Good afternoon. Welcome to our Modulight Q4 webinar. My name is Seppo Orsila, and I'm here with my colleague, Mrs. Anca Guina, our CFO. We will be talking today about the Q4 business and the numbers, and then give you a kind of opportunity to ask any questions you might have at the end of the presentation. Just to remind all the new listeners on the line, what is Modulight? We fight cancer with science and technology. We're a biomedical company from Tampere, Finland. We manufacture and design lasers in-house here in Tampere. We also have operations in the United States, both East and West Coast. Today's agenda in brief: we will go through the summary of the 2023. I'll talk about the exciting things in the R&D pipeline. We briefly revisit the technology, give an update on our geographical expansion project.
Anca will talk about the financials and give you the highlights of the year and the quarter. Then we'll discuss, in a regular manner, the customer base, as well as the revenue model and summarize before the Q&A. Year in a nutshell, our R&D continued and accelerated towards the end of the year. At the end of the year, we had 28 projects that we consider to have high future potential. Most importantly, I would say that this has been something that we have been waiting for quite a while. Now, several customer projects reached so-called Phase III, which means that these so-called Generation 2 and Generation 3 drugs are much closer to commercialization. This is happening with several customers and with several pipeline projects across the different indications.
I'm also extremely pleased that our geographical expansion, which is obviously key to our go-to-market activities, has taken steps forward. We had a good start in Europe and Asia in developing a commercial network. We signed several strategic sales distribution partners. Then in the United States, we obviously made progress, as we're going to discuss in a moment. Revenue decreased to EUR 4 million. But we were very pleased about the progress we made with pay-per-treatment business model. Our EBITDA was -EUR 8.5 million and was impacted by the investment program and investment in the new projects and competencies as discussed throughout the year. Our full-time equivalent, excluding the external manufacturing people, was 70 at the end of the year. So, the most important indicator we see for the company is the progress of the pipeline. Pipeline has been relatively steady.
There has been more focus on the work within the pipeline. The key thing is that now there are several projects across different customers and indications that are in the Phase 3. Phase 3 in the clinical trial for pharmaceuticals is the last phase before the approval, i.e., the go-to-market. Phase 3 is by far also the most expensive investment for the pharmaceutical companies. While it is no guarantee of the success, but I would say that many in the pharma industry would agree that you will not start a Phase 3 unless you are relatively sure about the outcome. By this time, typically, lots of strong evidence has been accumulated. I want to emphasize that this is definitely by no means sure, but we feel that this is really the biggest progress we made last year within our portfolio.
Secondly, the revenue potential from these projects continues to improve in terms of what we view, and that the quality of the project improves. And also, from the kind of point of view of investing into new applications and indications, we are quite pleased that there are now also applications in dental, retina imaging, and microscopy, something which we also talked about earlier, but there are now significant customers progressing with those. I want to remind you about the uniqueness of our technology, and this is really applied across the pipeline. Practically every project in the pipeline is applying our platform technology and platform devices. We also saw many things where, thanks to our investments, we were able to take a bigger share of the customer's business or even enable totally new projects.
Then, should also note what what we mentioned also last time, the validation across the vast number of scientific publications and especially, the article we published, in Science Advances, the top-notch scientific paper in the world together with the University of Maryland, validating our technology and all the key, key arguments of that from extending the drug lifecycle to improving efficacy, etc. We are continuing to be very proud of this achievement. Then I want to come back to the geographical expansion. As we set out in our updated strategy on the 29th of November 2022, we said that it is really important to us to invest in the local presence and into geographical expansion. We have now systematically executed that project, and the results, the first results are presented here.
In the US, we now have a very senior sales director in Silicon Valley with 30 years of experience from our industry. We have solidified our product support center in the East Coast, and we have been moving that from New York to Maryland to co-locate with our medical partners. From there, we are supporting the entire United States, and namely clinicians. Most recently, last night, we were supporting a bladder cancer therapy in the Midwest. We have also not stood still in the rest of the world. In Europe, we have announced three strategic partnerships with three different companies. And yes, some of you might ask why it was announced three times. Even if the name is Laser 2000 UK, Laser 2000 Germany, etc., they are technically, legally, and business-wise completely separate entities with separate owners and networks, each obviously addressing their own markets.
