Senzime AB (publ)

Good morning and very welcome to Carnegie Investment Bank. My name is Claes Palin and I'm an equity analyst at the bank and following for example Senzyme who will be presenting its Q4 number this morning. The report was released today and with me in the studio I have the CEO Philip Seiberg who will present the company. Very welcome Philip.

Thank you, nice to be here.

Yes, very nice report that you will now be presenting. I guess you also will be presenting the company and give an introduction to SenseTime.

I will, yeah. I'll give a 15-minute intro and then we can have some Q&A.

Perfect, perfect. And then I think time is right to start the presentation.

All right, thank you. And thank you for dialing in and listening to our Q4 in 2003 summary. Just to give a one-minute pitch and recap, what is Sensime? We are a global medical device company headquartered in Uppsala. We have offices in the US and Germany. We're addressing 100 million patients a year market and really addressing about a 40 billion sick opportunity. What we're doing is enabling precision-based monitoring of patients in the operating room to make sure they get the right dose of paralytic drugs and that they're woken up and extubated at the right timing. The legacy of the company derives from Mayo Clinic, from Harvard and Mass General, so long-term research behind all this. We have commercial infrastructure. about 30 countries so it's a combination of direct sales distribution and license deals and i would say right now we're probably one of the fastest growing companies in the life science sector on the nasdaq main market Okay, so a little bit on summarizing the year 2023. And I would say it was a landmark year for us. It was truly the commercial breakthrough year. Our sales grew to just under 36 million Swedish kronor, so about 155% growth. It was driven by large hospital wins and the emergence of the new guidelines that came out in Europe and the US. The gross margin of the company grew up to 69, just under 70%. And we ramped up the production, we ramped up the teams, and we secured long-term funding. I'll come back to that. And if we look at, you know, if we isolate Q4 into this, sorry, I just had some coffee, sorry. If we isolate Q4, we did 10.9 million, so a good growth of 138%. US, so just to wrap up at the Q4 again, strong growth, strong market in the US. We quadrupled the sales in the US market. Utilization rate of the Tetra graph really took off. I'll come back to that as well. And we started trading on the OTCX market in the US as well. If we look at our installed base, we have about 2,100 instruments in the market. We've now shipped over 250,000 TetraSense sensors. So that's really taken off as well in the market. So we can see that we're a company in a phase of hockey sticks. The really turning point here was, again, the guidelines coming out in Q4, Q1 of last year. And you can see that the turning point is really happening. The growth of our install base of customers, we had 65 new direct accounts that we can control during the year. This excludes Japanese, South Korean, and various distribution markets, but we're really, really gaining traction here. And then the KPI for us is really to get the utilization in effect. So we are constantly systematically working to get more and more usage out of every single TetraGraph. If you look at our key accounts this year, we grew that utilization rate with 50%. And if you look at the kind of overall utilization rate, it's just under three, meaning that we're seeing three patients a week per tetragraph. And I ultimately want to get that up to four to five. That's the goal here. So if we spotlight a little bit on the U.S. market, which is 70% of our sales, truly the big opportunity here. We've secured a number of really high-end hospital accounts. We have the top academic and university centers. You can see the utilization here on the left is stronger in the U.S. than it is worldwide on average. And that's also kind of the... the result of a very strong clinical team helping to build this distraction. And 2023 was a year of strong landmark deals again. Just to mention five of them very quickly. We signed up a large IDN system, the largest private or IDN system in the US, potential to grow to 10 million SEK in recurring revenues. We signed up a large top 10 rated US hospital system on the West Coast. We won a university California hospital system, a leading pediatric hospital system in the Midwest of US, and then two major systems on the East Coast as well, one in New York. And just to give a glimpse of what is this business, it's getting the monitors in there and then getting recurring use of the sensors. And this is to give you one example of an account we won in 2022 that once you get there, it's a recurring business. This account itself is about three and a half million SEK per year. And we're at the level of the utilization rate target that we want to be in the U.S. So why do they choose us and why do we win these deals? Senzama is the leading company in the market in terms of backed by science, backed by long-term research, strong algorithms, high accuracy. We have the commercial excellence. We have the team. We have the capability of helping large hospitals implement neuromuscular monitoring. And we are the trusted partner. We are the only company in this segment where we are that is publicly traded and has the long-term investor backing needed. And we're doing a very sustainable in-house production to support this. Okay, so the guidelines were important for the year and what the guidelines is, is a number of things that have happened over the last 10 years. The most important here were the US and the European that came sort of in the same timeframe and they came independent of each other saying that you should monitor every patient that gets paralytic drugs and use a neuromuscular monitor objectively. And just a few days ago, the Canadian guidelines