ContextVision AB

OSE:CONTX

Earnings Call Transcript 2019-Q4

[Unknown Executive]

Welcome to ContextVision's headquarters here in Stockholm and the Q4 interview with CEO, Fredrik Palm. I am the Investor Relations, [ Ula Eklund ].

[Unknown Executive]

In short, Fredrik, please tell us about the highlights in the fourth quarter.

[Fredrik Palm, Chief Executive Officer]

Yes. Following 3 strong quarters in 2019, the fourth quarter ended with stable sales as well. We had a strong growth within the X-ray business in medical imaging, which can be related to the release of the first AI-based product line for X-ray. We also received our first patent within digital pathology for the, what we call, the Master Annotation method. This is a unique method to generate objective, high-quality data for training of algorithms. And last but not least, we also kept a solid cash position.

[Unknown Executive]

Tell us a bit more about the financials.

[Fredrik Palm, Chief Executive Officer]

Yes. Going a little bit more details on the sales, we ended at SEK 28.1 million in the fourth quarter, which is a small increase compared to the fourth quarter in 2018. And the full year sales for 2019 ended at SEK 95.3 million, which is yet another sales record in our company's history. Regional-wise, Asia is the largest part of the business, which is growing. United States is growing as well, while Europe is decreasing a bit, which can be related to one customer phasing out, one of our product lines, earlier mentioned in quarterly reports. Looking at sales per product line, ultrasound continued to dominate our business, while we clearly see that X-ray starts to take a larger share of our total business. So to summarize this, sales were solid, although I have to mention that volume-wise we had an increase, but sales with monetary measurements were also heavily supported by favorable currency exchange rates. The operating result ended at SEK 10.1 million, which corresponds to 10.6%. This is related, of course, to capitalization of research and development investments. But also important to keep in mind is that our medical imaging business, isolated, had an operating margin at 36%. So for the full year, the cash flow ended at minus SEK 1.6 million and the cash position at year-end was SEK 36.3 million.

[Unknown Executive]

Strong numbers and very good margins within medical imaging. We've seen that for a long time now. What are the key success factors behind this growth?

[Fredrik Palm, Chief Executive Officer]

Continuous reinvestment in research and product development, skilled team with specialized competence and close partnership with customers is what I consider being the success factors. This has -- over the years, this has built a very, very strong brand, which we continue to build stronger and stronger.

[Unknown Executive]

Within digital pathology, you continue the development of the first product. What are your main strengths? And what are the main success factors?

[Fredrik Palm, Chief Executive Officer]

First, ContextVision is a product company, meaning that we are specialized in going from research all the way to product. And this is a journey quite oftenly underestimated by start-up companies, for instance. Once we are ready, it will be a CE marked product. CE is a certification you need to be allowed to sell products in Europe. But CE for this kind of product is a sell-off certification, meaning that we don't need any authorities to go to market. So the measures for when the product is ready to be released is set by our own requirements in terms of quality and standards and so on.

[Unknown Executive]

What is crucial to make a successful product release of your first digital pathology product for prostate cancer?

[Fredrik Palm, Chief Executive Officer]

We have high requirements when it comes to quality and standards. And I think the recently patented unique method for generating objective and high-quality data to train algorithms confirms that. So we want to make sure the most important is that when the product is released, it's really supposed to support the pathologist in the workflow and in the decision-making. And that is what we are about to do.

[Unknown Executive]

What is the scalability of your products within digital pathology?

[Fredrik Palm, Chief Executive Officer]

The technology and the knowledge that we built so far is, of course, extremely valuable. So yes, this will be extremely valuable for us building a portfolio of products. It will contribute to the next generation of prostate product as well as other common cancer types, such as lung cancer and colon cancer. In 2019, we already entered into the first stage of research within lung cancer. And we also have the first data set of colon cancer in-house.

[Unknown Executive]

There's a lot of focus on artificial intelligence in the corporate world. Do you see that as a threat?

[Fredrik Palm, Chief Executive Officer]

I agree. There is a lot of focus on AI, which is good for us. We have an edge compared to many other companies because we combine AI expertise with 30 years of experience of developing software for image analysis within the medical space. In comparison with possible competitors, we are a mature software product company that has all the infrastructure in place to go all the way from research and the technology all the way to the final product. All those steps are crucial for success. And our combined strength in the entire process from research to product creates confidence in our success. Competitors are always a threat. But in some sense, it's also good because in a new market such as digital pathology, it helps to create acceptance for the digitalization.

[Unknown Executive]

Finally, what is your view on the digital pathology markets going forward?

[Fredrik Palm, Chief Executive Officer]

Digital pathology is a mature market, but information from external resources as well as internal estimates points us in a direction where the market is estimated to around USD 700 million for decision support tools by 2024. That, in combination with our origin and long experience within software development for medical image analysis, made it obvious for us to invest and approach the digital pathology market. So to conclude, 2019 was yet another successful year for ContextVision. And I'm really, really excited and optimistic about what we are to accomplish in 2020 and years to come.

[Unknown Executive]

Exciting times. Thank you, Fredrik.

[Fredrik Palm, Chief Executive Officer]

Thank you very much.