We also see traction for our product and our kind of business in Asia. And I would like to highlight here progress in Japan, where we are now already present, as you know from the earlier releases, but now quite actively talking both with new pharmaceutical companies as well as companies which are US-based but have a Japanese branch. Then I would like to also draw your attention to pay-per-treatment, which we are now deploying with almost all the customers in all the geographies. We have both in production as well as in clinical trials implemented pay-per-treatment with several customers. Now I take over to Mrs. Guina for the financials.
Thank you, Seppo. Hello everybody. I start with financial highlights for Q4. We had 20% lower revenue in Q4 2023 compared to 2022, and that was due to project delays and the implementation of pay-per-treatment model, which was according to our strategy. EBITDA was minus EUR 2.9 million, sorry, which was 50% lower than in 2022. EBIT was minus EUR 5 million, which was 100% decrease from 2022. As we announced earlier, the costs related to investments were expected to decrease towards the end of the year, and they did. As an example, I give you operating expenses, which decreased with EUR 0.3 million, and total materials and external services for manufacturing decreased with EUR 0.6 million. More improvement is expected next year.
Net cash flow improved with, in 2023, the whole year, with an average of EUR 1 million per quarter from -EUR 6 million in Q1 to -EUR 3 million in Q2 in Q4. Sorry, now the numbers for 2023, revenues were EUR 4 million, 12% decrease from last, for previous year. EBITDA was -EUR 8.5 million, 44% decrease from previous period. EBIT was -EUR 12 million, which was 56% decrease from the previous period. Both of the results have been affected by the weak revenue development, non-recurring costs related to investments, investment program, investment in in new product development, as well as personal competence, as we announced previously. Key figures as presented every time, the revenues for the period, the for all the periods, under discussion were lower in 2022.
While we had improvements in some of the costs of the company in Q4, as mentioned, just mentioned earlier, EBITDA, EBIT, and financial result were still decreasing for 2022. The acquisition of fixed and intangible assets decreased, as we announced also earlier. Free cash from operating activities improved with EUR 3 million in Q4 2023. Strong balance sheet at the end of December 2023, in amount of EUR 25 million. Full-time equivalent headcount at the end of the period was 70 persons.
Okay, thank you, Anca. Quickly recapping, the pipeline, we had the customer lens. As said, pipeline increasing by one project. As discussed, most important things within the pipeline is the maturation and progress for the projects and thus maturation towards commercial stage. There are also a little bit development within the pipeline, in terms of share of kind of public companies increasing, as well as companies with over EUR 1 billion revenue level. Thus, I would say that the portfolio has become more solid and coming more from bigger companies. Slight changes, but important changes. I would like to especially highlight the fact that there are two projects more from two different customers in the big category of the companies.
Just, as a recap, the revenue model that we presented every single time, we believe that as the company's majority of the revenue is still coming from the early stage projects, but as the projects mature, it will bring stability and predictability to the revenue stream and thus obviously improve the EBITDA as we go forward. Pay-Per-Treatment business model, we had kind of difficulties last year due to slowdown and lots of bureaucracy related to information security reviews with the customers. We can say that those are mostly behind us, in the sense that things are now progressing typically faster with new customers, new hospitals. We have also started in a very good manner the ISO 27000 certification to assist us in completing the information security reviews with customers in a speedy manner, and that has progressed very well.
But really, the most important thing in the PPT is the fact that we have implemented PPT also to the past customers and also to the devices that they bought earlier, and thus we are able to offer them all the benefits of the cloud and all the benefits of the business model going forward. And this is something that, in addition to the pipeline development, we feel as most exciting for the company today. Then, we've continuously monitored the markets and focused on the US healthcare market. Yes, the devices seem to have more kind of demand in other geographies as well. But we have put here together some numbers about certain indications and the cost of treatment per patient. These have been done together with KPMG's strategy consultants, and we've also continued the research very much with customers and with internal workforce.
We're very happy to talk about this with those investors that seek to have more detail, as we have plenty of that. I think the top line here is that we expect to be able to bring a better therapy at a lower cost to the patient and to the ecosystem in the respective market. We are not issuing any guidance, neither revenue nor profitability as before. In summary, we feel excited about the progress within the portfolio, meaning that there is one project, but especially the fact that several projects have now progressed to the Phase 3 of pilot production. Geographic expansion is at full steam in the United States, but also important progress in Europe and Asia.
