Mentice AB (publ)

Hi and welcome everyone. MENT has recently released their Q2 2024 report and today I have the pleasure of introducing the company's CEO, Göran Malmberg, and CFO, Erika Drots-Voxap, who will present the report before we go on to Q&A session. Before we start, I want to remind everyone that you can ask questions in the forum below the video player. And without further ado, Göran and Erika, please take it away.

Thank you, Christian. So I will jump right in to the presentation. So I'm going to start with some remarks and then Erika can come and get into the details and then we will, after my concluding remarks, we will have some questions from Christian. So first, I mean, it's a pleasure to present the second quarter. Really strong top line sales, net sales, 36% above last year. And as you know that are following us, we had a slower start in the year. So it's a good recovery for the first half year. And consequently, with the high net sales in the quarter, we also generated the highest EBDA amount in a single quarter with 24.5 million. It's a 129% increase from last year. And we should remind ourselves that last year's first half was a really strong one and unusually strong second quarter as well. All of this also down to positive operational cash flow and positive net income for the quarter of 17 million, which is also extraordinary. So really looking at this from a distance, I mean, we started off slow in January and February, but I would say that looking at the period from March to June, we're really operating in a consistent and normal way. So looking more from a business side, we have continued to enforce and enhance and strengthen our organization, mainly looking at sales and support in the US, but also in Europe, obviously other functions as well. We have added people. So we have added from 113 to about 130 people by the end of the quarter. We talk more about that in the details. We see largely by positive development within the stream. Obviously we are focusing on teams, but we still have some variability. Some of the large clients are on par or above, while some of them are slightly behind. And it should be known that you need to look at this again from a longer perspective and variability in the quarter or even in a half year. It's just related to these clients' planning. We started off really strong in APAC, quite significantly above the first half year last year. And from an essay point of view, that's mainly related to one or a couple of, but really one large order in Q4 that we have delivered in the second quarter. We are still slightly behind, but I would say that the large effect reflects the unusual system structure we have for 2023. Really, really good feedback. We've been participating in a couple of the world's most significant congresses over the last couple of months here, both in the NeurAscadera, in the NeurAscadera section, and in the NeurAscadera management specialty. Really, really good feedback from the industry here. So there's really no change, just continuing that enforcement in terms of our market leadership. So on the summary, on the quarter point of view, again, we are a little bit behind in the quarter for orders. Again, the second quarter of last year was significantly, or was unusually strong, I would say. And looking at the first half year, we're also slightly behind last year. Net sales significantly above for the quarter, but looking at the first half year, we are 5% above last year. The order book, consequently, has decreased a bit. Nothing strange about that. I mean, it's just a consequence of order intake lagging a bit from net sales. As I said, strong sales from an FSA, some impact. EBITDA, fantastic number, 24 million. And really some improvement from last year, which also was a good year from the profitability point of view. Positive cash flow for both quarters, for first and second quarter, which is important. And positive net common and positive earnings per share for the second quarter. So that's really from a 30,000 feet or 10,000 meter perspective when I'm handing over to Ulrika. Thank

you, Göran. And as Göran has mentioned, we need to remind ourselves that we have changed in patterns of seasonality during years and in the years. So there is a variance and a variability between quarters on order intake. So the somewhat slower order intake during the quarter is mostly related to the product area, Mente Swiss. And it's, as Göran mentioned, associated to a few larger customers within the medical device industry in the US market. And you can clearly see that on the graph on the right hand side. So the order intake for the quarter of 71 million SEC, that means a decrease compared to last year's quarter with 80%. And moving from order intake to net sales, we have the strongest quarter ever so far with 101 million Swedish crowns at net sales. And it's a very strong performance, as Göran mentioned, in the APIC region and in the Americas. So an increase of 36% compared to last year, which was a very strong quarter. The Americas represents the largest region for Mente this quarter and has done so previous quarters as well. And an increase in net sales is almost 20% in the second quarter and most of it related to the medical device industry. And really good to see is the APIC region with a very strong quarter, almost 26 million. That's an increase of 274% versus Q2 2023. And the majority of this is related to the MDI segment and the order that we announced end of last year. And looking at the sales from a product area perspective, I mean Mente's being our main product and system. This is where we see the increase both in the US and the APIC market. And also good to see the strong sales of physical sim. So this has been a quarter of a high execution of orders, as Göran mentioned. So therefore, when we look at the order book, this is a consequence of the very high execution of orders and the somewhat lower order intake. That means that the order book as of end of June is 9% lower than it was end of Q2 last year. It's 140 million Swedish crowns, where of 47 is related to revenues that we anticipate to be recognized in 2024, where of the majority is related to Mente's list. And just a very short comment on the annual recurring revenue is more or less at the same level as the same quarter last year. So this really is the strongest performance in a quarter with the 101 million Swedish crowns in net sales. And we have a good level of gross margin in line with our expectations, almost 85%. And with the very strong EVTA result for the second quarter, 24.5 million Swedish crowns, we have managed for the full year to be on a positive EVTA level with 6.1 million. A brief comment about the cost levels. Other external costs have increased with 4 million compared to the second quarter last year. 1.5 million of these costs are related to cost specific for the quarter. And the majority of the remaining increase is related to consultants being in employee positions where we're making recruitments. And the personal costs amounted to 41.9 million Swedish crowns. And just to clarify, the cost for the consultants having positions for vacant recruitments is included in other external costs and not in personal costs. A comment on cash flow. A strong position at the end of the quarter with 57 million. The cash flow is positive. And despite the fact that we have grown and increased net sales due to and therefore also increasing in counter receivables, we still have the positive cash flow from operations.

