Senzime AB (publ)

Yes, hello and welcome to this live Q&A with Senzyme and CEO Philip Seiberg. Thank you. We'll start off with a short introduction of the company and the quarterly report. Go ahead.

All right, thank you. Okay, Senzyme, medical device company. We're in the field of perioperative precision-based patient monitoring. I will head into the numbers right away and come back a little bit to the company. Okay, so Q1 was another record sales growth quarter. We saw good growth, 66% growth. We reached 12.1 million in sales. Okay, so momentum in the business is good. If you look at our net sales in the rolling 12 months, we're in the hockey face, hockey stick curve here. You can see the pink point is truly the inflection point of the company. That's when the US and the European guidelines were published. So since Q4 of 22 or early 23, we've had a very nice growth trajectory of the company. If you look at the installed base, up until end of March we had installed over 2,300 tetragraphs around the world. So the installed base keeps growing. If you look at the ship number of disposable sensors, we're also seeing a nice almost exponential growth happening here and a very strong quarter that continues into Q2. And of course, customer growth is everything here. If you look at over the last 12 months, we've secured 83 new hospital contracts. If I just look at the first quarter alone, we had 33 new hospitals secured. So all in all, we have over 330 hospitals in the regions that I can control the numbers. So this includes some of the smaller distribution markets where I'm not fully aware of what we have. But this is a good business. And if I look at Q1 specifically, I believe that we only lost one single deal to a competitor in the US. So I think we're really strengthening our market shares in this segment. We are monitoring our utilization rate very closely. Utilization is important because that's what drives sensor sales. We're measuring it in two different buckets. One is kind of the key opinion leader accounts, the large ones that we can control. If you look at the linear trend over time here, we're successfully kind of scaling this up. I want to reach beyond four to five patients per week per monitor. That's the goal here. And if you look at the whole all accounts, we are we're growing that as well. And it's it's it's hard work in progress. But we have and I'm very proud of we have some of the world's leading hospitals as our customers. And it's good to see that it's getting protocolized and it's really expanding the use all over the world. Just to mention a few highlights in the first quarter, in March we announced one of our largest deals to date, a large Houston-based hospital system that we won in a big competitive tender. We announced that the deal was about 250 tetragraphs to be rolled out during this year. The number that I have now is probably in excess of 300. So we started, we had a very small shipment in Q1 from this tender. but it really started now to take off in Q2. So we will see the effects of that during the year and also the disposable run rate from that. Another important news of the quarter was our update on our collaboration with Fukuda Denshi, the large Japanese patient monitoring company. So we've had a long 10 year relationship with them. They launched what they call the HN100, which is an integrated module using the TetraGraph technology that we have. They built it into a module. So we supply them with know-how and we supply them with the single-use sensors. And this integrated solution, I think, is just the start of what is to come in terms of having both a portable device and also integrated solutions into various patient monitors. And then I think the third important event of the first quarter was expansion of the US commercial operations. So we expanded the US team. We hired a brilliant new vice president of commercial marketing based in the US. It comes from Medtronic. And then we relocated our offices and placed it in St. Louis. So we're in the middle of the US, very efficient for shipping and a cost effective place to be. And we did this all in a very cost neutral manner. We shifted back end resources and moved into the front end. So the commercial team in the US is now very strong with about 25 people and half of the company base there. If we look at the gross margin, it took a little bit of a hit in Q1. We've had a nice trajectory over the last quarters as we moved production back to Uppsala to our head offices and seen also the growth in our consumables. So Q1 was a little bit of an odd quarter. We had a higher ratio of instrument sales. We had a higher ratio of very strong sales in the Asian markets where the margins are a bit lower. And we had some one-off effects in the write-downs of products that were old that also affected the margin. So I think this is just a temporary effect on the gross margin. If we look at our expense levels, I'm also satisfied that we're having a very tight expense control. We had a significantly lower expense level than we had in the Q4. We're in line with about the same expense level that we had in Q1 of last year. And that is despite significant investments in commercial operations. So I'm glad to see that we found a good balance. So I want to grow this company with a balanced and a very controlled expense level. keep on improving the gross margin and then having a strong growth rate i just iterate you know we have a phenomenal base of shareholders in this company swedish predominantly large institutions with the craftford family and the craftford foundation being our largest shareholder Just to mention what I've seen happen during the quarter is that we've had some American, US-based investors that have decreased their shareholding. um while i can see that the craftwood family has actually increased their shareholding otherwise it's about the same but i'm very proud of the strong shareholders that back the company so just a glimpse of q2 as we're already there we've had some some good announcements we announced some significant wins at u.s clinics again both pediatrics but also advanced robotics in some of the most prestigious US hospitals. We announced that we want a major public tender It was the Veterans Affairs in Gainesville, which is part of the largest VA system in North Florida. We secured that. We also secured our first group purchasing contract or a GPO contract, which is a three-year contract that gives us kind of a hunting license to come into one of the largest integrated delivery networks in the U.S. as a sole supplier of portable EMG-based neuromuscular monitoring solutions. And then I just commented in the CEO report that 66% growth in the quarter, you know, yes, pretty good number. But I'm a three digit growth person. And if I look at what we did by as we closed April, We are far beyond the 100% growth rate again. So we had some deals that were just shifted to April. So we're on good track for the year. We are on the internal targets that we've set up and I'm very positive for the outlook of the year. So my 300 equation stance, I've shown this before, just illustrative showing that as we have 300 hospitals and I get each hospital to have 30 TetraGraph systems running, and each of these TetraGraph systems are running at least four times a week, that equals for us a recurring revenue base of 300 million Swedish kronor in consumable sales alone. And by doing this, we're creating a very strong and profitable company. So to sum up who we are, I mean, I typically describe us and I believe we are the fastest growing on NASDAQ main market in the medical device space. It's driven by world-class technology that is now available in over 30 markets, powered by a brilliant team that makes all this happen. And the big inflection point for us has been having the best technology in the market, that perfectly meets these new European and US guidelines that are saying that every patient that receives paralytic drugs as part of anesthesia, which is about 100 million patients a year, should be using the type of technology that Sensime leads the market with. So I will summarize with that. Thank you very much.

