Mentice AB (publ)

Hello, everyone, and welcome to D&B Carnegie. My name is Maria Karlsson-Ossipova, and I'm an analyst here at the bank. The earnings season is in full bloom here at D&B Carnegie, and today we have the pleasure of welcoming Frans Venker, CEO of Mentes, and Ulrika Drotz, CFO of Mentes. Welcome, Frans.

Thank you, Maria. Thanks for having us. I'm here alone today. Ulrika can unfortunately not be here in person, but she's on the call, and she was able to assist me also in the presentation.

That sounds great.

Very good. What we have for today is four topics, as usual. So we give the highlights and the overview. I will also provide the financial results, as also the business segments, how we're doing. Ulrike will be there to assist me, as also some concluding remarks. And then afterwards, we do the Q&A. Overall, what we see for the first quarter within Mentes is that we did quite well. We had 62 million SEC in the quarter in revenues, and so that reached an organic growth of 26%. That is equivalent to around 14% year-over-year growth, if you correct that also for an exchange. And that is a significant improvement also what we saw Q1 of last year. So the rolling 12 months, we are now at 287 million SEC. And that is also an increase from what we saw in Q4. So the trend is really in the right direction. What we really see is an encouraging trend is that Q1, the order intake was 59 million SEC. And that is a continued momentum that we saw in the second half. And that is a whopping 50% growth. If you correct for foreign exchange, you get to still a very good, I would say, 35% growth. And that is what we're aiming for. But a very strong funnel also in order to have this continued. EBITDA margin improved, although still negative. Still, what needs to be said is that the first quarter in the health tech business is usually one of the smaller quarters, and for that reason also the EBITDA margin is still negative, but a significant improvement towards last year, the first quarter, and that is what we see due to higher sales, but also the lower cost base that we put in place since basically mid of last year. So, the momentum is coming from the medical device industry in the first quarter, by far the skill, that's where we see the growth coming from. But also healthcare systems, we saw now significant uptake in order intake as also the revenue side improving. So, first light in order to also see a double whammy growth with respect to medical device industry as also healthcare systems. So in all, a good quarter as we look at it. So we say the market momentum is persisting. And so also that we see that the interest from our customers, but also the collaboration with our customers is coming from a broad base. And that is very good news because that means that we can sustain this momentum also for the coming quarters ahead. Positive quarter, what we stated also for the healthcare systems market. So we saw a 31% year-over-year growth and also with 7 million sec in order intake and also the funnel is healthy, what we see there. Growth coming from a regional standpoint significantly coming from the EMEA region, where we saw 46% growth year over year, as also in the Asia-Pacific region, where we saw from a lower base a significant uptake from a growth standpoint. Quantity-wise, also America did well, but was a little bit more seasonal due to a very good Q4, but also some projects that are moving towards Q2. In that sense, if you look at it over the last two quarters, plus also the funnel, we see positive developments ahead. Opportunity to scale up. What we see is that our funnel of projects is large. Also, that means that we potentially have to invest in a few engineers in order to make sure that we can sustain the growth, but also sustain our leading position that we have in the image-guided therapy space, also with our virtual simulation, and we do that quite well. So very proud of what we're impacting the image-guided therapy space and really help our medtech companies, but also hospitals with education and training solutions. Finally, what we saw is a change in the shareholder structure after also already in Q4 of last year, we saw another change. We're pleased that Gulf Offshore is showing significant interest in our business and taking up an additional 7.7% of the shares in Mentus. Overall, what we see from a financial standpoint, is that our net sales is 62%, order intake 59%, our EBITDA significant improvement year-over-year of 52%, order intake, and the order book resulting of 127%, which is an organic growth. of 13% and the operational cash flow also due to a significant and very good Q3 and Q4. We saw actually the cash coming in and if you compare that then also towards last year a major improvement in that regard. So overall, if you look at the momentum and also look at the 12 months rolling net sales, you see that we are absolutely in the upward trend as also what you see is that the EBITDA trend is also in the upward trajectory again. And that is what we would like to see. And we see both positive developments in the Asia-Pacific region, as also in the EMEA region, as also from a segment perspective, we also not only see medtech increasing, but also the healthcare systems improving. And all we're doing this at a lower cost base, which helps us then also going forward in order to any growth that we generate, that that flows effectively towards the bottom line. If you look at the order intake, which as we stated was 50% higher organically, and so what you see is that it means from a rolling 12 months, We are now over the 300 million SEC range, which is also positive for future revenues that we're going to generate. What you see is that the order book that we have now of 127 million SEC will generate 84 million SEC of revenue already again in 2026. And the good news is that the order intake not only comes from medical device industry, but also healthcare systems. And of course, that bodes quite well. In all, we see the net sales momentum in MDI to continue, as I stated. Growth in the second half of last year, but now also in Q1. Organically, it was 27%. If you correct it for foreign exchange, it's 14%. Overall, we see a positive development, as also HCS showed encouraging progress in Q1. Cost discipline remains intact. What we see, OPEC's reduction of 2% year-over-year on a Q1 on employee cost. What we also saw is it includes one of 4.8 million in one-time restructuring costs. We made changes and project changes in the executive management group. By the way, those changes we have announced. And that also results in one-off costs that we take. And they resulted in close to 5 million Swedish krona, which is a one-time effect, what we see. So what we see is the OPEX cost is slightly higher. That is simply because of investments that we need to do in order to sustain the growth that we see. But it's all basically positive also towards the contribution. So the continued focus is on cost control and making sure that any top-line revenues also flow directly towards the bottom line. Before I proceed, I would like to ask Ulrike, is there anything that you would like to add so far, what I've said?

