ContextVision AB

OSE:CONTX

Earnings Call Analysis

Record Sales and Strategic Advancements

ContextVision announced record-breaking sales figures in the fourth quarter with SEK 33.2 million, signifying a robust period of financial performance. The full year top line also reached an all-time high of SEK 132.2 million, marking a growth of around 12%, of which 5% was attributed to currency effects, thus translating to an 8% organic growth. Despite increased investments and one-time costs, the company managed to maintain its earnings per share at the level of the previous year.

Innovative Product Launches and Positive Market Reception

The company launched the new Altumira and Altumira Plus features, which incorporate AI technology for significant advances in X-ray imaging, including up to 50% reduction in radiation exposure. These innovations were met with excellent feedback at the RSNA exhibition in November 2023, generating a substantial number of leads and fostering optimism for 2024.

POCUS Venture: Targeting a New Market with Strong Investment

ContextVision is capitalizing on Point-Of-Care Ultrasound (POCUS) by aiming to make ultrasound imaging accessible to untrained users, paralleling the simplicity of lab tests. This endeavor represents a new market segment likely to grow at 16% year-on-year. The firm plans to allocate approximately 10% of net sales to this venture, hinting at a strategic shift towards this potentially lucrative domain.

R&D and Infrastructure Enhancements to Fuel Future Growth

The company has significantly invested in its R&D structure and infrastructure, including an agile reorganization, eQMS systems, updated ERP systems for cloud capabilities, and strengthened investor communications. These transformative efforts are designed to enable greater scalability and operational efficiency as the firm continues to innovate.

Financial Health Marked by Strong Cash Position

Despite a marginal increase in net sales in Q4 and extraordinary nonrecurring sales effects, the strategic investments and one-off costs led to a dip in Q4 EBITDA at SEK 5.2 million. However, the full year EBITDA stood strong at SEK 48.9 million, and along with a cash position of SEK 58.1 million, ContextVision is well-positioned for its forthcoming growth initiatives, particularly the POCUS project.

Earnings Call Transcript 2023-Q4

[Gerald Potzsch, executive]

Welcome to ContextVision. My name is Gerald, and next to me, we have Richard Hallstrom, our CFO.

Today, we will focus on reporting our Q4 results, and we will also wrap up our full year 2023 review. This is going to be a new format for us. It's an initiative to increase transparency about our activities internally and the results. But let's then look at the agenda.

We will start with some background information, a short introduction. I'll go a little bit deeper into what has happened on the business side. We'll then hand over to Richard for the financial developments in Q4 and the full year, and we'll be rounding off with a summary and outlook.

If we look to the fourth quarter and the full year, I'm extremely proud on behalf of the ContextVision team to announce that a second year in a row, we have grown double digit. And that's in my second year of service. So I can't complement the organization more than saying that will celebrate the fantastic achievements in 2023 rather soon.

But diving a little bit into the Q4 highlights, we'll go through the details in the business update. But just from a helicopter perspective, I think the major accomplishments were the release of our new X-ray AI-powered scatter correction feature as part of the Altumira and Altumira Plus product family. We're able to showcase with excellent feedback those products in the world's largest exhibition RSNA in November 2023.

At the same time, we're executing on our strategic growth plan with further investments into R&D and really making great progress in our new POCUS venture. Now having that said, we also encountered one-off investments in Q4, mainly in our F&A organization but we'll go through those details in a minute.

On the Q4 financials, let me just mention that we had another record Q4 sales, I should say, with SEK 33.2 million on the top line and the lower EBITDA compared to previous year of SEK 5.2 million. But for the full year, I think that seasonality has even out, and we were able to deliver earnings per share on the same level as the previous year. Top line came in at an all-time high for the company of SEK 132.2 million, which represents around 12% growth, out of which 5% were currency effects. So in summary, we're delivering 8% organic growth at 37% EBITDA, and I think that's fantastic and will allow us to even invest more into our future growth.

So let's have a brief look into how the business overall developed. And first of all, let's have a look at the top line, which I think over many quarters in a row now shows consecutive positive growth, now trailing at SEK 132 million. And looking at the bottom line, you see the impact of 2 relevant strategic decisions in the company.

Number one, to spin off our digital pathology business, which is now INIFY Laboratories, almost 2 years ago, which showed a fast recovery of the bottom line. But then as planned and announced earlier, the investment into our new venture POCUS, which also has an impact in the EBITDA as of Q3 2023.

Now looking forward, opportunities are clearly defined by updates and refreshments in our portfolio. Most recently, we were able to launch the new Altumira and Altumira Plus features, which are now AI-powered and allow for an impressive scatter reduction and dose reduction opportunity of up to 50% less radiation for grid-less imaging. We showcased those features with excellent feedback at the world's largest exhibition RSNA in November 2023, which took place in Chicago.

And I must say it was a really busy event for us. It clearly is worth despite all the costs to participate. And we were even able to celebrate our 40-year anniversary together with customers, which led to overall an impressive number of qualified leads, both in X-ray but also in ultrasound, which makes me very optimistic for 2024.

