Okay. Good morning, everyone, and welcome to Modulight's first quarter webinar. My name is Seppo Orsila, Founder and CEO of the company. With me today I have our CFO, Mrs. Anca Guina, who will also be answering your questions during the webinar. You all have probably seen the release we published in the morning, and during this webinar I will go through some of the highlights and relevant developments during Q1, as well as touch upon some recent progress after the period reported separately. We had a number of positive developments during the Q1, considering our midterm targets, but let's take it away and we'll have Q&A at the end.
We made good progress with the pipeline, both an increase in terms of projects as well as good progress within the existing portfolio, which I'm gonna talk about later. But I'd just like to highlight also two new projects, one with a top five pharmaceutical company related to lung cancer, and another one related to dermatology with another public U.S. company. In the domain of analytics, we pursued successfully with our recruiting and continue to see high attraction to the company, particularly analytics and software engineering. We expanded the scope of our investments continually and are on budget and schedule.
As noted here, we also had our on-site audit from the U.S. FDA last week, and we'll be discussing more of that later today. After the period, we also landed a $3.9 million purchase order from an existing customer recently. From the kind of COVID-19, we continue to see the impact, and looking at the press even yesterday, it seems that especially these changes in China seem to impact many other companies in terms of expectation perception. More specifically within our business, the challenges in terms of predictability of visiting policies as well within hospitals, as well as customers' individual travel policies continue.
As noted, we've also gotten some new customers and obviously this there is more and more variance between from customer to customer, how relevant these face-to-face meetings are. Revenue and profitability were lower during the period. This is mostly due to the fact that we are executing our strategy and gearing up investment as per our plan. There is basically no kind of unexpected operational costs. On the other hand, we're actually quite happy with those plans, and decrease in profitability is really a change to the fixed cost base.
I would also like to note that as we communicated in the March 15, we made a write-off for the last year, and then obviously there were certain revenues from those same customers for this year, and we write off those too as they had been accumulated during January and February. At the same time, we adopted different accounting principles for certain customers to recognize revenue only based on cash collected. I believe we discussed this in the previous Q&A already. We continue to target the same targets as before.
We continue to see volatility, but overall, making good progress and we hope that this rapidly widening portfolio, and especially with the progress within the portfolio will continue to mitigate risks and increase stability on the midterm. Hey, Anca, if you walk us through the numbers, please.
Yes. Thank you, Seppo. Good morning, everybody. Yeah, I'll try to walk you through the numbers. Seppo already mentioned some reasons for these existing numbers, but maybe we can go in a little bit more detail. Basically the revenue for first quarter was EUR 1.6 million, 27% drop from last year.
It was already mentioned that it was impacted by our customer-specific policies on on-site visitors, along with some of the business travels. Also the write-offs which were decided on March 15 affected a little bit the revenue or affected the revenue recognition, therefore the revenue for the first quarter. Both EBITDA and EBIT were negative, and the lower profitability is explained obviously by lower revenues combined with increased costs.
It's important to mention that despite the revenue decrease, the company kept following its growth strategy, so we didn't slow down the spending related to the expansion. This includes basically hirings, marketing costs, and so on and so forth. Capital investment continued at a faster pace than initially planned and amounted to a total of EUR 3.6 million. The total number of full-time equivalent headcount at the end of March increased 25% compared to previous year, showing that we follow this growth strategy.
Maybe a note on the headcount that when you follow Modulight headcount sequentially, there is always a peak in Q3, but this is because current headcount is over 80, but a substantial number of people are part-timers, and we have recruited many, many people by hiring the university graduates or people who are near graduation, and only after they graduate they become full-time people. During the holiday seasons, they always work full-time, and thus the Q3 is usually highest FTE figure during the year. Overall, we continue to have very low voluntary attrition rate at the company and lots of applications coming in.