Nothing I want to add more than just again emphasise is this the third strongest quarter in a row, which we see in all different aspects. So that's my only addition to what you've said.

I think, thank you for that addition. That's absolutely true. It's the third strong quarter that we see and also the funnel in that sense and the activity that we see is that we're on a good streak in order to really turn around the business towards not only growth, but also the profit that could go down towards the bottom line. So in all, what I see is sustained momentum from a broad base of medical device industry customers in the second quarter. So that activity is really there. And the good news is it's not a one-trick pony, so that we're working with one or two companies, no, actually a broad base. but also a broad base geographically, so that also the growth is sustained there, and that helps us then also for the remainder of the year. Cost focus needs to remain in place, so that, as I stated, any growth in revenues that we generate flow also towards the bottom line. And we see the sales and the distribution coming really from EMEA as APAC, but also North America and the Americas and LATAM, where we're doing simply well. So short-term focus is serving the customers and making sure that we execute on the pipeline of the projects that we have. and evaluating our fantastic engineering team that we have in order to support our customers. So in summary, the business highlights. So it's the third consecutive quarter that we have done quite well. So despite a large impact of the foreign exchange, we are growing over those foreign exchange impact. And of course, the underlying growth is what counts and where we can execute on. Both geographically, it's a broad base. So we see that EMEA and APEC are coming back, as also that the first quarter that we get our healthcare systems business again towards growth. So it's an important step in order to strengthen the leadership position of image-guided therapy and mentors in this domain. And we see really that we can support also our customers in order to help with the introduction of new devices in this market. So we're quite proud of what we have established. And what we see is that in all, I remain encouraged by our progress. There is not only high interest from all our customers that we see, but also we have the ability to capture that interest also into a good funnel of projects that we execute on. And we stand significantly stronger today than we were a year ago. So with a broad base of funnel of activities, customers that work with us, but also at a lower cost base. So that means that we continue to grow for the future. So thank you, Maria, for allowing us to present this. And I would like to open it up for questions and answers.

Yeah, thank you very much. Thank you, Fransson. Thank you, Ulrika. A great quarter, as you mentioned, three consecutive quarters now. Hopefully there will come more. But we do have some questions for you. And I'd like to remind you that our chat is open. So please feel free to ask questions in the chat as well. We'll start from the top. Order intake, quite impressive growth there with 50% organically. Could you elaborate more on the split there? You mentioned it's broad-based. How much of this is maybe larger orders, smaller orders, new smaller customers, larger customers?

Now, what we see is that the number of orders are coming really from a broader base of medtech companies. And so it seems that we're really established within the market where Mantis is able to provide simulation and education solutions very much with a very high realism. And that is really appreciated. So if you introduce a new device into the medtech market or to the healthcare market, you would like to have training and education solutions that mimic reality to the most. And what the word out is on the street is that Mantis is really providing the highest realism, and that is a unique element that we do. It results then in the fact that we have a broader base of customers that we can execute on. And so not only we have more customers that we're working with, but also we have it more geographically. So not only in North America, but also in Maya and APAC. And for that regard, it's also an important element that this is sustainable for the future to come from an order intake standpoint. So I'm encouraged what I see as also not only in the order intake in Q1, but also with the activity that we have for the remainder quarters.

