Mentice AB (publ)

Good morning and welcome everyone. My name is Richard Engberg and I'm an equity research analyst here at Carnegie. With me I have Garen Malmberg, CEO of Mentis, and Rikard Rotz, CFO of Mentis, who are going to present the third quarter. Welcome.

Thank you, Rickard. So nice to be here. So I will dive right into the presentation. So, yeah, Jarman Berg, CEO, and Rickard, CFO. So dive in. So the third quarter, not entirely where we wanted, but still, I mean, slightly below last year. But we should also remember that this is on the back end of a record high second quarter. As a consequence of the top line, obviously the profitability is also lower than expected, where we had a negative EBITDA in the quarter, but a break even for the full year so far. We also have a positive cash flow, positive operational cash flow for year to date, while negative in the quarter. And we should also remember, we'll talk about that a bit later. I mean, we have a variational business and had a back end of a really strong last year, especially strong in US where we had a growth of 60%. We started off the year weaker and that's still what we are a bit impacting our result. If we're looking at the last six months, we have actually been in line with what we expect and we have had about 15% growth for the second and the third quarter as a combination. So a bit about the business. Generally, America's and European region is still behind for net sales for the year based on our target. But while APAC or Asian region is significantly above last year, if you look at the total, we are on par with last year's net sales for the first three quarters. Continues very positive business development, generally with medical device. We also see good development with all of our key device industry clients. We can also see that we have a very strong third quarter from a hospital business point of view, where we are 30% above the same period for last year. So from a product marketing point of view, we just launched the last week here two products which sort of are related or combined. The first one is EnriConnect, which is a subscription-based portfolio products for the neurovascular area. which then also launched together with our first integration with the Ankyros business that allows you to do a full simulation in the Vist environment based on a simulation you have done in Ankyros. And I will talk a bit about the conference activities we had over the last couple of months, which is really, really nice to see the impact we have in the market. So first, I'll talk about Envy Connect and the Ankerias, sorry about the rehearsal for this. And ReConnect is a way for us to really standardize our offering in each area. And ReConnect is the first in the series of products we expect to develop. That really, in this case, all of our offerings in this space, it's four or five products in that area that we're building into one environment. And we will continuously develop one product for this field that will be a benefit for all stakeholders here. So we believe that that's going to change this market clearly. The subscription-based transition, we've already done that for Hofstede generally, but in this case it's also going to move industry to a SaaS-based model, which is important. This will also then, since we have the same structure for all clients, this will also provide an infrastructure for industry to actually leverage our hospital client base to accelerate their adoption of new medical device. So this is very nice to see, and we got really good feedback on that. So my second discussion is on medical conferences we participated in over the last two, three months here, starting with SNS, which is a neurocognitive syndrome in Colorado Springs, S-Mint as well, Neurohepathy Europe, CSIS for radiology and cardiovascular, And then we have another neuro conference. And the last one is TCT, which is one of the world's largest cardiovascular congresses. And you can see that we are here pretty much the only simulation vendor that participate in these conferences. And last week in TCT, we can see that we had something like 40 or so systems across the Congress floor and very few other competitive systems in the market. More than 90% of the simulation technology in that field comes from Mantis. So we're clearly moving in a good direction here. One really nice thing here is, I mean, I think we, from a simulation-based, in a lot of cases, simulations has been used traditionally, mainly by unit physicians for basic training and so, and this is from the event in New York here, an event where we had on stage, the main stage, in front of hundreds of people, We had all our technology on this stage with the VIST virtual reality simulation. We had our physical simulator and Ankyros. And this was set up as a kind of competition, as a kind of hunger game lookalike, where six of the best physicians in the world, real rock stars in this field, We competed one European team, one US team, and one team from innovation. And these three groups, two and two, competed with each other and challenged each other on our simulators. So I think the importance of having the best physicians in the world really using our technology as a means to challenge each other and talk about the best practice and things like that, and also discuss the difference in treatment techniques between the different regions. So super, super interested, and I think it's very important for me to see that the most experienced physicians in the world actually leverage from what we are doing. So a bit of a sidestep maybe. I will go back to the numbers with Ulrika here.

