ContextVision AB

OSE:CONTX

Earnings Call Transcript 2022-Q1

[Operator]

Okay. So then we will start the presentation. So welcome to Q1 2022 presentation by ContextVision. You will hear from the company's CEO, Ola Lindblad before, there will be a Q&A session in the end. If you have any questions for Ola, this can be asked in the questions section. And as you have noticed, this presentation will go in English instead of Swedish. So then, Ola, the word is yours.

[Ola Lindblad, executive]

Thank you. Thank you very much, and thanks for having me. I really, really look forward to share the latest financial results, but also to share some basic company -- or basic facts about our great company. As Christian was saying, my name is Ola Lindblad. And I do hope here at the end that you will all agree with me on the statement here that says on the slide here that we are on the right path going forward.

So before we do anything. I just wanted to share some -- or tell you a little bit of a story. So this is the reality of many of the physicians and radiologists around the world. They're spending long hours in front of the screens trying to determine if there's something wrong does set the diagnose or even set a treatment? And imagine that you were sitting there and the image that you're looking at is not clear enough. It's not crisp. You can't really do your work.

So what is then the use with this machine? Does it really matter that it has all the builds or the bells and all the whistles, that it has the latest stuff in it and latest functionality if it doesn't show the best possible quality in it. And that is really where we come in because we are the software company that is focusing solely and only on image quality and working with AI to ensure that the medical imaging are as good as possible for our customers, which are the OEMs.

Before I'll continue more into details here, just some brief facts. And I'm fully aware that many of you on the call have seen this before and are fully -- known a lot about the company already. But some of the numbers here have actually changed, so still bear with me. So we are -- as of right now, about 35 employees. We're still around 50% on the R&D side. And with the 35 years of experience, coupled with the AI that we have, we are the world's leading independent provider of this kind of services.

We're still headquartered in Sweden, and we do have -- I mean we're a truly global company with sales offices all around the world and with our 60 customers that are spread all around the world. And we see ourselves as being a global company.

And if you look at our largest revenue generator, it's really ultrasound, which stands for about 70% of our revenue. And that's actually really, really good because the ultrasound is really the -- one of the biggest expanding businesses within this area because it actually had a CAGR growth of about 5%. So it is increasing business that we are in.

And then the next number is something that we are really proud of because we are in 350,000 systems all around the world. So this means that wherever you go around the world and you take a X-ray exam or ultrasound, you can be pretty sure that we are inside the system and making the image better than it would otherwise. We are -- we've turnover about SEK 98 million an EBIT of 44%. And obviously, I'm going to come back to the numbers here later. And then we are listed, as you are aware, on the Oslo Stock Exchange.

And so -- but then these were just a brief fact. So -- but the question is, what is it we really do? And I think this is a very important piece that we also need to sort of understand because how do we fit into the overall process? Because the OEM in this market, they are manufacturing the system, right? So they have -- they start with their hardware components, with the screens, the wheels, the chassis, the monitors, the probes and so forth. They add software to it to make it all linked together. And at the end, they do get an ultrasound system, in this case. So then they sell it, obviously, to the hospital or to the clinic. And then the clinician starts using it. So all good and fine.

So then where do we fit in? Well, we are right here in the software pack or stack, I should say. So we are highly integrated into the system, meaning that it's -- we are -- as we are integrated, we are very hard to get rid of. I mean, we're in there and we're in there for a long time. So whenever the OEM has started to use us in their system, it is pretty hard for them to take us out. And they wouldn't do it either, but it's -- we're really in there, which is obviously really good. And yes. So -- and then the -- so our customers are really the OEMs. So those are our customers.

And then moving into -- so this is how the process looks. And I talked about the doctor before and the physician and how that person wanted the image to look better. So -- but how much better can it really look like? I brought a few slides here, just to give you some examples, because I think it's important to see the difference. And if you look at this, to start with, this is from an ultrasound 2D image, where to the left, you have the unprocessed image. It's of the heart. And then we have then processed it with our solution, Rivent. And you can see how much crisper, clearer this image is. So imagine how much more happy the physician should be by looking at this image.

