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Mentice AB
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Earnings Call Transcript

Earnings Call Transcript
2022-Q1

from 0
Operator

Welcome to the Mentice 2022 Q1 Interim Report. The results will be presented by CEO, Göran Malmberg; and CFO, Gunilla Andersson. My name is Suzi Hanna, and I will be moderating this webcast. [Operator Instructions]

This meeting will be recorded and available with the report on mentice.com shortly after the webcast. I will now leave the word to CEO, Göran Malmberg.

G
Göran Malmberg
executive

Good morning, everyone. Welcome to this webcast and the presentation of our first quarter. So we will move into the presentation. Okay. So yes, so first, we're really excited to present a really strong first quarter.

As we say in the report, following up with the strong end of last year and overall strong last year, but it's really nice today to present a strong first quarter as well with over 60% -- 64% growth year-over-year for net sales for the quarter, SEK 53.1 million.

We also are significantly better on EBITDA compared to last year, where we are just mildly negative on SEK 1.3 million compared to SEK 8.4 million for last year. We also see that with the strong net sales, we're also adding with -- talk about that in a bit, and added order intake.

So the order book actually increases significantly year-over-year, but also increases compared to the fourth quarter. The order intake is 36% of the growth compared to last quarter, so as well in line with our financial targets to grow above 30%.

What really especially is nice to see, as you know, we had 2 years of pandemic that have impacted the hospital market. We can see that the first quarter here is first one in 2 years where we see the hospital market is coming back to some sort of normal. So it's a really significant improvement from last year, but also stronger compared to first quarter in 2019. And overall, this quarter is our strongest first quarter ever, which is really nice.

As most of you have seen, we did announce the order for Strategic Alliances in China for Corindus, the first 10 systems sold to China. We talked about that a bit more. So again, this is on the highest level, really positive quarter and a good start for the year.

Moving into the -- little bit more details. So first, talk about order intake and order book. As you say, a SEK 54.4 million to 36% in growth year-over-year. If we break it down a bit down to the business areas, where we have the Medical Device Industry, Healthcare systems, Strategic Alliances, we can see that the Medical Device Industry is in par with last year, which obviously, we have fluctuations in quarters.

So it's a really strong quarter again. And we see that we are building pipeline for the year. As we said, Healthcare system really sticks out here almost 3x compared to last year and, as I said, back to the levels before the pandemic. Really nice. I see in the report that, obviously, there's no warranty, no guarantee that this will continue, but I believe this is a clear trend.

From an order point of view, the Strategic Alliances here also include the Chinese order for Corindus is a nice start. We'll talk about that later on the net sales that this is not reflected in the sales number.

Going down to the lower section of this slide, we see the order intake per region, where both EMEA and APAC has really strong quarters. EMEA is up 83%, unchanged; and APAC is up 50%. APAC is up due to the Corindus order, but also removing that order, still APAC performance is really, really strong.

EMEA, a fantastic result in the quarter. Americas is about the same as last year, which is understandable given they had a really strong fourth quarter. And Americas, U.S. is typically a little bit slower in the first quarter.

You can see to the left here, we're breaking down the order book a bit. As I said on the first slide, good, solid growth on the order book. We're building the annual recurring revenue components in a nice way. We'll talk about that further back in the presentation. But really, we see that we're building something for the future here. All in all, a very nice performance here, I think.

Looking a little bit longer term along our historical perspective on this, just to make a note, if you go back 10 years, we can see now that we have generated about 3x overall increase. We have a CAGR across this period of time of about -- yes, short of 20%, 17% or so. And you can see the trend here for order intake. We can see a nice trend from early part of 2020 and then going -- showing a nice trend upwards. Obviously, in the last 2 years, that's been driven by the Medical Device Industry. But hopefully, we can get some more support from the Healthcare side in 2022.

So we'll look at the net sales here. Again, this is obviously to a larger extent based on orders we received in end of last year. You can see that Medical Device is performing extremely strong, double the performance compared to the same quarter last year. Healthcare on par. But obviously, the Healthcare business we received in the quarter will affect in Q2 here, rather.

And then Strategic Alliances is on par with last year. But really, you can see here, this is really a result of a strong end of last year. But SEK 53 million is historical, by far our strongest quarter here as well -- for the first quarter, sorry. The distribution here between the different business areas, you see here 75% for Medical Device; Healthcare, 17%; and Strategic Alliances, 8%.

We expect that to be more normalized so on the order delivery from the previous slide that we go down slightly on Medical Device or actually the Healthcare is increasing. So I expect that every year that we will be still a little bit less dependent on the Medical Device side.

Regions from a net sales perspective, obviously, a really good development in Americas, 40% increase year-over-year. Fantastic performance in EMEA, Europe, Middle East and Africa, obviously, with the first quarter last year very much affected by the pandemic on all counts. But EMEA has a really, really strong quarter. And in APAC, we had a really strong first quarter last year. So that's in par with last year.

And I will let Gunilla talk about this slide, actually.

G
Gunilla Andersson
executive

Thank you very much. Good morning, everybody. I think you have all noticed, I hope, that we have from this quarter and onwards, defined our business segments in accordance with IFRS 8. And the model here then will be into the sort of products that we are selling and then those products based on if it's a capital expenditure sale or if it's an OpEx or recurring sale.

And this first graph that you see here in front of you is the rolling 12 quarters for the recurring revenue inside the business segments. So it's the system sales, and it's the software licenses recurring sales. And we see a really strong growth. Actually quarter-on-quarter, it's 108%, but then we took ourselves from 26% to 32% on a rolling time basis for 2022 Q1.