Thank you, Göran. So as Göran started saying, this has been a challenging quarter, above all in the MDI segment in the Americas. And this leads us to a net sales of 58 million, which is a decline of 10% compared to the third quarter last year. So basically, within the US region, related to the MDI industry, and also in the EMEA region, we've seen the decline with 19% compared to last year. And as Joran also pointed out, the APAC region had a good quarter with a sales of 40 million, which is actually an increase of 4% compared to last year. Looking at the net sales per product area, we see a strong performance of Physical Sim and Ankyras. And just to remind everyone, we did an acquisition of Biomodics products end of last year. That's included in the Physical Sim product area. So we see a solid growth in these two areas with 26% compared to the same quarter last year. And the sales of VIST is very tightly connected to the MDI segment and that is why we see the decrease during this quarter. And as I hope you've all seen, we have announced two large VIST orders after the end of the period and they are related to the MDI segment and the VIST products. And the order intake, I mean the net sales, is related to the order intake. And as we've said a couple of times in different combinations, we have a variability in our business and a variability between the quarters between the years. And what we see is actually, as also Göran pointed out, after a very strong quarter, which we had in Q2, we often see a bit slower quarter following. And looking at the order intake, obviously we see the decrease in the MDI industry, and we also see an increase compared to last year with a healthy 36% in the healthcare system with lesser hospitals. And there is also a decline in the strategic alliances. So the total order intake, 61 million this quarter, this year, the third quarter this year compared to the third quarter last year, that is a decline of 6%. And as you can see on the right hand side on the graph, the order intake on a rolling 12 month basis is more or less the same compared to the last quarter. And the order intake obviously is reflected in the order book, and end of Q3 we had a decline in our order book from 129 to 117, which is a decrease of 9%, which shows the ordering intake, the net sales and the order book, the decrease is in line with each other. Of these 107 million Swedish crowns, 37 are related to expected revenues for this year. And as you can see, the majority of those are related to VIST. And we have the majority of the order book related to 2025 and going forward. And in the order book, we have orders as far away as 2029, which is related to software and the subscription over five years time. And just a short notice on the annual recurring revenues. It's more or less on a stable level compared to last year with a switch where we have the software licenses increasing versus the decrease in system rentals. So to summarize this, order intake, 61 million compared to 65, with a total for the full year so far, year to date, 170 million. The order book, a decrease of 9% to 117, gives net sales in the quarter at 58 million, and for the full year, 205, sorry, 204, which, as Jørgen pointed out, is in line with year to date last year. And since we have made investments for the future this year and we are growing our strategic initiatives, this leads to an EBTA for the quarter which is negative with minus 6.2 and more or less a break even for the full year compared with an EBTA of 21%, almost 22% last year, year to date. And a comment on the cost base. While we are cautiously managing our cost base, we at the same time continue to invest in our future in areas related to global sales, to strategic initiatives, especially the ones that we talked about at the Capital Markets Day in March, and also actions to improve our efficiency going forward and preparing us for scaling. And last but not least, a comment on the operational cash flow, which is positive year to date, while negative for the quarter. And this is obviously tied to the results, and also an increase of accounts receivables. And this leaves us with a cash at the end of the period of 46 million.

Thank you. So some concluding remarks from me then. First, I mean, I want to just reconfirm that we have financial targets. We are driving for 20 to 30% annual growth in net sales. And we have an ambition to reach 20% EBITDA within the next three years. But the longer term target is 30%. Again, going back to the discussion on variability, nothing in what we see right now in the third quarter changes this. We are very comfortable in our ability to continue our growth journey, really, and to continue to develop our business. So as a summary from the market side, I mean, I think the recent release of the consolidation of our NV or neurovascular products has been received in a very positive way. As well, the first real integration of Ankyros and VIST is also super, super positive and got a lot of positive reaction. The ability to really rehearse a full procedure based on the result of Ankyros is exactly what we wanted. I also think that the recent congresses that I mentioned in my slides also just note the very strong dominance we have in this market and how our customers really appreciate what we provide. I mean we got a comment from some clients last week about the fact that we are at their congresses, we are present in most parts of the world where they are present. We can support them, we can work with them locally in congresses, and there's really no one else that can do that. So I think that's really, really important for me. I mean, obviously the basis is the technology we have and how people perceive our technology, but the fact that we have an organization around that that is solely focused on this is very, very important. So that brings us to a very, very clear market leadership in this space. So from a business side, I mean, obviously not exactly what we wanted in Q3, but still solid last six months, I would say, with 50% increase. And we are running on in a good way, very good development on our opportunities and the business development in both hospital industry and across our regions. We can see that APEC is really doing well from a net sales point of view this year, which is obviously very important. So I think that that also highlights the importance of being balanced between the regions because we know that in a growth year we will have ups and downs across industry areas or regions. It's important for us to be, as we are, spreading the risk between regions and different business areas. So it's a last remark. I mean, you know, the quarter and as well the year as a whole really highlights the importance of a long-term perspective of what we do. And we really remain very confident in the market opportunity we have and our ability to sustain this growth. So with that, I'm done. Thank you.