Okay. Thank you.

Oops, sorry. Thank you, Rika. So some quick concluding remarks. I mean on the market here, this is actually the same comments I had last quarter. I don't know if I should say that, but it is. I mean, I think it's, it is very nice to see the direction we're taking and the confirmation we get from both from office positions and device industry companies. What we are doing is really, really getting a lot of traction. We can also see that we have less and less direct competition on what we do on our main products at least on the basis of the simulation side. So, I mean, I've said before that we are, we are a market leader and then the fact the market is in the space and it's nothing changing there. So from a, from a business point of view, quality point of view, really encouraging that we have demonstrated the ability to recover in the second quarter. And I really, I mean, give it to our organization, Rika's organization and entire company and the ability to execute in the second quarter and really get 100 million sets of products out to the market, out to clients. I think that's, that's really nicely done and I'm really proud of that. And that makes position here after the second half much, much more pleasant than obviously we had after the first quarter. We can see the development of our pipeline and the opportunities really moving on nicely both on the hospital side and the industry side. I mean, we've seen quite a bit of progress on the US hospital market over the last two quarters, which is really nice to see. Still not really converted that to a financial result, but that's something that I really see, see very, very positive on. And we should again, I mean, remind ourselves that we had a bit unusual seasonality last year with a higher degree of sales in the first two quarters and a more balanced second,

first

half and second half. So I think you should remember that when we looked at the 2024 numbers. So that's really what we had. And again, really, really nice quarter and nice to be able to present this to you today. Thank you for that.

Let's kick off the Q&A with, I think a lot of people expected you to bounce back after the soft first quarter. But I think given the strong figures in Q2 last year, most people may have expected you to approximately have the same net sales. Can you elaborate a little bit more on what exactly drove the very strong sales this quarter? Was it just coincidental in terms of you happen to deliver orders during the quarter?

No, I mean, as I said, I mean, I think we really put a good structure in place and we sort of set out, we have a clear ambition in the first part of the second quarter that we should reach this number. I mean, we, we, we joked at this yesterday, me and Eureka, but we really said, I mean, Eureka, beginning of second quarter that we should reach 100 million in this quarter. And we really set out to do that. And I think it's, it's, it's merely an execution and an ability to get all of these products out the door in the month of June, I mean, around midsummer and so on. I mean, so I think it's, it's execution really. And then obviously partly is, it's also lag and delays from Q1 even from Q4. So it's, it's, it's a combination of that. But I will, I will, I will contribute this mostly to the, to our ability to execute.

Got it. And as you already mentioned, a strong Q2 kind of is not in line with the historical pattern in terms of a lot of sales coming in Q4. Should we interpret this as the first half being approximately in line with the historical pattern and the second half being even stronger or do you expect that this year at least Q2 will, will once again be unusually high? So to speak.

I'm, I'm hesitating because I'm not sure what I can say not to be forward looking here. But I mean, I, I think what you said is fair. I mean, we, we, we, we had, we had a strong first half year and usually strong first half year last year. And I, I would assume that we would have a more normal seasonality this year. And we have slightly stronger second half than the first half. But I can't do the same one.

Got it. And when it comes to your financial targets, one of them is 20 to 30% annual top line growth. As you already mentioned, the first half you grew around 5%. Do you still expect or hope that you can reach your annual target this year?

I mean, we, we, we communicated these updated financial targets in March where we obviously had a visibility of the first quarter. And I think that we have, we have improved that position from March. So, I mean, definitely it's my absolute ambition to maintain and reach our financial targets from a general point of view and not providing any forward guidance for the second half of the season.

Perfect. You already discussed especially sales in different geographies. Previously, we also talked about APEC having been a little bit weaker for a while. Could you elaborate a little bit more on how these situations in different geographies have evolved since Q1 and whether you expect recent trends to persist in the near to medium term?