So that was one. And then for you on the call that have kids, you might like this slide. Here, this is something we call baby face and getting more and more popular to do this by the midwives where you obviously have the unprocessed first, and then you have the process with our brand-new Rivent 3D solution where you can see how much more crisp and clear the borders are here. And how much more, obviously, value you can get out of this image. And this, obviously, the 3D solution can be used for many other -- I mean, not only for baby faces, it can be used for cardiac and others as well.

And then this is something -- we also released a solution or a product called Rivent Mobile. Because that is what we see a big coming trend, and I am going to come back to that here in a little bit while. But the units are getting smaller and smaller. And right now, we see -- but I mean now, you have the probes just connected to the iPhone, and all of a sudden, you have an ultrasound. And this is, of course, in a dire need for having image enhancement, image -- improved image quality of these. Because otherwise, there are obviously no use. So this is something we see a strong market for us here going forward.

And then the last slide here is really around the Altumira. So Altumira is one of our AI solutions for X-ray. And what's interesting with this is it doesn't only give you better images. It also gives you a more efficient way of doing X-rays. Because if you have 8 people here with the broken wrists and you take a X-ray. That the doctor comes in, he takes the X-ray of one obese person, one with an implant and so forth. And you see you can get 8 different images here, and they all look a little bit different. So then when the doctor is going to look at these, he's going to look at or she's going to look at them and say, well, here is not clear enough, so I need to retake it because it wasn't set correctly.

So then imagine at the hospitals, the radiologists had already moved on. The cart has gone entering another department, and we need to call them back and it takes for a few hours and so forth. So what we've come up with is this Altumira solution is that actually the AI is seeing, okay, this is a wrist. So that's -- let's look at the wrist and make sure we are using this component and say, okay, this is a wrist. So it uses the sensor to take the right amount of robustness when taking the X-ray.

So you can see here on the top part, they all look the same. So when the physician looks at it, it's perfect. Hence, you don't need to retake it. It is good already regardless of how the patient looks like. So it is really an example of, as I said before, of doing it -- to do it in a more efficient way, and also, of course, get a better image. Then -- so this was a way of showing where we fit in and then also the value that we are really giving.

Next I wanted to give you some thoughts on some of the trends that we are seeing that, one, we are looking at for the future. But also that we are already now really using and helping out to solve. So first one is around the increased efficiency that I talked briefly about before. The world's population, I mean, it is growing. And it's not only that it's growing in terms of more people, but also the middle class is increasing. Everyone gets older. The middle average age is increasing. And all this leads to more and more people need to get access to radiology, to ultrasound.

And that also drives a big -- obviously a big challenge for the health care system. Because at the same time, you also have a driving force saying that everything needs to be cheaper. You have -- you need to look at cost all the time. So what we need to do is then to drive efficiency. So by having smarter, better images and also finding ways just as Altumira in making things more efficient. This is one way of supporting and helping this megatrend, if you wish. And there, obviously, for the future, it's going to come more ideas from our side around this.

Next one is digitalization. This has obviously gone on for a long time. I mean, no news. However, the medical market is, as you all know, very highly regulated. So it does take some time in order to get here. But what we see is with the cloud-based solution, with faster graphic cards and I mean that enables AI solutions to be much more advanced. And also, you can put them in smaller devices, which makes it much more the -- even the handheld is getting AI components, which are really, really strong. And with data analytics on top of it and with 5G coming into the picture, you can all of a sudden send images much quicker and much easier. And this is something -- some of the things that we are looking for in the future when we are saying, okay, what are the next steps for us when we're looking into the future. These are components that we are considering, as you imagine that.

And last one. And this is -- I mean with new users of ultrasound, especially with the handheld, many are saying that for doctors, they're not starting now. They're not only going to use -- you're not going to see doctors only with a stethoscope around their neck. They're going to have the stethoscope. And then in their pocket, they're going to have a handheld ultrasound device. And a lot of things looks at that is going to become the new reality. And that obviously means that there is a big market pickup on the ultrasound. But also what this means is that we're going to have a lot more users that are not used to using it. Meaning that they're not maybe enough trained or that they're not fully versed in using it.

And some of our -- with our new Rivent Mobile, it can help, but this also opens the door for future development and how can we help physicians to buy different solutions become more trained or make the solutions more easy to use. So these were just some -- I wanted to give you some [indiscernible] here and just tell you where we are and also a little bit about what we're thinking.