Hey, about the project portfolio, as said, continues to expand, maybe even somewhat more positively than we foresee earlier. I feel that these wins in new customers are both the top five pharmaceutical company with whom we started the lung cancer collaboration as well as another public company then in dermatology are in our view good examples of recognition of our expertise and broadening potential. We believe that these are also very significant similarly to the Bausch + Lomb example that acted as a reference a number of years ago, and basically catapulted company's growth since announcement into late 2018.
We believe that these have even more importantly, such long-term effects within the industry as reference value. While it was not considered yet a project in this table, I would also like to mention that we got our first Fortune 500 quantum computing customer or a PO from them during this quarter.
I would like to explain a little bit that when we include a project into this category, there are certain criteria which we internally view, and obviously it's not just based on the business potential, but based on our understanding, maturity, et cetera, of the project. That customer, who is also a blue chip company, could eventually be added here, but this is not included yet.
This would obviously not be life science, but it would be in this other high value add category of our customer base. A little bit more about the new projects that were started in first quarter. As said, working on lung cancer, new treatment modality, and this is quite nice. Not just the fact that there is a smaller pharmaceutical company that has been using our product in lung cancer in more limited way, but now a much bigger one is also exploring new ways to utilize this technology. Secondly, there is an established U.S. public company who has sought our laser technology for their new dermatology therapy.
Why this is also somewhat interesting to highlight is that in these applications, based on our very initial understanding, I should emphasize, the qualification and approval times are somewhat shorter than typical approval paths for the most clinical applications with which we work. In a nutshell, both wins highlight the recognition of our expertise and technology and broadening the potential diverse usability. That said, really are considered by us as clear trade references as well. There has been a lot of discussion during the past six months that the company has been public about the kind of base of customers. Here we have tried to elaborate from a couple of different dimensions.
How do our customers break down in terms of these projects? Or what kind of companies do we have behind these projects? As you can see, majority of the companies behind the projects are listed companies. There is a fair number of blue chip companies. Of course, the definition of a blue chip is somewhat vague, but we believe that all of these would be something that general people would associate as blue chip companies. There is also a fair amount of research or very early stage companies, and some of the early-stage companies are also public companies.
We hope that this breakdown will give investors more of a view on the kind of quality and the kind of type of companies which are behind our projects. This is something that we intend to elaborate even further going forward, but we hope that this is answering at least some of the questions proposed by the community in the earlier conference calls. I want to thank everyone for providing all the inputs, as this has made it possible for us to tailor the message so that it best meets the needs of the investors. What we also tried to elaborate here is a little bit about how a typical project goes.
I wanna emphasize, however, that projects vary a lot from project to project and from application and indication to another. What is definitely common is that sales cycles vary in length. I mean, from the initial discussions to close to an agreement or receipt of the purchase order, it is practically always many months. I would say that six months is very typical minimum, but there are also have been exceptions where this has been done even faster. For example, the contract Bausch + Lomb announced a collaboration with us in late 2018, that was negotiated more than two years.
Projects typically start with early phase research, but increasingly also with more mature phases, and the customer may be looking for an alternative, or they may have a non-working solution from competition or developed internally. Last year, we were particularly happy also to report some new customers adopting technology their competitors are already using from us, as noted also in the annual report. Project plans are often ambitious, but seem to take more than predicted. Delays in these projects are almost exclusively due to reasons outside the scope of our work, but of course, we can always improve all the time as well.
I'm just giving this as a kind of guidance because it is not uncommon that customers might have a plan targeting from the start that they would have in three to five years an approval and a drug approved in the market. This has been the case also for some of the customers with whom we have now been working already five years, and they are still at least one year or two away from the approval.
I believe that this is quite normal in the pharmaceutical world, and this is also why we elaborated and initially founded the strategy to establish a wide portfolio, because from time to time, there are activities in the customer's life cycle which require less contribution from us and thus produce less revenue for us.
We have many customers with whom we have worked for five-plus years. Some of these had commercialization plans that obviously we're targeting to realize faster. Our expectation and market understanding implies that particularly new cancer therapies typically take more than five years, and 10 years is not at all unusual from start to clinical approval.