And if we dive a little bit into the geographies, so Americas have been a slight negative development there, some timing effects there and so on. Could you elaborate more on the, there may be any sizable deals that have slipped away from Q1 and slipped into Q2? How does that look like?

So what we see is that North America, of the Americas, had a minus 4% development, coming off a good Q4, as also what we see is that quite a bit of out-of-state activities continue for the second quarter. In that regard, I don't see that as a very worrying development. Overall, we're in a good spot and we have the project in order to sustain the growth also from a revenue standpoint. EMEA really did significant growth as also APAC, although they came from a lower base, also showed significant growth going forward. So in all, I see that global growth is what we're currently executing on, although the first quarter of America's was a little bit negative. If you look at that over the three quarters, I see significant growth coming there.

Yeah. And now that we've discussed how Q1 looked like, what are the current pipelines? If we go like Americas, EMEA, APAC, what does it look like going forward? I know that you're not supposed to guide us, but still.

No, but so the activity that we see from a funnel standpoint remains robust. And also we're able to execute on this. And our funnel of projects that we have in working with our clients is quite, as I said, vast. So that also bodes very well where we can amplify that towards revenue and also licensing sales going forward. So in that sense, I'm encouraged what we have both in the funnel, but also in projects that we currently execute, what bodes well for the future. So I'm proud of not only the team, but also very thankful for all the customers that are working with Mantis and give the trust in our solutions to provide education and training solutions. Ulrike, anything you would like to add here or would like to bring to the attention?

I fully support what you've said, so nothing there to add.

Very good. Thank you.

And on another positive note, are we back for good in HCS segment? How does that look like there? And I actually got a question here in the chat on the same topic. The question goes, what concrete actions are you taking in the segment to generate substantial growth in the medium to long term?

No, it's a fantastic question. Although one day usually in springtime of beautiful weather doesn't make it summer. But in this regard, we're satisfied with what we saw from this quarter in the healthcare systems market. So both from an order intake standpoint, but also the revenue and the funnel is also improving in activities. So in that regard, we could say that carefully, we turned a little bit the corner in that regard, that it looks more positive. What we do say is that also our proposition needs to change also, and we're working on that, not only in supporting training and education solutions for healthcare markets, but also see how we can support hospitals with their staffing solutions in order to make sure that we onboard them quicker. So in that regard, we continue to develop also solutions that better fit also this healthcare market. And the biggest impact will come probably in the second half of this year in order to really bring it back towards sustainable growth.

And it's very nice talking about all the positive things, obviously, of course, but we have a little bit of blemish on the gross margin levels. And you cited some product mix tariffs, FX effects in there. Could you quantify what weighs how much in that?

So what you see is that the cross margin was at similar levels as the fourth quarter. It is primarily driven by product mix. So in that regard, we have also the physical simulation business, which is although operating at a slightly lower cross margin, and that regard could impact the mix what we see. Also, tariffs and freight costs are an impact towards the integral cross margins. Luc, I could ask Ulrika, is this something what you see as the floor also as the gross margin, or do you see this developing going forward?

This is a good question. What we've seen last year is a slow decline over the year from starting in 2025 with a bit higher gross margin levels. And that decline is related to partly the product mix and definitely also the tariffs. So comparing Q1 to Q4 last year, as you say, it's quite similar. And this is a product mix question for Q1. So without making any forecasts or promises for the future, I think that we will not continue to see a decline in gross margin rather than the other opposite around.

Thank you.

So basically, this level, high 80s is maybe the floor going forward. Yeah, exactly. Correct. Exactly. Yeah. All right. And if we look a little bit more on margins, EBITDA improved, improved maturely, of course, but they're still in the negative numbers. How should we think going forward? What should we think about the cost base for the remainder of the year?

We are religiously focused on actually the cost base in order to make sure that any future revenues that we generate also flow towards the bottom line. Any additional cost that we basically hire or put into the company, they need to be really revenue generating and they will be fairly limited for the remainder of the year. We have quite a bit of projects and that's why we might have to invest a little bit of engineers in order to make sure that we can execute on the projects. But overall, we are hawkish on the forecast of our cost base in order to make sure that any revenues are flowing towards the bottom line. You state that we have a negative EBTA this quarter. Yes, any revenues going forward which are higher than the first quarter will truly generate a much more positive EBTA. And this is always the first quarter is usually, from a revenue standpoint, the smaller ones. And therefore, we also look at the 12 months rolling. And that's where we see the positive development going forward.