And then looking into the sort of that was looking in the future. If we look at the market, this is a report that came from Signify Research, where if you look at the left, on the left hand here, you can see the biggest -- the 10 biggest vendors in the world right now. And you can see that the total here, it actually -- it totals up to that the top 10 actually handles about 90% of the market. So it's very consolidated. And if you look at even closer, you can see that the top 3 actually have about 60% -- 61% of the market. So yes, very consolidated.

And what's interesting here and why I'm showing this, and I can't tell you here because of NDAs that we have with our customers, I can't tell you which ones that we are working with. But what I can say is that we are working with a large amount of these customers and -- as of today. And the ones that we're not, but we do have ongoing dialogues or many of them, we're having ongoing dialogue with.

And then here at the bottom, I wanted to put this in here because you can see it's divided into -- the market is divided into 3 different parts: the cart the compact, the handheld. And you can see the total increase of the market. As I mentioned before, it's about 4.8%. But what's interesting is if you look at the growth here on the handheld, it's actually up to 25%, which obviously is a significant growth. But then you have to bear in mind that the starting point is obviously a lot lower than for the cart and for the compact. So -- but from a growth perspective, that is a -- it's a big growth going forward.

So then my idea was I wanted to -- that was looking a little bit market and what's going on there. I now wanted to move into more what has happened in Q1 and then dig into some of the numbers. I think that one of the biggest events for us as a company in Q1 was really the spin-off of the INIFY Laboratories. So what really happened, the February 9 here. I mean, it was really -- that was the date when we split up the 2 business units. I mean up until then, we've had 1 business unit, Medical Imaging, focusing on exactly what I've been describing before, solid business pushing this being the core business going on for many, many years.

And then we had the start-up business, the INIFY that we're really focusing on a decision support tool for prostate cancer with a support for -- with AI. And in the beginning, there was a lot of synergies between these 2 when it all started. And then the realization was that the labs that we're going to do this, they weren't digital in the right -- they weren't digitalized fast enough. So decision was made to -- that's changed the strategic of INIFY or strategy of INIFY and instead look at the possibility of building a laboratory by using the same tool that was developed.

And when that decision was made, it was also pretty clear that the synergies between the 2 business units wasn't really there. So then a decision was made that, no, let's split up the business unit, let's put them into different -- so in 2 different companies. So each one can focus on their business. And then so in early February, as I said before, it was -- the split happened. And we are really, coming on my side and on our side, on Medical Imaging, we are obviously very thrilled about this, that we can now fully focus on Medical Imaging.

So I wanted to -- that was probably the -- one of the main things that happened. The other things that happened in Q1 that I want to mention is yes. I already talked about the first one. Second thing is, obviously, with the spin-off, many of the leadership team left because they moved into the INIFY organization. So we set a new leadership team in place, very strong and experienced one, which I have full faith, and we're going to move this company in the right direction.

We now have a full focus on growing the Medical Imaging. And it's not only -- it's sort of the entire company now. I mean you have to look at it from the R&D, the portfolio management and all the way down to finance. We all now can focus in on the Medical Imaging side, which is very exciting. Obviously, strong revenue here in Q1, which I'm going to come back to. And then what we managed to do also in Q1 was to release both Rivent 3D and Rivent Mobile. So those were some events in Q1 that I do want to touch upon.

So going into the numbers for Q1. So what did we accomplish? Well, we did a sales of SEK 27.2 million. And if you compare that to the last year's Q1, which was SEK 20.3 million. So it's a significant increase in revenue. And I'm going to come back to some of the reasons behind that. In operating result, SEK 7.3 million; last year, with SEK 8.2 million. EBITDA was SEK 9.2 million and slightly lower than last Q1. And then earnings per share, [ like ] also that for obvious reasons, slightly below. But overall, we're really, really happy about -- especially, I mean, the sales has really helped us here.

So if you look at this, I'm going to talk a little bit about the sales. So this is a slide showing the -- the quarter sales all the way from Q1 '19, all the way up to Q1 '22. And what you see here is we had a pretty strong trajectory up here than in Q2 2000 -- the pandemic hit us and hit our, basically, our customers. Meaning that they didn't sell enough systems on their side. Meaning that we didn't get -- we couldn't sell as many licenses as we hoped for. But we have ever since continued here on the upwards trend, with a slight decrease here in Q1 last year. But we are on a moving up trend here, which we are really happy about.

