year, we have slightly higher, but we also said that's an FX component. Based on that, we maybe have 85, 86% rather than 84. But I still think that's what we should be. And you should know that when we talk cogs, we only relate to hardware. So software is 100% margin. So if we sell... In that way of counting. Yeah. If we are slow on systems, then obviously the gross margin immediately goes to the roof.

So perfect, perfect. And going a little bit further down in the P&L from the cost side, I guess the cost were up slightly in Q1. If you could... I mean, do you need to invest further in the personnel during... For the rest of the year, do you see or if you could give some sort of an indication how satisfied you are with the current situation?

I think as you mentioned, Göran, we are making investments in organization and adding resources where we see the need for growing because we have the growth ambitions. So therefore, and as I mentioned, we have temporary consultants for recruitments that we are both replacements and recruiting going forward. So yes, we need to make sure that we have the organization to meet our targets.

We talked about that in the capital markets day that we... And we obviously had period where we were lenient on hiring to try to get in balance and to get a bit better productivity per employee while getting into, say, already end of 2023 and going into 2024 that we are investing in organization again. And that's really across the organization, both technology, sales support and so on. So we are adding people during the year.

Perfect. Perfect. And also a question about the integration of BioModex. How that is progressing?

Yeah, it's very early on now, but I mean, as you said, we started off in a good way. We have implemented a production ability in US for BioModex. We can produce both our traditional physical products and BioModex in US. And we have production reestablished in Europe. We are building a business unit and we have appointed a responsible integrator. So we're going to integrate those two businesses into one, and eventually we're going to also consolidate in the platform. But I mean, I think it's clear from the customer feedback that there are good complementary benefits of both those products. I mean, some people like the structure and the durability of the products we had on the New York side or the physical sim side and others like the direct turnaround, I mean, the cost efficiency on the BioModex. So it's a very nice, nice complement. And it's really also in a very clear way consolidating the physical sim market. We have very few, if any, competitors left in that space. So it builds on our idea strategy, I would say.

And you have done some M&A during the past years. I mean, how is the climate out there right now? We have seen the stock market getting a little bit stronger and perhaps the business sentiment as well. But do you see any changes in the ability to make further acquisitions?

It would be nice to have a little bit more positive view on M&A. That would make it easier to make acquisitions. But if I may joke about it a bit, but that obviously, you know, that's needed. But I think the ability to market or to find objects in the market is still pretty good. There's a lot of opportunities in the market for acquisitions.

That sounds very good. And then I would jump to Ankyras. Yes. That you have been out and promoting, I guess, if you could describe a little bit what, how the customer reacts.

Well, I mean, the ultimate customer is the physicians. And I don't know, I mean, some of the people in the audience have probably participated or have seen the capital market stay. We had their physician from Chicago called Dr. Mitus Lopez that presented how he was using Ankyras together with all of our products, both the physical and virtual side. And it's really interesting to see how important Ankyras is to add to the confidence of a physician, the ability to take the right decision for the treatment. And we have both from a physician point of view, but also from our initial clients, a very clear move to simulate on every single case. I mean, rather than if you go back a year or so, we talked about it, maybe I just do the most complex cases. But defining so far has been that the value of doing that simulation, spending 10, 15 minutes on Ankyras before you do the case and be confident that I picked the right size, it brings so much value. So several of the clients that maybe was a little bit skeptical initially, why would I spend 15 minutes on this? And now say, absolutely, I would do it on every single case because it makes me confident I'll make the right decision. And the consequence of making the wrong decision or picking the wrong size device is that you have to readmit the patient and redo the procedure. So we see a lot of opportunities there. And it really, again, builds very good to our overall story how everything links together in a complete portfolio. Okay. That makes sense.

Yeah, that makes sense. And so we should expect perhaps a little bit more water intake.

That would be nice. That would be nice. I mean, Rome was not building one day, as they usually say, but absolutely.

And how important is Ankyras to reach your financial targets, especially when it comes to the growth target?

I mean, it's more, I think, on the messaging and the completeness of a portfolio and completeness of a story. There, I think Ankyras is very important. And the view of us being able to move into other specialties going from manure to structural heart or other places. I think there's Ankyras very important that we are succeeding there. But from a direct revenue impact, Ankyras is still fairly small. That market is a fraction of our total business.

And you feel confident that you can reach the growth target for perhaps already in 2024? Can I answer that? Yes, you can. Yes. Perfect. Perfect. That's very good. And my last question at least is that you had a nice order from a medtech company recently, almost $800,000. If you could give us some color to that perhaps.

Yeah, I mean, we have a part of a medtech business that is really moving very nicely. Obviously, we can't or fortunately, we can't talk about the client. But this is an additional development order to develop a new version of one of these softwares for this client. And that will generate license revenue for the entire install base of that. And that this client is now between 1680 systems and moving very rapidly up and more systems. So every new application we add would add software sales to every system we have sold. So it's very important to building the footprint with this client. And it's a very nice relationship. And there's a lot of opportunities around both that specialty, but also with a specific client. So more to come there.

Sounds very good. I'm very satisfied with my question at least. I'm looking forward to see the following reports from you during the year. I don't know if you want to say anything in final words or something like that. Or we just should add now.

No, I think we are excited about what we're doing and excited about the opportunities. So we will continue pushing, pushing forward what we want to accomplish. So thanks. Sounds very good. Thank you so much. Thank you

all for listening.