I would also like to highlight, and it is, it's really a focus to us that, the commercial journey is not ending at the approval, but we believe that actually that is when the real kind of challenges and kind of hard work begins. This is why we're already now investing into the go-to-market phase in many of the projects.
We have designed our cloud app and other elements of the product in such a way that would support the hastening of the rollout, helping the go to market, sharing the knowledge between the doctors, both in terms of safety and efficacy, and training of the doctors, to kind of support the customers also in this practical things related to the commercial rollouts, when they reach those points. We can also note that last week we had U.S. FDA the whole week here in Tampere, and we had our first on-site audits as per our plans related to the ophthalmic application.
We have also had earlier during the quarter first CE mark audits, and we will update the market when there are material new developments. This thing is now finally progressing. While we of course cannot know all the regulators' reasons, it's quite obvious to us that the travel restrictions had a role in these timings, whether related to the regulators or to our partners. Of course, this is always a joint effort and a teamwork, but progressing in good spirits with this one. I would also like to turn your kind of focus a little bit to the inside of the clinical projects.
Obviously it's not enough to get new projects, but even more important from the kind of a short-term point of view to make progress within existing portfolio. I would like to remind you about the project that we also discussed last year. We had a customer working on brain diagnostics, basically using the same technology that we've been now using already for several years. For the brain cancer therapy, but this customer is using the same technology for brain diagnostics. We delivered some prototypes last year based on a product that we have been delivering to a sequencing company for a couple of years.
These products served the purpose that we identified some ways to make the products, the end products, more kind of robust and improve the performance. Earlier this year, we received a kind of customization order from this customer, which was about EUR 150 thousand. Very recently after the period end, we received a $3.9 million order, where the deliveries are expected to start during the third quarter and resume more or less steadily until the end of the first half next year.
This in my mind is a good concrete step of a progress within an existing portfolio, but also highlights the key way of our working where our engineers and developers, molecular biologists, etc., are working with the customer's development team to define a better solution that will increase value at the customer and total solution. Another example that I'd like to highlight of the progress within existing portfolio is bladder cancer. Last year Modulight landed a contract with a customer with whom we have been working long time in ophthalmology.
The ophthalmology work continues and keeps on accelerating, but the customer has decided to make investments into bladder cancer, and we are obviously very happy that they chose to use our different platform device and keep the trust on us. We have received an order from them last year to include an adapter for cystoscope, and then we have completed those works during the Q1.
A next step for us is to make on-site training and installation for those in preparations for the phase I trial conducted by customer in North America. In a nutshell, this is basically a clear example of a existing customer adapting our technology or adopting our technology to new indications besides the existing ones.
Still, towards the end of the presentation, briefly wanna touch upon different areas of our strategic goals. In geographic expansion, there is still somewhat of a struggle. Geopolitical, as well as pandemic, concerns continue to pose or hinder visibility. That is definitely something that all companies in the world perceive. While we have been able to close new deals with customers who didn't have a single face-to-face meeting, as said previously, it continues to be a struggle with some customers.
The main point here is that especially when they have been expecting that, "Hey, next autumn, we will resume with the visits," and then it's not possible, then it goes to the winter, and then it's again not possible. I think that especially the psychological side of uncertainty and constant postponement versus expectations is the key challenge in geographic expansion. Obviously, there are also good things as we reported in the Q4 for webinar. Also in this presentation, we have many pictures from some hospitals and also trade shows, which have been at least somewhat able to restart.
On the positive note, I think we see clear increase in indications and applications where our technology has been adopted. The company has reached an unprecedented interest among several professionals, and we receive a very high flow of very qualified applicants. This has helped us, for example, to even accelerate our investments versus our plans within the analytics and software activities, but also many other functions in the company. We continue to invest on this capability, capacity. As Anca noted, some of those have been actually running faster.