Talking about growth opportunities, we should spend a minute in looking into Point-Of-Care Ultrasound POCUS. We plan to invest around 10% of net sales into this venture, and it's mainly for the reason to enter an entirely new market beyond image quality. So we will focus on image acquisition, something that we call acquisition Intelligence. And the goal here really is to make ultrasound imaging as efficient as a lab test and make it accessible for untrained users.

I talked about the huge potential. So let's zoom a little bit into the market potential here and that is huge, mainly for 2 reasons. Number one, the addressable ultrasound equipment market, which covers CAD-based system, compact system and mobile systems is expected to grow around 16% year-on-year. But with POCUS and acquisition intelligence, we will allow ultrasound manufacturers to tap into a significant market beyond the diagnostic market, and that's into treatment revenue streams. So together, the magnitude of the addressable market is substantially bigger than the entire image quality market that we've sold into so far.

A bit more into the -- zooming into the investments for growth that we have undertaken in Q4. I think it's worth to mention that we've invested substantially into our R&D organization. We've restructured the organization with a new layer in both software development and research that will allow us for a significantly greater agility and scalability.

We've also invested into our infrastructure. For example, eQMS systems, we've updated our ERP system to most recent cloud capabilities. And last but not least, we've also strengthened our investor communications, both with a new team and a new format in reporting, which you see today in the presentation but also stay tuned for the annual report to come up.

Let me not forget to mention that in POCUS, I am extremely happy to announce today that we have successfully recruited a POCUS Lead who will already started in February this year, 2024 and will be based in Boston, Massachusetts.

Now having that said, Richard, let's have a look into how those initiatives and investments are reflected in our financial figures.

[Richard Hallstrom, executive]

Okay. Thank you. Our net sales in the fourth quarter came in slightly above the same period last year, with an increase of 2% or SEK 33.2 million. This, without any FX effect since Swedish Krona was actually strengthening in the fourth quarter. We now managed to establish ourselves at the level around SEK 32 million to SEK 33 million in the most recent 5 quarters, and this is even above the peers before that.

For the full year, the net sales is up 12.2% and ended up at SEK 132 million, which is actually an all-time high for the company. Out of the increase of 12.2%, 5.4% of that came from currency. However, the strong underlying growth in terms of net sales was supported by lifted travel restrictions as we managed to increase our share of wallet and also to strengthen our existing partnerships. However, we also had a SEK 4.7 million extraordinary nonrecurring effect that I will talk a little bit more about on the next slide.

This SEK 4.7 million represents an extraordinary nonrecurring sale of license and service for products that we decided to no longer market. If we adjust for that SEK 4.7 million, we still end up at SEK 127.5 million for 2023. This means on year-on-year in comparison, an increase of 8.2%. And this is good to know for comparability reasons when you make your analysis on the company going forward.

Our profitability in the fourth quarter took a hit, and we ended up at a low SEK 5.2 million compared to the recent quarters. This is definitely lower. The main reason for the lower profitability is that we changed our accounting policy for capitalization. We also increased personnel costs, where most of it is nonrecurring. And as also stated before, we've invested in our F&A, which is really Investor Relations, our quality management systems as well as our ERP.

The same one-offs also affect the full year EBITDA, which anyhow came in a very strong SEK 48.9 million, which is actually impaired with last year. If we look at the one-off effects in the fourth quarter, they sum up to roughly SEK 3 million. However, on top of that, we also invested into POCUS for almost 4% of net sales, and this is not a one-off. On the contrary, we will actually accelerate our investments on growth coming into 2024, especially on POCUS.

Finally, our cash flow in the fourth quarter ended up at a negative SEK 5.6 million. However, we had included a dividend of SEK 11.6 million. Our full year cash flow ended up at SEK 16.3 million, and that actually included 2 dividends that sum up to SEK 23.2 million. This means actually that the underlying cash flow for the company is one of the strongest in the history ever for ContextVision.

Finally, we ended up at a cash position of SEK 58.1 million, and this means that we're definitely gear up for investments coming into 2024.

And with that, Gerald , I hand over to you for the summary and outlook.

[Gerald Potzsch, executive]

Thanks, Richard, for the financial update. It seems that in 2023, we've really managed well the timing of one-off effects on the top line and one-off effects on the cost side so that earnings per share are on the same level as the year before but we have started investing into our new POCUS venture. That's fantastic to hear.

Now reflecting in a summary on 2023 and looking into the future, I think it's fair to say that 2023 has marked a remarkable year with remarkable achievements and a remarkable strategic repositioning of ContextVision. And then both our record sales as well as the innovative product launches, they really underscore our commitment to innovation in medical imaging.

And I must say probably beyond the current scope and investment is also fair to say that executing on our POCUS strategy, we will not only enhance our market presence but will also drive meaningful advancements in health care overall.

And having that said, I'm really confident in our direction, and I'm excited for what the future holds. Thank you, everyone.

[Richard Hallstrom, executive]

Thank you.