Okay, thank you, Philip, for the presentation. You're satisfied with the Q1 outcome, obviously, and you indicated some orders have fallen into Q2. Can you comment on that?

I mean, for example, this large Texas deal that I mentioned, which was phenomenal. We were hoping to get a little bit earlier in the year. It came in pretty mid, late March. And these are big hospital systems. You just don't get the order and ship overnight. It's kind of a, it's like a big tender where you roll it out over time. So that, we just got a few TetraGraph units out in Q1, but now it's well under shipment in Q2.

Right. And what would you say are the greatest operational challenges at the moment for you?

That's a good question. I think it's all about a commercial growth here. Continuing to maintain the market shares, secure the wins, make sure we have the right capacity of people. I am very content with our operations. We have perfect production, we have the capacity, we can deliver. But it's more about having enough people to meet the demand in the market.

And should we expect the OPEX to be at the same level?

That is the plan and there can always be some deviations in OPEX because things happen but the general line is try to keep it within this box and that includes about half of our OPEX is marketing and sales investments but then we have a we're driving a lot of large innovation projects that is part of this OPEX that are on route to come out and I think this will make a major impact on the market.

Right. And in the report you mentioned that you only lost one deal to a competitor. Can you tell us who that competitor was?

You know, I can, but I probably not in a public forum like this. But I've always said it before. I love the competitors because they keep us on the toes. We can't win everything. Every time we lose something, we learn something. We take it into consideration to the next deal. But it's good to see that I think we've flipped the market. We've twisted and we turned and we perfected our offering. And with the team, with the product and the solution we have, we are winning. And I'm really proud of it.

Right. And when you are not winning, what is usually the reason that you're not winning?

First, we're all very upset and we're annoyed by it. The reason is it could be a price competition and I don't want to saturate our price. It could be that some clinicians prefer something and we have something else. So it's... But I think that we're just a few companies in our space that are driving the EMG, the electromyography, digital transition. And I think that's where this market is evolving to very rapidly, especially in the US. Ultimately, the larger installed base of reference accounts we have and the research behind it, we are the trusted and the good long-term choice for hospital systems.

Right. And the situation in Europe, could you comment on the demand here and maybe compare the price sensitivity compared to the US market?

So Europe had a bit of a weaker start of the year. We've seen these effects happen before. It takes time for the budgets to open up for instrument sales. And also as we came into Q2 we saw that the budget started to open up again. Europe is just a little bit different where there's already a well-installed base of AMG. There is an analog technology there that's been there in the market. So there the battle for us is more transitioning from analog to digital. And we're seeing the shift happening. We just secured Sweden's second largest hospital yesterday, who has then also seen, they've been using AAMG for many years, and then they've been evaluating us and saw, okay, we need this enzyme technology. But again, they start typically in smaller increments. They buy it for the robotic surgery suites, and they go to laparoscopic suites. And then it moves to the full hospital. So it's just a little bit of a longer sales cycle.

Right. And the price sensitivity compared to the US?

Yes. I mean, I would say probably Europeans are a little bit more careful with disposables. But all in all, it's about the same.

Yeah. Yeah. And if you could describe how important it is to develop integrated module to patient monitoring systems like the one you have with Fukuda Denshi, did you say that?