were sharpened to say the same message. and guidelines is a challenging and long-term task and just to give a recap here if you look at the left you know paralytic drugs were started to use in clinical care in the 40s 50s and if you look at the number of research behind this this is what's been published on pubmed or nih library there's over 10 000 11 000 published studies So it takes time. And then if you look at when, in the 70s, that's when you started to do neuromuscular monitoring. Since then, you have almost 5,000 studies. So this is the collective work and timeframe it takes to get the society together to say, okay, we need to make a difference. And that's what happened. And two important studies last year that both were part of really validating that we are the key system. One study which was the Medical College of Wisconsin in combination with the VA showing and validating us towards the laboratory technique that we are the leading accuracy of the system. And the other one was a study we published in Q4 where we presented, because it was published, it was University of Miami and researchers at Mayo who validated the TetraGraph versus an AI algorithm to prove a 99% accuracy. So innovation is very important. One key development during the quarter was the launch of the TetraSensitive. So it's a specific electromyography EMG sensor used on patients with sensitive skin, which is a 5-10% market where people need special because otherwise they avoid types of skin injuries. Another announcement we just made in terms of R&D was a collaboration with Fukuda that's been going on for quite some years where they launched the HN100. which is the first integrated module using our technology. So it's really TetraGraph inside and then we provide the sensor. And the Japanese market is certainly interesting. Large base of operating rooms, Fukuda has, I personally would probably think about 30% market share of this. So here's an opportunity to sell these plug-in modules and we provide the sensor. So an interesting opportunity in the Japanese market. We moved our production in-house to Uppsala a few years ago and have been systematically working to improve our gross margins control of suppliers etc and we had a new record gross margin just over 70 percent in the Q4 which rolling 12 is just under 70 percent so we're at good pace on that as well. If we look at our expense levels In Q4, we had a little bit of a negative effect on currency changes. The US dollar fell about 7-8%, which provided kind of a, in our P&L, there was a currency effect there. But if you look at the direct operating expenses, excluding the currency effects, we're in line with pretty much where I want to be long-term in the company. So during last year, we did three funding rounds. We raised 265 million. We did it in one rights issue during the spring, and then we did two directed shares issues in the fall. Two thirds of the proceeds were raised in directed shares issues at market price very effectively. So we welcomed and made sure that both our current investors and new investors had the opportunity to come in. And our main shareholder today remains the Crawford family. whom you know i made a promise to that we're building here the next gambro and then we have a number of institutional shareholders and i think they're all sharing the view of long-term building this as a global success We have about 10% of our shareholders in the US. And as a consequence and of interest from US market, we co-listed or parallel listed the share on the OTCQX market in New York. We did that in late October. So the share can now more effectively, efficiently be traded from US investors. Okay, so just a few weeks ago we announced additional U.S. expansion. U.S. is and will continue to be our main market, so we employ more salespeople, getting more traction in the field. We were able to attract the top talent, the best guy in the industry, to be our new VP of global marketing based in the U.S., Michael Noble, pinched him from Medtronic's patient monitoring division. And then we relocated our business to the mids of the US and St. Louis to really have a better way of addressing our customers. So all in all, this is important because we did it pretty cost neutral. We reduced overhead expenses back end and then we shifted it to sales, which I think is important. Okay, so a little bit to wrap up. I mean, the 300 equation, some of you have seen before, it still stands. We had, as I said before, roughly 175 customers or hospitals, and the target is here to get it to 300. And I want to have 30 tetrographs per hospital in average. And if these are used in average four times a week, which is a relatively low utilization rate, this equals for us a run rate sales of 300 million C in consumables only. So the goal remains intact. I'm very confident about the future. We announced some financial targets in 2022 saying that we should reach sales of about 300 million SEK in 2025 and gain a market share of at least 10%. And long term, we should have an EVDA margin of 40%. And I'm confident that we're on that path. So just to wrap up, this year was, 2023 was truly a landmark year for Sensime. The commercial breakthrough is happening. We have a very leading niche position in this market. It's really a once in a decade window of opportunity where guidelines are in place and we have a technology to lead that change. And we have a positive outlook targeting 100 million patients a year that need our help.

so thank you sorry about the early technical issue yeah thank you so much philip and congratulations for a fantastic breakthrough year thank you in 2023 and following the new guidelines in particularly the us and you have shown a very impressive order intake throughout the year especially during the second half and i just wonder how much of of these orders have you been able to deliver Are you able to deliver on time? If you could just elaborate a little bit about that.