Thank you a lot, Gerrard. And my first question is, can you please describe the two major orders that you achieved after the end of the quarter, when we are planned to deliver and in what areas they are?

Sure. Unfortunately, we can't talk about the names of the companies, but the first one is in the electrophysiology. and it's a follow on orders for one of the leading companies in that field. And it's an order really to, as a result of a global contract we have with our company, and we expect that to continue to be, will be followed by more orders from the rest of the world, but also from their headquarters. The second order, that was the larger one, is in the CRM space, and we have had quite some success in the CRM space over the last couple of years. You will notice probably several of the larger orders we presented both this year and last year has been in that space. This is a different client in the same space. And that highlights the importance of our solution in that space. And this is really very nice. This is a client that's been with us for quite some years. And they now really consolidate around us and really expand their simulation. footprint with a significant amount of simulators and really based on their understanding for the benefit that our technology provide for their market presence. So two really, really important clients that it's a start of something more.

And just a follow up question on this. Are these orders related to the new software suite that you have launched?

No, no, no. These are the first one is EP and which is also in the heart. And the second one is Cardiac Rhythm. So it's the pacemakers, which is also in the heart while the new software in the brain.

OK, great. And this new software suite that you have launched, will you sell it to both existing clients and new clients?

Yes, we will convert our, in the industry side, we will convert our perpetual license structures and the structure we have there where we have typically projects or customer specific solutions of software for each client. That will be consolidated around a platform and we really will have these clients jump on that train and follow the development of that product. and we will also then obviously upgrade our hospital installations in the neural space to move on to this new new product but i think most importantly this would find new clients and new use cases in the hospital market which i think is the largest growth possibility here

And I guess also since it's sold as a software-as-a-service solution, I guess it will be a way to reduce volatility between the quarters and sales.

Hopefully. That's the idea. That's the idea that eventually we would have. We can come into a year and have a substantial part of the year done coming into the year. That would be a dream. Exactly.

Great. And can you please talk about the development for Ankeras during the quarter? We saw that it had a clearance earlier this year. And how has it been developed and how has it been received by the market?

We are pounding on, pushing on. We got one new significant device client for Ankyros during the quarter. I think the existing clients we have is really seeing a lot of value from the market using it. And the number of cases, as you know, the business around it is based on the customer paying per case. So we are monitoring the case that are used for each month or each quarter. And that continuously going up. So we're moving in the good direction. We are working with an updated FDA regulation in the US to get the online solution approved. We also have new functionality we want to add in to the product. And we are present in, as I said, in all major neuro congresses in the world presenting this, which is really important. So I think we're getting traction, but it's obviously taking time.

Okay, great. And can you just elaborate a bit about the order intake in the quarter and what has been driving this in the three different segments?

Absolutely. I mean, as Ulrika said, and I think I said as well, but we had a strong third quarter from the hospital point of view, but obviously we are dominantly dependent on the device industry. So we can see a bit softer order intake in the US region. We can also see there's no real major businesses in the third quarter. You can probably see that some of the orders we announced in Q2 could have come in Q3 and maybe one or two of the orders we announced in the beginning of Q4 could have come in Q3. So I would say it's no major orders. We can all see that the gross, sorry, that's right, net sales, but it's not really any major events in the third quarter. And I think that's a result also of the third quarter, obviously, it's the summer quarter. I mean, in Europe, you have July and half of August off, you know, and to some extent, US also taking more and more vacation there. So it's a bit softer quarter, generally.

Okay, great. And one last question for me is this. Can you elaborate a bit on the duration of the current order book presented? How much is this year and coming years?

Yes, so the order book of total 117 million that we have 37 million that we are expected to deliver and get revenues on this year. And the remaining 76 million, they are 25 or going forward. With the main part, obviously, for 25. But as I said, we also have software recurring licenses. This goes hand in hand with what Jørgen talked about, these new products as well. So they are revenue taken over five years' time. So there is orders even up to 2029. But the majority of the order book right now is for 25.

But you can also, if I have to, I mean, you can also see that the decline in the order book is obviously related to one thing. It's that the order intake is lower than the net sales. So it's no really other reason for that. But I think it's nice to see the structure of order book that we have a lot of that into the future. Exactly what you said, Rick. I mean, you want to make sure that we even out the seasonal variations. And that's what we're doing. We're building the order book for for a longer perspective rather than just the next couple of weeks or month. So absolutely.

Okay, great. Garland and Ulrika, thank you for coming to us here at Carnegie. And thank you everyone for watching and listening.

Thank you.