The main point there is that it still seems that some of the companies have probably had, let's say, delays with their CapEx plans, and thus some of the investments that we were hoping to complete later have been able to complete it faster. Overall, we are on track and on budget in both of the investment areas, both for capacity as well as for capability.
As we noted earlier, it's somewhat wider scope than, for example, whereas we plan to buy a certain type of electron beam lithography, now we've been able to install a better one or clearly better one because of the improved, let's say, position and negotiation power we have had during the COVID.
We have also expanded the investment plan somewhat, yet still staying in the overall budget. Because of these benefits, we've seen, let's say, incremental opportunities. Just to finish, I'd like to repeat the company's long-term objectives. No changes there. The company aims to maintain strong revenue growth and profitability, and we're targeting three commercial rollouts by end of 2023.
As said earlier, we'll also give an update on this if needed in our first capital markets day, which is scheduled to be after summer. At this time, we have no reason to adjust our targets. We continue investments of the strategy and even accelerate that. Also, nothing to update on the dividend policy. Of course, these are the things that also can be decided at the AGM, which is very soon. We also wanted to include a statement that is basically a repetition of what was said prior to the IPO, that Modulight has not issued a guidance for revenue or profitability.
As the company's customers and projects are still distributed across different mostly early-stage developments, predicting the development of the market remains challenging. We continue to expect fluctuation. As I said, we recommend or let's say we internally view that looking at the progress within the portfolio and looking at the kind of development of the portfolio overall are key KPIs from our point of view. I wish to end with a few pictures from Q1. First from San Francisco. I came back yesterday from Munich, and we have a few pictures from this trade show.
While in some areas the traveling policies from individual companies and hospitals prevent meetings and physical engagement, there are obviously also some things which are starting to resume, and this is definitely good for our business. Thank you very much for listening, and we're happy to take any questions that you might have. Lars, Daniel, do you want to start or?
Yeah, yeah. Lars here. If I can start with the first question, please. I mean, just to be clear on the revenue recognition side again. So since you implemented this, I mean, this new policy with a few clients in mid-March, and that's now been implemented across the quarter. We will not see any of these residual effects from that in the second quarter. Is that correctly understood?
Yeah. What we have done is that we as is definitely in the fine print there is that on certain cases we recognize revenue only based on cash collected. It's of course impossible to predict when such events will happen. Only the revenue would be recognized based on cash collected after March 15.
Okay. Thanks. On the cost side, it seems you have a cost base in the quarter of around approximately EUR 2 million. Is there anything we should be aware about the quarterly phasing of costs? Or I mean, of course, most of these costs are fixed. Anything we should take into consideration into the quarterly phasing of cost. Apart from the cost increases and investments, of course, but is this the cost base? Is this the cost base to base the fully forecast on?
Yeah. Anca can answer that maybe better, but, traditionally, we have quite high costs, at least in marketing, within the first quarter and sometimes during the fourth quarter. I don't know. Anca, maybe you can elaborate more.
Excepting this bad debt write-off, which was mentioned, it's EUR 500 thousand, there is nothing special in our cost base. I would say that yes, we will follow the same cost base. Of course, it's some variation quarter-over-quarter, but in principle, this is the structure.
Okay. Following on from this week-long visit from the FDA, could you say anything about the following steps in that procedure?
Yeah. Maybe just one note that this EUR 2 million cost base includes this EUR 500 thousand for January, February. In that respect, I guess the run rate is actually EUR 1.5.
Yeah.
Yeah. Please, could you repeat your question?
Yeah, now I got that with the EUR 1.5 and EUR 2. Thanks. Yeah, I was just wondering about the week-long visit from the FDA. Is there anything to say about, you know, the follow-on steps in that process towards approval in the end?
Um, the-
Do you want me to comment?
I mean, you can comment, but I'd rather you tell me if I'm wrong. I mean, as far as I understood, it went pretty normally. I mean, we have some kind of observations from them. Nothing really critical. Most related to things like procurement and documentation of scrapped parts, et cetera. We will provide our response according to their normal rules, which is 15 working days, and then they will process those and give us an update once they have processed those. I don't know, Anca, how do you characterize the visit versus the previous ones?