I mean, we deliver pretty much everything on time. There are certain customers that are more placing framework orders with us and saying, okay, we want this delivered over a time period. So yes, there are orders in the books, definitely. But we have a delivery position today of probably 99% on orders coming in.

And I know that you don't report your order backlog, but is it possible to give sort of a flavor of how it looks like going into 2024?

I don't have the specific number. We've had the fortunate of being able to deliver quite quick. But yes, there is a pipeline of deliveries. I think the important thing is the pipeline in general for the year where we see strong opportunities. We've been doing evaluations for a long time. And what we've seen in the last six months is also a shift that more and more hospitals do not require 12-month evaluations. So we've had a number of deals where they've just called us and said, based on your references, based on what we heard, we want your product. So we ship them immediately. And this is everything from high-end university hospitals to we secured quite recently one of our first truly

rural clinics that was out in the in the mid in the wild west so even they are now adopting it's not not the top hospital so they are sort of looking at your customer base and perhaps have contacts with with the people that have already been using your system the word is spreading and what what what's your take when they are looking at your competitors out there are they um Is there a view about your competition?

Yeah, I mean we have fantastic competition and we are struggling and we're all pitching our own value propositions and I think it's And all in all, this is good for the patient because everybody's driving innovation to be on the forefront. The competition is really about usability and trust and being able to deliver. When hospitals order up this, it's a commitment of seven to 10 years. So they want the partner that really can be with them all the way. And that's why I always emphasize we are the trusted vendor here that people can feel confident in being partnered with.

And the guidelines, they were sort of a public announced in the late 2022, early 2023. And I guess a lot of the low hanging fruit, so to speak, were the ones who was fast to catch up on this. Do you see still a growing interest when it comes to quantitative monitoring and incoming calls?

I think so, definitely. Last year was the year when the guidelines were published. They were announced in late 2022, published in early 23. Everybody saw this, you know, this draw the attention to big audiences. So if you go to scientific conferences, this is the main key topic. So everybody realized we need to do this. This started getting into the agendas. It came to the management teams. It came into the budgets. So last year was, there were some fast movers. But I think 2024-2025 is going to be the true leverage year because now it's in the plans, it's in the budgets and now it's time to execute. So I think that's why I have a truly positive outlook for the year.

And going back to the competitor situation, I mean, you have like Blink, like the most closest competitor, perhaps when they come to the EMG space, but you also have competitors who deliver systems based on EMG. How is that dynamic progressing?

I mean, if we look first technology-wise, EMG, which we are driving, is the digital, where you're using single-use disposable sensors. AMG is the old analog version where you use a reusable device. And Europe has a strong presence for AMG because it's very cost-effective, but it's been proven in many studies to be inaccurate and complicated to use and not suitable for all types of patients. So the US has been very quick now in moving to EMG from barely nothing. So they are really embracing this, while Europeans are a little bit slower in moving. So that's why the US pace right now is much faster. In terms of competition, yes, we have good competitors out there in the market. Jointly, the market is so big. There are so many hospitals out there. So we need each other to build this market. So the more feet on the street out there, the more opportunity. And for me, it's just beneficial not to fight this clinical change alone.

And as you mentioned, the European market is more of an AMG market or have been at least. But I mean, looking at your numbers that you reported today, the European sales is behind the US, of course. But what do you see when you're going into 2024? Do you see some light at the end of the tunnel, so to say, for the European market as well?

Definitely, definitely. I mean, we won a number of good deals, Germany, which is our direct market. We've secured a number of major hospitals as well as university hospitals. It's more just incremental growth where we're starting in the robotic surgery unit. They understand that this is what we need and then it moves out to more and more operating rooms. So it's just a little bit slower pace than this kind of US version of going from nothing to 110 monitorings.

Are there any large tenders going on in Europe? There are definitely.

There are some very big ones and they are everything from very close tenders where we just provide the product to more hands-on tenders where we're part of it and we're being supportive in the operating room.

I just want to move to your 2025 guidance that you are iterating today and I mean it's quite optimistic given the numbers today but you also have shown how you will be moving to reach the numbers 300 hospitals is it possible to reach that number already this year?