And I should say that the Q1 here, it is -- because usually, the first quarter is slightly lower than the other quarters. So this quarter, this -- I mean, it is a little bit doped by some currency effect compared to Q1. And then -- but we also have seen a much stronger market and also some of the new sales. So it's somewhat doped with currency. But really, the big thing is we have seen an increase on the market. So that was sort of overall sales.

If we then look at the revenue and EBITDA on the year perspective, this is where it gets a bit tricky. Because when we separate the 2 companies, we need to get some sort of comparison numbers here. And that is, I shouldn't say too tricky, but it's -- yes, the numbers are not really comparable. I'm going to try to explain here what I mean.

So from a revenue perspective, each year, it is really -- the revenue has always been through the Medical Imaging business unit. So that stays the same. This continues here SEK 94.7 million, SEK 98 million and so forth. And this is the revenue for this quarter. So these are 100% comparable numbers.

The EBITDA here, though, is showing the Medical Imaging business unit only. So SEK 50.3 million here is the number for just the Medical Imaging business unit. Meaning that it doesn't take into account the INIFY business unit at all. So that is why you see a drop here from the SEK 50.3 million down to SEK 9.3 million because this is really -- or the 50% mark around here and then down to 34%, which this is.

And that is really because now, we have to carry all the overall cost, all the overhead costs, which we didn't have to do before. So we will now start -- we're at the 34% right now. And we hope that, that's going to -- we're going to -- obviously, this is the main target, to continue to drive that upwards. But when you see it, I still wanted to show this for everybody that there is a -- when you compare these numbers, this is really what it looks like.

Moving into the revenue per region. Here is a slide showing the different regions in the first quarter the last 3 years. So really, the increase here from last year to this year in Asia has been a number of things. It's been -- we've had some very interesting new customers coming in. We have increased some share of wallet, where we have seen some pickup in the business. So we've managed to increase our -- yes, our share of wallet of our customers that we already have. So those are, I would say, the main areas of increase here.

And then obviously -- yes, that's it. Then in Europe, it's pretty steady. I mean, we had some timing effects, that's why it's slightly here above. And then in the Americas, we have seen a few new customers coming in, which is very encouraging. And then there is a slight revenue effect here as well as, obviously, the customers here are paying in U.S. dollars. But really, the new customers has been really exciting to see that they're coming in. So then that was the region.

So if you then split the revenue on the modality instead. So the modality is really the different segments that we sell. And that is -- those are really dependent on or 100% dependent on which customers we're selling to. So you can see, for example, let's start with the MR here. You can see in 2021 Q1, the MR was 4%. And we basically more than doubled it in this quarter. And that is due to a large contract that we signed here or -- yes, in this quarter, which means that, that affects this number pretty significantly.

And same goes with the 17% here on x-ray, which goes from 17% to 22%. And that's all due to a few customers that bought a number of extra licenses from us or the stack of licenses, I should say, here in Q1, which means that those percentages goes up. And then obviously, the ultrasound slowed or went down. But this is the -- what the modality percentages looked like in Q1.

Then that was looking back a little bit. So if we look forward instead, what is it we are looking at and plans for Q2? Well, we're obviously continuing to expanding on Medical Imaging. That is our core business. That is really where our bread and butter to wish. And that is we want to continue pushing that. There is continuing to be a market, a larger addressable market that we want to get into.

We are going to continue focusing on our strategic customers, the larger ones that you saw on the slide before. We believe that, that is one of the key areas for us to increase our revenues, to work closer with the larger ones. The next topic is very encouraging that we now can see that we can start traveling, at least, in the Americas and in Europe. And also attend IRL conferences that's going to make a big difference to be able to talk to customers and so forth.

Having said that, it's not like we're going to stop, because of the issues in Asia or in China, for example, it's not like we're going to stop any business because of that. We've been pretty successful in closing business anyway. But it will probably delay some contracting. But it's not going to stop any revenue coming in.

And then finally, we are obviously having our product strategy and our set road map, which we're going to continue pushing on to make sure that we get the new products out and make sure that our research focusing and driving in the direction that we already set out.