Yeah, I mean, generally, as I say in the report, generally, the business climate is good in all three regions. I mean, we see that the waves are start moving in China. That was the biggest issue last year. We have a lot of positive discussions there. While the rest of the region is also moving in a good way, a lot of activities in India. I mean, Japan is starting to move again in a decent way and we have a lot of activities in the rest of the other region. So I think from an APEC point of view, I clearly see our ability to move on. I mean, we have had the last couple of years, we had APEC and India being very similar to each other. I mean, I think that India obviously will be slightly larger than APEC, but APEC still, I mean, the expectation there is, I mean, I have an optimistic view of what we can do there. If you look at, to finish up on APEC, as you said in the slides here, the really strong net sales here in the first half year for APEC is mainly contributed to the large single order we took in December. And we announced in December that we have delivered partly in Q1, that we finished deliver on that order in the second quarter. So that's really the largest reason for that really strong performance there. From the European point of view, we are slightly behind, as I said, after first half year, both on orders and on net sales, but nothing really stands out. We have, which is related to US as well, we have some really promising league of discussions on master agreement and things like that. We have a couple of large clients that have delayed some business in the second quarter both for US and for Europe. And we expect that to open up for the third quarter and fourth quarter. But really nothing that jumps out or is worrying. US as well, we had a really strong first year. We had a couple of large clients here that had significant orders in the first half of last year, a little bit too bad. And I think that's the major reason for US to, when you look at the numbers, seem to lag behind last year, which is not worrying to me either. I mean, I think we have a consistent development of our opportunities in US as well. So that's sort of where we are. So slightly behind on orders, mainly from US, but to some extent from Europe. Net sales, obviously we are on par, slightly above par.

Perfect. So if you interpret that correctly, if everything goes according to plan, order intake will have an uptake in the second half of the year.

Yes, that's what we're creating now.

Perfect. Now, let's talk about operating cashflow. As you presented, it's roughly flat for the second quarter at five million Swedish. And that was mainly related to networking capital. Can you elaborate a little bit more on, was the rather large working capital bill just a result of you growing considerably this quarter?

Yes, mostly. And I mean, at the end of the year, we had accounts receivables almost in the level of what we have today. And as we mentioned on that report, it was due to some customers paying late. And with the effect of lower sales in Q1 and the catching up of customers paying the accounts receivables for the second quarter is an effect of the sales. That has been so hard for the quarter. So that is the reason for it.

Got it. Now, let's get to capex. It's relatively low levels, but I believe that your capital expenditures have roughly tripled both in Q1 and H1 compared to the same periods last year. Can you elaborate a little bit on which investments have led to the increase in capex?

Our capex is mainly related to the work that we're doing on our platforms and building our products. And that varies over the year as well, depending on how much time we have for developing those parts or focusing on development for customers.

Perfect. Now, you already discussed recent business development initiatives a little bit. And in your CEO letter, you also mentioned that they haven't shown that much in reported figures yet. But can you give any sort of indication on when you expect these recent initiatives to materialize in reported figures?

Well, I mean, I can't really. But I mean, we are getting to a first release for one of the products. I think I mentioned that in the report for neurovascular portfolios. And we are getting that. We're doing a soft release here in the Congress this week in the US. So that's really the first result of those initiatives on the business development side. We are working quite diligently on the strategic account structure where we have appointed three account executives. And we're focusing on those three accounts. Primarily, we might add one or two accounts going into next year. But really, that is also moving in a nice direction. While it's really hard to say when that actually gave its delivering actual financial results, same thing with the product launch that we have. I mean, it's hard to say exactly when that would that generate itself. But from a principal point of view, even we have a product that will have a product in the market later on in this quarter that that should start to generate some some positive benefits.

Understood. Now, let's go over to hiring. As we already discussed, you've recently started to make some selective hires again. And some of the costs ended up in personnel costs. Some of the consultants ended up in other external expenses. But in general, can we assume that all the costs for the recent hires are reflected in the current quarterly figures or do you expect personnel costs or external costs to increase further as you start as you continue expanding the organization?

I mean, the employee costs are going to increase when we recruit the positions that are currently owned by consultants. And we have, as you say, started very slowly to recruit this year. And we will continue to recruit during the second half year, probably not at a too high pace, but there will be an increase.

Perfect. Now, as always, one interesting aspect of Menta strategy is selective acquisitions. And as we've discussed before, the climate and M&A markets can vary over time. But looking at the general business recently, there's been an increasing number of M&A transactions for the companies that you usually would consider acquiring. Has there been any change since the beginning of this year or would you say it's relatively unchanged?

I mean, clearly the climate has changed to the better. I mean, the climate to raise capital in the market is significantly better. You should obviously understand that many of our objects are smaller objects and privately held. Where, as we talked about before, in a lot of cases, the perceived value is sort of isolated a bit from the market, if you may, if I put it nicely. So we haven't really moved in a point where there's been significant change for Mentes right now. We obviously have a situation with a historical low market cap for Mentes, which also to some extent prevents action on this space. But clearly we see the future here moving in the right direction and hopefully we'll be in a better position here in the near future. But right now, we do know no significant change.

Perfect. Understood. That concludes all the questions that we've received. So, Jörn and Ulrika, thank you so much. Thank

you. Thank

you so much.