Yeah, if I'm to answer to the exact question about the process itself, basically, after we send our responses, they will be checked. The next step would be the approval, and then the next step would be go to market. This is the process itself. We cannot know now how long it will still take.
I am correct in saying that it is of course possible that the FDA can still decide that they want to do additional site visits or request further documentation, et cetera? It's at the sole discretion of the.
Yes
Authorities.
Yes. This is possible, definitely.
Okay. What can you tell us more about this, the order you announced recently, almost $4 million? You said that it's a neurology customer. What can you say more about, I mean, anything about, you know, what it relates to? Something about, you know, therapeutic area or something else?
I would say that this is still a fairly early stage customer that they are exploring different paths. They have a very, let's say, prestigious track record on doing different types of things. They are still widely looking into the kind of opportunities to employ this new technology. As I said, our tech teams together with them have developed ways to improve their products and I would say that we'll probably learn more within the next 12 months. While their plans are very ambitious and they are obviously taking it to the next level, I'm happy about this kind of. Of course, they're moving to the next phase and pick up of the orders, but I would say that at least we are not yet fully understanding what will be the end game.
Okay. Regarding this bladder cancer project you mentioned, I mentioned before, it sounds like it's relates to a surgical treatment for that type of cancer. It's not related to any pharmaceutical you mentioned, since you mentioned cystoscopes involved. I guess.
There is actually a pharmaceutical component included, and this is actually a component that the customer has been using earlier for other oncology and continues to use for other oncology indications. The cystoscope adapter at the cystoscope has been implemented by us in order to conveniently access the tumor without needing kind of open body surgery.
Okay. I got it. The collaboration in lung, as you mentioned, with the top five pharma company. I guess not all of these top five pharma companies are engaged in oncology in any significant matter. I guess, is that for a first stage of trials or what? What does it really relate to?
Yeah, that is, I mean, I think we emphasized also earlier that it is still relatively small value order. It is a kind of, if you consider, proof of concept type of trial. Since it is very prestigious company, we felt that it is really important for us because of the opportunity as well as for the sheer reference value. They are kind of heavily engaging with us to explore. The company has a very, let's say, high investment lung cancer initiative, and they are looking at many different options.
This combined with our kind of ability to help them clinically implement this, they said that were key things in them deciding to pursue this track and study it. Despite all the, let's say, difficulties, this company also internally has some trouble. They have said that they actually want to come even in the next few weeks to Tampere. While they said that this is extremely difficult for them, but they view this as a very interesting one. Of course, and I want to emphasize that this is very early stage development, but this is the case and we'll see where it goes.
Okay. I mean, it's difficult to predict, but would you say that it would be likely to see any other orders in the similar magnitude or bigger compared to the $3.9 million order you have announced? Is it likely to see anything similar in, you know, in the year or one and a half years ahead?
I would refer to our comment on the outlook. I must say that I did not foresee this $3.9 million order even fairly recently. There are many good discussions. Projects are progressing some faster and some slower, but what we really mean is both ups and downs in terms of difficulty in predicting the short term.
We certainly hope that there are such events, but we cannot really forecast the short term very well. When new orders or contracts meet certain criteria, we will obviously report them to the market. This is really the state where we are and we're very excited about several of the projects. Predicting short term is not our strongest capability.
Okay. I think that was the question from my side. Thanks a lot for the answers.
Always happy. Do we have any other questions on the line?
No, it seems Daniel says that was fine from him as well.
Good. Anybody else? Do we have any questions in the webinar side? Seems that the presentation was fairly thorough. We thank again everyone for participating to the webinar and the presentation will be uploaded to our website in the usual manner, I guess, today or latest tomorrow. Please have a good day and we wish good spring to everyone and we keep working hard at Modulight to deliver on the long-term targets. Thank you. Bye-bye.
Thanks all. Bye.