So plans for Q2. And then I would like to finalize with the -- yes, next slide here. And it's really about the sort of a summary on why is ContextVision interesting? Why would anyone invest in ContextVision? Well, I see it as a couple of things or actually 3 things. Number one is we are the market leader within this. We have a long history of experience working with the history, but also with the brand-new tools that are available. We spent a lot of our surplus, if you wish, on reinvesting into the company, making sure that we are in the forefront of the research. So -- and we are very strong financially, as many of you are aware of. And so very strong in that sense, and also with people and R&D organization that really is where and knows what they're doing.

Second thing is our long-term customer relationship. We've been working with our customers for many, many, many years. And it's not -- it's both small or medium-sized, but also the largest I've been saying, talking about it before. And our churn, and I don't want to be [ cocking ] this, but our churn in customers has been very, very low. And that is obviously because we provide them with a great value. We are giving them some great value to them. And now getting an even stronger focus on the strategic customers that we're working with, we're thinking that as -- or we strongly believe that is the right way to go.

And then finally, our products are we're leading. -- it does give our customers they're really an advantage over their competition. And it's really a smart software. It's pretty smart structured assets, really a black box where you then -- that the same black box that all customers have. And we then put a customization layer around it to fit each individual customer and each of their specific systems. So same tool, but specific customization for each customer, which makes we can do -- I mean, the architecture is smart in that sense. Because when we do upgrades, we can do it just for the black box, if you wish. So very smart architecture, makes us efficient in the product development and what product development cost. And wireless still then delivering the customer value.

So 3 things. And that actually concludes my presentation. So I do hope that there are some questions, and I hope I can answer as many as possible of them.

[Operator]

Thank you, Ola. So we're ready for the Q&A session. And just as you know, it's possible to ask questions in Norwegian as well. So I can read them up to you. We have got some questions, Ola. The first one is on the INIFY Laboratories process. So they asked, you think about listing INIFY laboratories during this spring, do you have any more information regarding the process?

[Ola Lindblad, executive]

No, I don't. And we are right now 2 totally different companies. So all questions around INIFY, I hate to do it, but I just have to defer those to INIFY. And Fredrik Palm, who's the CEO, or going to inifi.com. That's my -- unfortunately, that's all I can answer right now.

[Operator]

That's okay. So then we move on -- it's a question on revenues and the split on segment geographically. Last year's, the Asia segment has seen great growth, while the segment in Europe has seen the opposite effect. Could you elaborate on the development and what you think about the future in a different segments?

[Ola Lindblad, executive]

Yes. So the -- so let me -- so there are 2 answers to that. Number one is, which makes the comparison between these numbers a little bit different than hard to actually dig in too deep into. Because when we measure revenue, what we do is we look at revenue coming in from the region, regardless of the origin of the company. So it's a company, for example, if a U.S. company producing their systems in Asia, we count that as Asian revenue, which means that if the company chooses then to start and move production to Asia or move production to EMEA, it's -- we have an increase or a decrease in the regions, which is it doesn't tell us or you guys that much. It's just more of a moving from our customers are moving their production. It gives some ideas, but it's not -- sometimes it's hard to really understand the differences. I mean that answers part of it. But if you take that away, we still see that the -- we believe that Europe is going to probably stay pretty -- I mean it's not going to be the huge growth engine for us, to be honest. Asia can still grow, I believe so. But I think the biggest growth is really going to come from the Americas market. That's where we see it. I mean there is -- yes, there is a big potential there.

[Operator]

And then there are some questions on margins. We can start with the cost level. Is the cost level quite fixed? Do you think you can increase the sales without also increase the cost level.

[Ola Lindblad, executive]

Yes. Yes, I believe we can. I think we are -- it's not a one-to-one match there, I believe. So no, I believe we can. I don't see a...

[Operator]

Because of inflation and stuff like that. So do you think like you can push it on to the customers as well, the increase in costs?

[Ola Lindblad, executive]

I think we can -- I think maybe we can push some onto the customer, but I don't see a -- we need to increase the whole organization's cost in order to increase revenue. I think we can -- yes, I think there are other things we can do. So no, but...

[Operator]

And then there's something, yes, regarding traveling and your ambition to increase traveling, do you think that will affect the margins? And what magnitude, if it is?