Yeah, I think it's extremely important. If you look at the history of new technologies and patient monitorings as they come into the operating room or ICU, they come in as a new technology with a fancy box. It takes up a lot of space. um and then as it gets established and guidelines come and the industry sees it everybody wants this technology and then build it in to the already existing patient monitor that's in there so i anticipate that over time our business is going to transform to being a majority of our business will be integrated solutions where our technology is either plugged in like this or there's a cable into it and the So that's why we have dialogues with a lot of the industry players and have a plan to come up with various types of connectivity solutions. But it's a transition that typically takes seven to ten years over time.

Could you comment a bit on the Massimo collaboration?

Yeah, it's a little bit slow. So Massimo, for those of you who followed, had a pretty tough hit about a year ago. And at that point kind of said, OK, we need to pull back on some of our external projects and refocus our efforts to drive our own improvement of gross margin and products. So we are still awaiting some of their final touches to our code development projects. We've released parts of the collaboration with Integrated Connections. But kind of the main connectivity product is still in development mode.

Right. And you have won some prestigious contracts this year, for example, the large hospital chain in Houston. Can you describe the process in such large tenders and why I think they decided to go with you?

Yeah, these processes can take everything from three years to three months. But processes are typically that there is an ambassador within the hospital system that realizes that, okay, we need to implement a protocol-wide solution or standardization of patient monitoring. And then typically that leads to like a work process, a work stream where they define a team that says, okay, let's evaluate and look at what's on the market. Then they invite in a number of vendors to do clinical evaluations. We come in with a team and we run our products through a number of the hospitals and show and tell. And then we present the data to see what we've seen. And then there is a value-based committee that goes through the results and the expenses and what's the cost benefit and health cost benefit. And then ultimately there's usually a pretty big democracy forum of people, including nurses, professors and clinicians who ultimately decide what do we want to do. And I think those components together, we've been fortunate to be perceived as, again, the trusted long-term partner to work with. And I think that with the 40 years of legacy we have, the algorithm, the very strong base of science behind our products. We are the trusted choice.

And the next one is a big question, but if you could describe the current market in the US.

I typically describe it as the opportunity of a decade. Typically once every 10 years there is a new clinical variable that's introduced in the operating room and then everybody sees that okay there's this new clinical variable that we have to follow and then comes various types of recommendations and guidelines saying that you know this needs to be tracked and this window is happening here and now. And again, this is the result of over, it's actually been results over thousands of studies, 40 years of research and clinical background that ultimately led to clear mandates saying that these patients, there's so many patients that we should be monitored. So I would say that when we go to large medical conferences, this is the number one topic right now in the anesthesia market.

Right and you recently signed a contract with a GPO in the US. Can you first off just describe what a GPO is and how you will work?

Yeah so GPO is a group purchasing organization. It's like an umbrella that once they see that okay there's a category of products here that is big enough and relevant enough then they will negotiate with suppliers like us and then make sure that there is a competitive deal and then they will offer it on a fixed price list to their associated members which are hospitals. So it's sort of just a middleman that helps to negotiate deals and put a contract together. And GPOs typically only sign contracts with very established technologies where there's big enough volume for their money, because GPOs have a very slim 1% margin. So they ultimately came to us after we've had some good traction among the GPO members and said, hey, we want to have a contract. And ultimately, we negotiated, we signed. And as I mentioned, we are the sole source supplier here of portable EMG solutions. So we're already partly in a lot of these member hospitals but now it gives us a lot of good upsides for this contract period and I think it opens up for other GPOs and this GPO is part of a larger GPO it's this huge market so it opens a lot of doors for us in the US market.

Right. And even though you're growing very fast, there's still a long way to go to your financial goals.

Absolutely.

For 2025. Can you just describe a bit?

No, but we have a super exciting trajectory. We, as I mentioned, we... We are growing. We are on good track. We're on our internal targets. We have ambitious targets for the future. But as I expand the hospital base, I get more and more hospitals, I get more tetragraphs into the hospitals, I get the utilization rate up. This generates into an exponential curve. So I still remain confident that we can meet this. We're certainly on route to build the new Swedish global market leader in patient monitoring.

And you have an installed base of about 2,300 monitors now, right? How many of these are in the US and do you know how many of these are in use?

I don't know exactly, and I'd probably not want to comment too tightly on it because some of them were bought or purchased early. Some of them were purchased during COVID. But I'm seeing that of the tetragrass that we sold in the last 18 months, we're having 100% utilization rate on those. Those are all used and quickly getting into rapid production. So while the number of exactly how they are split between the countries, I will come back to that in the next report.

Okay, great. That was all of my questions.

Thank you for being here. Thank you.