Mentice AB

STO:MNTC

Earnings Call Transcript 2023-Q3

[Henrik Hang, executive]

...who has released to our Q3 earnings today. Go, welcome.

[Göran Malmberg, executive]

Thank you so much, Henrik. So I will start the presentation. I think we can skip the introduction. So first, I mean, we have another really, really good quarter. So it's a pleasure to be able to go through a little bit more details here. So first, a couple of highlights. Net sales, you've seen up to almost SEK 64 million, a significant increase from last year. And you can also see typically, Q3 is a little bit slower quarter. It's a summer quarter, but it's really nice to see that we've been able to really continue with a strong performance from the first and second quarter. Order intake is following in the same level, slightly higher growth compared to last year. Generally, you can see that the industry is the driver for what we're doing. But we can also see a year-over-year in quarter Europe and EMEA had a really, really strong quarter. Continuing to improving the order, I mean, 13% improvement from last year. And we can see here, which you can see in the report that we have close to SEK 40 million, which is scheduled for the fourth quarter in 2023.  Really nice to see that we can produce incremental EBITDA margin in the third quarter in addition to what we did in the first and second. So we are in a really good position, and we talk about that on the next slide. And I think probably the most positive component here on this slide is the operational cash flow where we added SEK 40 million in the third quarter. Net income, I mean, at the brick we earn, again, a significant improvement from last year and previous years, I would say. And then consequently, earnings are also at the breakeven. So for the first 9 months, year-to-date, we are now above SEK 200 million. And you should remember that we did SEK 217 million for the full year last year. So we are over 90% compared to the full year 2022. Order intake as well over SEK 200 million compared to SEK 252 million to be exact, for the full 2022. So that's as well over 80% of the full last year.  Continued strong performance throughout the first 3 quarters for medical device, Americas as well, even if America had less strong Q3, still did really well. But if you look over the first 9 months, they are significantly above last year. And they actually have surpassed the full last year for 2022. APAC region, as you talked about before, had a slower start, mostly related to a slow start in China, which is the sort of the dominating country region in the APAC region. But we had a really strong Q3 for APAC, which sort of had worked us back. So we are in a much more balanced situation also for APAC. So that's just really nice to see. We have -- I mean, both Americas and Europe, really strong performance compared to last year. And we can see a trend that we're working on back in the APAC region.  EBITDA margin, SEK 22 million, I mean, a significant improvement from last year. So over SEK 37 million positive compared to the same position last year, just over 10% of EBITDA margin in a really nice position. And again, we should remember that traditionally, Mentice works up most of the margin or EBITDA or profitability in the fourth quarter. That's not going to happen this year. So but really this old position we have where we have generated margin or profit earnings for the first 3 quarters. Net income at breakeven, again, significant improvement compared to last year. Cash flow, as we said, fantastic, really, really nice to see that we are generating cash to this level. Obviously, this is a consequence of a strong performance in the last 3 quarters, 4 quarters really, where we see that that's now getting result of -- providing us with a result earnings to talk about.  So summary of this, really pleased to see how we performed for the first 9 months. You can see the driver is really overall business growth, I would say, Americas, which is predominantly a medical device. Europe is a good mix between hospital and industry. And I would say the same for APAC as a mix of hospital and device industry. We can see -- we talked about this a year ago that we changed the direction of the company where we said we need to focus on profitable growth, just not growth. And we can see now over the last 4 quarters, we have significantly improved the productivity. One internal measurement that I use is revenue per employee -- and we have improved that with over 30% compared to the last -- same period last year. That's really, really nice to see that we can execute. And there's obviously multiple components there. But it's really in summary, we have kept the cost level on a fairly steady level. We have worked a lot with productivity internally, but also we have a really nice product mix. We can see we are able to grow top line, but we grow with the right type of products. So that's the sort of a summary of what we have there.  Cash flow, I already talked about. So that's very -- I think we can leave. Going into a little bit more detail on the order intake, we see we have an overall strong trend here. We see that medical device is clearly showing an upward trend and the highest point ever on the rolling for a quarter basis. We can see that health care had a really strong Q3, which is nice, 23.4% growth year-over-year. We have strategic alliances variation. We'll talk about -- a little bit about that later, but we have some very positive activities here in the end of Q3, but also beginning of Q4. Net sales, similar here, I mean, 25% in the quarter. But really, year-on-year, we -- or for the full year-to-date, sorry, first 9 months, we are over 30% above last year. On the quarter growth, we can see that the organic growth is about 20%. And then we have FX and acquired growth being something like 5% to 5.7% here to be exact.  