I mean, we have definitely an ambitious plans for the year. If exactly that's going to be the product mix, that remains to be seen. I probably think that we have ability to have more customers than the 300 kind of formula and exactly what would be the mix of number of units and utilization. But what I'm seeing, as I showed, is once we get in there, utilization rate is higher than I have in my formula. And I believe that with the mix that we have of licensed partners, distribution, and a strong direct sales force, we have the ability to truly grow this hospital base beyond our targets.

And is it the number of hospitals or the utilization rate that investors should look for in the coming reports?

I think it's both because we need the new growth. That's one part of our business and hunting and finding and winning the deals. And then as we win it and we implement it, We bring in our clinical team and our distribution and license partners and really to drive up usage. And the key is to get usage. Long term, 80% of our business is going to be disposable sensors. Higher margin, recurring run rate business.

Yeah, and you showed a very impressive growth margin in Q4. I just wonder if you could describe a little bit about the dynamics when it comes to your cost side and how much you could grow without the costs.

Good question. We have a cost base where approximately half of the expenses are invested in the U.S. commercial team and half of them are U.S. Sweden slash Germany and of that includes R&D, regulatory, production, admin, finance, etc. I've made firm commitments to the board and to other stakeholders that we try to fix this as much as possible and grow with that level. And I think we've made a number of smart changes. As I said, we've flipped expenses from back end to front end. And I anticipate to continue to grow this company with that type of cost base we have today.

Sounds good. I'd like to move to the Fukuda Densho deal that you have recently announced. If you could describe a little bit what that means to you and the collaboration.

Yeah, so Fukuda Denshi, as I mentioned, is one of the market leaders with strong dominance in the Japanese market. They are a patient monitoring company. We signed our first license deal with them back in 2017. So they're selling our portable TetraGraph in the Japanese market. And then since a few years back, we decided to do a co-development project of making a module. So Tetrograph inside linking into their installed base. And if you look at the trend overall of new parameters in the operating room, they move from small portable devices into the system. So this is really our first modular based collaboration, which I think opens up the opportunity for more collaborations with other industry partners. This is exclusive for Japan. And as I wrote in a press release, there's about 15,000 operating rooms in Japan. And there's an ability here for Fukuda's 100 plus sales force to then low hanging fruit help to sell in this accessory.

And you also have a similar collaboration with Massimo.

We do, yes. So we signed a Massimo agreement collaboration with them in 2022 in the summer. We have reached some milestones in that project where we now have connectivity between our systems and their patient monitors. We also have a joint development project which has some delays just pending kind of priorities from Massimo's side right now. That still remains to be in the plan and I will come back to you when timing is more accurate in terms of launch of that.

And just looking at the Massimo they have had some struggles during 2023 but have become a little bit more optimistic in their communication, especially when it comes to reaching out for the hospitals. Do you also feel the same? Is it easier to reach out to the hospitals?

Definitely. I mean, compared to, we launched in the US in just February, March 2020. right into the headwind of the COVID. So the first two years of our US mission was pretty tough. But now, you know, the doors are fully open. And I think Massimo's had the same thing. Massimo had a very, very successful consumer home-based market, but also saw that now the hospital business is back.

I also noticed that other companies within the medtech space are reporting positive outlook when it comes to procedures. I guess that marginally will impact your business, but it's a positive, I guess, driving... It is.

I mean, surgeries, operating rooms, utilization is back. We're back to normal. And there is an ability now to bring in new innovations and make a change.

And you raised a lot of money in 2023. Are you still confident that you have really touched upon this?

Yes, we raised money to execute our long term plan and have the capacity to really make it happen. Will we need more money? My goal is that our customers should now start paying our bills. So rather than going to my owners, which we've done in the past and we're really thankful, let's use the inflow of customer proceeds and use that to really... grow our base, you know, potentially the board and we might align and say, okay, there's an opportunity here for additional leverage of growth that we may raise, you know, additional funds to really grasp this market opportunity. But I'm confident that the funds we have really can help to execute the plans we're doing.

And my last question is if you just could describe a little bit what you are expecting out of 2024 and what investors should be looking for.

I think try to continue to be as transparent as possible about significant deals. We will announce that. We can't announce everything we're doing. Continue to track our top line and continue to track that we are maintaining our gross margin. And then continue to see that the utilization is this business model working as I claim. And I continue to show these. So we'll continue to be as open as I can in terms of KPIs. But I want to be able to share very positively the things we're doing for this company.

Looking forward to follow the company during 2024. Thank you so much, Philip, for your presentation.

Thank you. Thank you for listening. Thank you. Viewing.