And yet again, like a clear improvement there, but the 20% equity margin goal still seems maybe a little bit ambitious. What is your plan on how do you get there?

it's uh it is growth so it's a revenue growth that we need to establish and that is first and foremost that we need to really get medtech even to grow further and we're currently doing that it is also making sure that healthcare systems is going to grow but also areas where we see new developments coming in play is robotics and especially for image guided therapy interventions where customers are focused on automating procedures and doing them in a remote base. And also our training and education solutions really help in this domain. And so that's also where we're focusing on. And that is the revenue that we are generating for the coming years. And that's what we would like to establish. And then still the 20% EBITDA margins are still that we see that as absolutely realistic in order to execute on. The focus is on growth because that will then flow towards the bottom line. So that's the first priority also for the company is growth and driving the top line of the company. And we're doing that. And that's what you saw in the last three quarters also. And that's also what we're driving for hopefully the quarters ahead.

And let me just add there to what Fran said. That's also about creating an economy of scales of the costs, the underlying costs when we see the growth, as Fran said.

Well said Ulrike, I agree.

And a little bit of another topic here. You've mentioned a bit on the ownership structure in your slides and there have been some changes on the board. If you could just give us a short recap of the changes and maybe some growth seems to be the strategic priority here.

What do you say? There has been a change in the board, but also in the ownership structure. And it was effectively, as I said, started or initiated by a large shareholder, Bure, who basically did a re-evaluation on their shares or the positions, and they have sold them to Gulf Offshore. And that meant also that we had one of the board members actually stepping down, so out of the board. And since then, there have been more changes in the board accordingly. So also with the fact that Magnus Nielsen as chair stepped down and we have now Jeroen Melmberg in place. And as you know, Jeroen was the former CEO. So it is fantastic to see also a lot of knowledge and expertise coming back into the board in order to help this company grow actually further. But also just recently, and that was this quarter also, we saw that Gulf of Shore, owned by and also basically managed by Lawrence Howell and the Howell family, is that they increased their share also in the Mantis company. And what the positive effect is, is the trust in our company and having also the larger ownership structure towards us. And this has been already for a long time. So Lawrence Howell has been basically an owner together with his wife in Mentes already for I think close to 20 years. And so in that regard, it is very pleasing, but also fantastic to see the trust in our company, but also the belief that we drive this for growth. Lonnie Howell has a long-term commitment to the company and also I'm in frequent contact with him and also for the focus going forward. Does that change, to your question, the focus of where the priorities will be? For us, it's growth. Of course, profitability will come once the growth comes because that's how the company scales. We are looking for ways to make the 20% to 30% growth happen, but also then the EBITDA as 20% or higher to enable this. Currently, with the current performance in the quarters that we're executing, we're confident that we can get there.

There is a short question here in the chat about share price development, but we don't usually comment on that.

The shareholders are always right.

And I would like to end on a little bit of a visionary note. If we meet here again in a year's time, what do you hope to have achieved?

So first of all, to supporting even more the medtech companies, but also to support more healthcare systems partners in providing training and education solution and simply helping more patients globally in order to help with the healthcare challenge. Image-guided therapy is a domain that really helps patients in order to go from open surgery towards minimally invasive procedures. They're usually safer, they're more effective, a shorter stay in the hospital. And for that regard, it really helps the patients. And my first and foremost, it's helping more patients. That's what we're here for and that's what we would like to achieve. And by doing that, by supporting more medtech companies in a broader base of clinical solutions to do that, not only with virtual simulations, but also potentially do it with augmented reality and virtual reality. And in such a way that we have artificial intelligence also incorporated in our systems, but also entire organization to execute on that growth and that we are more nimble and even can execute faster in that regard. The second piece is that we're supporting healthcare systems, so that not only with training and education solutions for fellows, but also residents in order to help with interventions, but also do it for staffing solutions so that people are easier and police are faster, effectively up to speed. And then finally, that we make a significant dent and support towards the robotics business so that mentors can help also with their navigation solution to making sure that we can not only support the remote procedures that are happening with robotics, but potentially also help with the navigation towards it based on our physics model. So yeah, I think our future is bright and we're executing it. I really hope to be here after a year to see what we have established and that we drive this great company towards growth, but also supporting a lot of patients in order to get better because that's what we're here for.

Thank you very much, Frans. And thank you very much, Ulrike, for joining us today and talking about mental health.

Thank you. Very good.