And then defining a little bit more what we define as our business segment, we have 3 of them. It's system sales, it's software licenses and it's service. But then inside system sales, we have 2 important components. It's the systems themselves, and then it's the accessories and spare parts that we sell that belongs to those systems. So that is then divided into 2 different categories that you can then look at the sales perspective from.

And we see sales then on capital expenditure, where it's SEK 10 million growth on the system sales in the quarter. There is a doubling of the accessories and spare parts side. And then we see the recurring revenue, which is then rentals when it comes to systems, which has a very strong growth in the period, 316% actually.

Then the software licenses. Here, we have then the sale of software as we sell the system. That was on the capital expenditure line. And then when we sell Software as a License, which is then the recurring revenue part, and you see that a 68% growth in the quarter 2022 over 2021.

So overall, this is the explanation of the very nice 108% year-on-year quarterly growth for recurring out of our business segments. And further into the report, you can also look at gross profit for those business segments.

Yes. Let's then conclude that we really had a nice quarter. We were growing a lot, 64% on the net sales and we were close to be positive on our first quarter. The ones of you that follow us a bit, you know that we have quite some problems in our first quarter, lower sales normally and high costs.

So to be able to show our result that is this close to 0, I think it's a really good achievement. And of course, it's really based on the high sales and that we are able to deliver 80.1% gross margin on that sale.

This then gives us SEK 17 million in more gross profit in amount compared to last year. And then the increase in cost is SEK 10 million. So overall, then EBITDA is increasing with SEK 7 million. And -- what is important to note, of course, is that the first part of 2021 was still pandemic.

So both from travel cost perspective, but also our marketing and communication activities was really halted. So the main part of this cost increase is in there. And add to that, that we have a variable part of our salaries to -- which is commission, which then, of course, increased our sales increase. And that we are 112 in total compared to 98 in quarter 1 last year. And then you have all the explanations you need to understand the SEK 10 million increase.

Also, what I think is most important to me is that we generate positive cash flow. And we do. In this quarter, we generated SEK 7.4 million overall. We had negative outflow of SEK 21.3 million in the same quarter last year. And at the end of the period, we were at SEK 19.3 million in cash and bank positions, which then was higher last year. But I think you all remember that we ended year-end 2021 at SEK 12.7 million. So a really strong quarter for Group Mentice.

G
Göran Malmberg
executive

Thanks, Gunilla. So just as a commenting, we're obviously adding people from 98 to 112, and that's obviously continue building the organization for what we need in the future. That's not what we need to bring in the business in first or second quarter.

That's really building an organization for next year and the time on. So this is really demonstrating how we perceive the future here. So yes, I think it's nice to be able to grow the organization like that, grow from what we need in the future, but still generate short-term results, right?

Right. Let's see. Yes. So just a slide on the overall perspective here. I mean, obviously, we had an interesting period over 2 years. We're still, obviously, partly in pandemic. And so we'll talk about that a little bit, but I just want to just establish that we really see that our positioning of Mentice, our discussion about the Vascular Twin, the idea of the model of the patient in the center and the tools we have to support physician and the health care professionals to make better decisions really expanding in that vertical. I think that is a really solid path for us that we really get validated in the market, I would say, every day. And our ambition is obviously to expand that footprint.

We talked before about our activities for M&A and similar which is continuing, obviously. But our ambition is really to continue this expansion in a nice way. And I think we can do that in a very good way on the back end of the results we have from our core business.

So just as a high-level summary of what we talked about. I mean just reiterating that, I mean, it's another quarter of growth. But it's also a historical high for the first quarter, which is really, really nice to see. It's also really, really encouraging to see the comeback of the hospital-related business. Even if there's no guarantee that they will continue, but we believe we see a change of trend, definitely, in Europe. I believe so also in the North America or in Americas. Obviously, we have still a question mark on the APAC side -- sorry, we -- sorry, I should bring this up.

So obviously, the underlying political situation with the Russian-Ukraine situation will most definitely have impact even if we don't have any direct impacts on that since we don't do any business in the regions. That obviously relates to supply-related issues, things like that. So this will have effect. And we see now in the last couple of days, that the -- for the lockdowns and similar in China will obviously have a potential impact on our business in APAC.

But overall, we really see that we have an opportunity to really perform on a more normal level for the Healthcare system and hospital sales this year.

The Strategic Alliances side is really starting off well with the Corindus sale in China, and we have a lot of activities there that I hope that will help us for the year.

Medical Device here has a strong quarter. Obviously, not growth in the quarter. But we have, obviously, as I said before, fluctuations between quarters. We see we build a lot of opportunities. Our position there is very, very strong. And I also think actually pandemic has helped us from a medical device point of view, where Medical Device have really realized the importance of simulation and solutions that Mentice provide.

So overall here, I think a very solid structure where we have these 3 business areas really complement each other and helping us to build the future. Yes, that was really it. So we're open for some questions, if we have that.

Operator

So no questions.

G
Gunilla Andersson
executive

We can see it, there are no questions.

G
Göran Malmberg
executive

Probably. So I mean, I got a question on the health care market that I sort of mentioned that. I mean, again, I mean, it's 3x last year. It's above 2019, so above before the pandemic. We really saw 6 or 7 significant deals in Europe, multiple deals in U.S., but also deals in Asia and the rest of Asia. And we generally see that the Asian market will come back. We will see a continuation in Europe. So we -- again, it is no guarantees in any way. And -- but I think the first quarter is just not the first quarter here, and we see that the opportunities are building.

All right. I guess if we don't have any more questions, I think we will -- and that you have our contact information. If you have any other questions, so please reach out if you need to. Otherwise, thanks a lot, and see you again in a quarter. Thank you, Gunilla.

G
Gunilla Andersson
executive

Thank you.