I think I've talked about this. We can see, as I said, a really good product mix. I mean we have 55%-ish on systems, growing software, growing -- recurring revenue for software. So I think we're moving in the right direction. The services part is less than 20%. So that's where we want to be really. Order book, I think I talked about that, SEK 130 million. And I mean, again, I mean I'd like to go back a couple of years just to remind myself where we are. I mean, you go back maybe just 2 years, our order book at this point of the year would be less than half. So the fact that we're building order work is obviously a factor here of how we bring orders in is also factored by the increasing recurring revenue, which is really working into my ambition or our ambition to have much more done when we come into a new quarter or eventually a new year. So that's nice to see. So SEK 40 million, almost SEK 37.6 million is already sort of in the books for the fourth quarter.  Annual revenue I talked about, so I think you're going to leave with that. So as a summary then, 36% growth year-to-date on net sales. Gross margin, we have maintained a really high gross margin always it's a bit of FX effect in this 1.5%, maybe 2%. But we also can see that the underlying product mix and the way we sell is also an indicator of us really focusing on providing profitable business in. EBITDA, SEK 22 million already done after Q3 is a really, really good position going into the fourth quarter. As we say, I mean, SEK 37 million-plus improvement compared to the same period last year. Obviously, now we are way past the pandemic and we have -- we don't have any services so you can talk about that separately. But I really think it's mostly due or a result of the focus of profitable growth that we had for the last year.  We have kept the cost levels and the full-time equivalent in a very stable way. I mean we are on plan, slightly higher than last year due to salary increases and things like that. But really, really good control of the cost, I would say, without getting into detail. SEK 75 million in cash is a significant improvement compared to same period last year, where we were at 27%. So that's really nice to see. It gives us a much larger cushion, and much more confidence. We can ship better. So that's really nice to see. And I hope we can demonstrate that we can continue with the same level of performance.  So just as a summary, I mean, as a sort of more of a market and business summary without talking about the numbers, -- as I said, I mean, the focus on profitable growth is clearly paying off and where we see we have a much stronger cash position where we have built cash every quarter announce since Q4 of last year and really the improved balance between cost and revenues or income is also really nice to see how that's working out. We have seen this year, I mean, we are obviously yet to see if this is a trend that will be sustained into following years, but it's clear that we have a completely different seasonal profile for this year, much less back heavy. We will probably have a much more distributed business over the full year, but that also gives us a much more comfortable situation compared to previous years, while still we have a high requirement for the fourth quarter. I just have to say that.  I just went back and checked the other day, and I just noticed that looking back to 2020, we have more than double in performance, both on orders and on net sales. So that's something I'm really pleased with. I mean 2020, we had a COVID or pandemic year in 2021, '22 was sort of recovering from that. But still, I mean, seeing that we can more than double revenue in 3 years. That's 26% CAGR. That's something that we are really pleased with. We can see how we're improving our market position. I would say without hesitating that we are the undisputed market leader in this space in the Image-guided Interventional Therapy area, clearly, and we are gaining market share as we are moving. We can also see that the combination of product portfolio we have with a combination of VR, physical simulation, the performance tool with the products from Ankyras is clearly perfectly in line with what markets expect, both from a position and hospital point of view, but as well from the industry. So that's really, I mean, nice to see that confirmation from the market or from the clients.  And last, we can see the competition is really much different now from a couple of years ago. I mean, we're obviously competing with -- on funds with a lot of different technologies, but in the core competition on the heart predictive video simulation in the space, I think it's really clear that we are gaining market share and our competition is not as focused as we are. So it just gives me a really good feeling. I'm really pleased to be able to present this third quarter and really following on the strong performance, both in the first and the second quarter. That was my presentation.