[Ola Lindblad, executive]

Of course, it's kind of question [ pertaining to ] Yes, of course, it is to some extent. But I mean, it's still going to be -- I should say, we have local representation in the U.S. So that's going to be handled a lot from there. And the European travel is going to be I mean, it's not -- that's not going to be a major effect on the margin side. And as Asia, we're still not seeing any travel to Asia until maybe late, late spring or after summer, any major travel. So I mean, of course, it's going to have some effect, but it's -- I think it's not going to have a major right now as I see it.

[Operator]

Understand. And then some on cash flow. And the first one is about dividends. So now that you don't have to finance the INIFY business anymore, what do you think about the dividend policy going forward?

[Ola Lindblad, executive]

Yes. So it's one of those -- I mean we see ourselves as being an innovation company. And we are going to be an innovation company. That's really how we see ourselves. And a lot of them -- I mean, we see money being -- coming back and put into the R&D in order to keep the -- our products as up to speed and drive the development really on our side. But then, of course, if all that investment is done and there is still money left, of course, the Board will look into and seeing if there are money to spend, of course, that's going to be a discussion. So I'm not going to say, yes, I'm not going to say no. But there is potential for it. Yes.

[Operator]

And then a quite similar question. What do you think about the capitalization costs as a percent of revenue going forward, as you just talked about.

[Ola Lindblad, executive]

Yes. I -- that's -- I mean, I think we need to -- because of the focus on the Medical Imaging, I think we need to increase our CapEx going forward. And we have actually with the new -- and I wrote about that in the report. We actually increased our R&D organization here over the first quarter. So I believe we have a very strong team in place, which means that we will have a -- yes, we're looking for a stronger CapEx here going forward.

[Operator]

Do you think that will -- that increase in number of employees will continue in 2022?

[Ola Lindblad, executive]

We'll see. There are some plans in starting or continuing increase then what the end result is going to look like, I'll leave that for now. But we have -- I mean, you can look at the homepage. There is a number of open positions still out there. But there might be more here coming in the future.

[Operator]

Okay. And then one more question. Do you have any [ total ] new products on the drawing board? Or will it only be upgrades of existing products in the next couple of years?

[Ola Lindblad, executive]

No, it won't be just upgrades. There are discussions and thinking and ideas that are passing around at the moment. So No. I mean, as -- I mean, I'm trying to convey a message that, I mean, we're not going to just sit still and doing -- increasing our business likely. I mean we want to be in the forefront. We're going to -- we want to be driving this business and you can't do that by just doing small increments. You need to do bigger things, think bigger, think wider, think more disruptive. I think that's the only way you can be really successful here. So no, it's not only going to be small increments.

[Operator]

And then going back to revenues for a bit. You talked about churn, could you give some figures on the churn rates for the year? Or is it like it low?

[Ola Lindblad, executive]

On the churn, in terms of losing customers?

[Operator]

Yes.

[Ola Lindblad, executive]

Yes. 0.

[Operator]

0? That's great. Okay. So yes, do you want to continue?

[Ola Lindblad, executive]

No, no, I was just -- it's -- no, it's -- we do have a very close relationship with our customers. And of course, it happens. As I said, I don't want to be cocky on this, absolutely not. But I mean it requires a lot of hard work to keep this close collaboration with them. But we have been very successful in keeping our customers really.

[Operator]

It's really great. And then another on revenues. So how much is your total market growing each year?

[Ola Lindblad, executive]

Yes. So total market and...

[Operator]

Total market potential.

[Ola Lindblad, executive]

Yes. I would say that the total market potential is growing just as much as the total market, hence, the 5%. And then, of course, we can always take additional market share because our biggest competitors are obviously our customers. So if we can convince them to use us instead of their own departments, that's where we can grow our market share. And that's the obviously why we want to get closer to the larger customers because that's really where the volume is. So we have -- let's say, if we have the 5% that the general market on ultrasound is growing and then we want to drive increased market share on top of that so...

[Operator]

Okay. So I think we [indiscernible] looks like we're through. If there's not any more questions coming in. We just wait for some seconds. Okay. I think I'll wrap it up. So thank you so much, Ola Lindblad, for the presentation and the great answers on the questions. Thank you for the ones that listen then and we answered a lot of questions, of course. So yes, thank you so much, and have a great day.

[Ola Lindblad, executive]

Thank you, and have a great weekend.

[Operator]

Have a great weekend.

[Ola Lindblad, executive]

Okay. Bye-bye.

[Operator]

Bye-bye.