[Unknown Executive]

Great, Göran. And I have some questions to follow up that  -- can we please start a bit about discussing the gross margin? It has been really strong during this quarter and the last couple of quarters, and it's on a higher level than historical numbers. So apart from FX, which you mentioned, what's the reason for this development?

[Göran Malmberg, executive]

I mean it's -- I mean, we talk a lot about how we need to sell systems and software in relationship to customer development, for instance. So we look at that as an internal KPI, and we can see that the product mix has improved a lot over the last year with a lot of larger orders with the relationship between systems and development much, much higher. So we'll see that how we do deals, the product mix and how we sell software is really an underlying reason where we have, I mean, a core gross margin around 83.5%, 84%, 84.5%. And then as you said, we have a bit of an FX booster there up to maybe the 86% level, which is not going to be sustainable probably. But that's where we are, absolutely.

[Unknown Executive]

Okay. Great. And as a reminder, you can always ask questions in the live channel. And my next question is, can you please explain the development in the segment strategic alliances during the quarter after quarter?

[Göran Malmberg, executive]

Yes. I mean, we had, as you might have seen a press release for an order just in the start of Q4 for SEK 1 million. That was an SA deal, which is sort of a further development of relationship with one of the main SA partners in systems that they will use for their own activities and their own marketing and go-to-market activities. So that's a really nice development, which is a further customization of our products and really something that they will use in their own process to bring their products to the market. So that's clearly in line with our plan. Generally, we see during the quarters, we had -- I mean, one example, we had one action up in Finland in Turku, [Obo] where a hospital there purchased a combined system through one of the strategic alliances partner with both a Cath lab or an [anti-suit] x-ray equipment for a full room or rooms actually whether you have also integrated equipment and the purpose of that is you need to have an integrated Cath lab where they have training and continuous improvement capability in the Cath lab. So that demonstrates how the validity of this combination, even if, obviously, the development overall has not been to my expectation, but we know there's been a lot of disturbances during the pandemic and so. But I really see a lot of push from the market and a lot of interest, both from the partners and from the end clients. So we will continue to push that envelope and work with those solutions. And I really see a lot of opportunities there.

[Unknown Executive]

And also, can you please develop a bit about the about the anchors during the quarter? How is this...

[Göran Malmberg, executive]

Absolutely. I mean there's a lot of work going into that. Okay. I mean we are obviously still working hard to try to get FDA approval in U.S. I'm not allowed to talk about timing for that because then I will get punished afterwards. So I will have to refrain from talking about that but we are moving that process forward in a good way, I can say. But then I think it's activities. We have had 2 or 3 neurovascular congresses with really, really good feedback over the last say, 2 months, a few months, one of the largest neuro congress in the U.S. called SMIS, where we displayed and demonstrated the capability of Ankyra and we get really, really good feedback there. Similar in Europe here. Last week, we had a company is called Slice, which is not a neurovascular congress, same thing where we have really good feedback from physicians and industry. On the sales side, we are working with the -- I mean all of the major nanovascular manufacturing companies on the value of the integrated solution. I mean, we're the only company in the world that have an integrated solution with [training] solutions, physical simulation and the precision medicine or the kind of decision tools from Ankyra, so that combination is unique. So our clients see a lot of value in that.  From a product development point of view, we are continuing the functionality, we're working a lot with providing online or cloud-based functionality. We're working on expanding the support for devices to make sure we have more devices in the product. We're also working on the core algorithm to make sure that the realist and the viability of our calculation or simulation is as good as possible. And we see a lot of interesting developments where we can provide even better tools for doctors. We've also seen that we have got 2 of the PET patterns improved. So one of the discussion we had when we acquired Ankyras is that they put in patent applications a lot of years ago, but we never get those patterns approved. So we work through that, and we have now 2 approved patterns, which makes us the first vendor in the market or the vendor with the earliest patterns and kind of prior art in this industry, which is really also important for our future business in the space.

[Unknown Executive]

Great. I will break in with 2 questions from web. We have 2 questions from Christian Bader at [Trader]. So the first one... Excuse me, if I look at my phone. Can you elaborate a bit on the underlying reasons for this quarter's favorable working capital movements?

[Göran Malmberg, executive]

I mean it's a lot related to the strong business intake or the business we have received in the first couple of quarters and how we have worked on account receivables. We -- I mean a lot of the larger orders we have received in first and second quarter as we have announced a couple of them, a lot of them really generated cash in the quarter. So it's really a conversion of our accounts receivables into working capital is still is the main explanation.

[Unknown Executive]

Okay. Great. And here's a follow-up question. So recurring system sales have decreased in Q3 and year-to-date elaborate leverage on the underlying developments and the dynamics of these developments.

[Göran Malmberg, executive]

Yes. I think it's... I don't think we should focus too much on that. I think you should probably more look at rolling numbers on a rolling trend, we can see that we are increasing. As I said, I mean, the Q3 quarter is a little bit difficult quarter. We had strong hospital sales in the quarter. So I think that if we look from a longer period and probably rolling 12 or so over years, we'll still growth. So I will not to categorize that as a decline really. I think it's just the normal fluctuation of our business.

[Unknown Executive]

Okay. Great. I don't have any further questions. And as a reminder, you can always ask questions in the live chat. So I have one last question here from the -- it was a comment, not a question.

[Göran Malmberg, executive]

Okay. Sure.

[Unknown Executive]

So by that, I would say thank you, Göran for presenting here to us back and thank you, everyone, for listening and watching.

[Göran Malmberg, executive]

It's a pleasure. Thank you.