Cloud technology and cloud-based service development is progressing with PPT with almost all the customers, and there are very high-profile hospitals signed up, and first patients have been treated with PPT in several different indications. Technology development and investment program, which we ran from 2019 to 2022, has been a key reason for some new customers coming in, and some of the things, frankly speaking, we could not have manufactured two years ago, and the customers have specifically said that they chose us because of these impressive capabilities, to quote customer statements. With project delays and PPT model implementation, we did not reach our targets, but ended up at the revenue EUR 4.0, as discussed by Anca. One of the costs grew mainly due to the commissioning of new equipment, as explained earlier, and we have associated EBITDA impact.
But as said earlier, we expect to see costs reducing, and Anca shared some detail already from the Q4, and we expect the trend to continue. Finally, the ISO 27000 project is progressing. Information security reviews with customers are progressing, and we are in good speed with both. Thank you very much. I'd like to ask if there are any questions.
Timo, would you like to start this time?
Okay, hello, yes, I can start. Maybe first of all, on the pay-per-treatment view, of course, I know that you don't give us any details, but you always say that you expect to be some kind of financial impact in 2024, but is there something light that you can give on the customer numbers or the volumes or the average revenue per treatment?
Of course, we know the slides that you mentioned, but to get some kind of picture of what kind of financial impact would be expected to see in 2024.
I guess you already answered your own question, but I mean what we said, I believe in the June report, is that we see the fee approximately between EUR 1,000 and EUR 10,000 per patient. Nothing to revise on that. We do see the whole range being applied, and the number of patients is obviously still modest, but the fact that it is well known that we have the case with Bausch, which is even if a Gen 1 drug, it's now approved, and we are kind of rolling that together with them. But there is also these Gen 2 and Gen 3 drugs where this is applied as well, and someone might, I would say, obviously even due to the indication, guess that maybe the fees in those are at least the therapy fees on average are significantly larger than in the simple ophthalmic conditions such as AMD.
So there might be an improvement in the ASP if you just look at the mix of therapies applied, but I'm not sure we're able to give too much detail at this time more. Daniel, you were first to raise a hand, so I guess we'll have to ask you next.
Okay, hi Seppo and Anca. Thanks for the presentation. Yeah, I have a few questions. Maybe if we, I mean, go back to the Bausch + Lomb collaboration you briefly mentioned as well. So maybe if we put it this way, can you discuss a bit on how the clinics have thus far adopted, I mean, the laser devices and so on? So I guess you mentioned that there had been some sluggishness on this one as well. So how is this sort of a penetration with the clinics progressed in terms of, I guess, your and Bausch + Lomb's targets?
Yeah, we obviously cannot comment on any individual companies, whether they be pharmas or so, but we were very vocal last year about the fact that the information security reviews with hospitals for existing therapies took more time than we expected and, as expected, our partner. But as I elaborated earlier today, yes, there is still a lot of work to be done in those, but now the operational team working with the hospitals day to day clearly signals that they are easier as we have accumulated experience from those reviews.
And kind of, let's put it this way, that someone could argue that while those information security reviews are always between the two companies, once you start to have kind of some references or some know-how that this and that kind of prestigious institute has already applied your technology, the doctors are talking to each other, so then that, I would say, clearly reduces the barrier of entry. So at least we have seen that doing the fifth review is significantly easier than doing the first review when operating in the same space. Antti, would you like to give a question next?
Sure, thank you. This time I have some questions from the investor community that I am conveying to you. So starting with the phase three trials, now you mentioned you had several projects going to phase three and your annual revenue was EUR 4 million, and I guess the revenue per phase three project was in the EUR hundreds of thousands. So is this the level that we should expect realistically from these pipeline projects going forward?
Yes, I believe you referred to the IPO material where we discussed about typical revenue from different phases of the pipeline. Is that correct?
Yes, that's correct.
Yeah, so as we announced in the autumn of 2022, we have been able to accelerate the new business models, i.e., the pay-per-treatment. This means that we receive less fees upfront from the customers, but obviously expect to receive more fees over the lifetime of the device. We have no reason to revise the estimates from the different phases, but the phasing of the revenue collection obviously is impacted somewhat if you look on the short term by the PPT model, but also the fact that there may be some operational things where we were invoicing customers more earlier in advance. But I would say that in a nutshell, no need to revise the model at this time.
But if at that time we were selling the device upfront and then gathering some service fees every year, now the model, as described, is somewhat different where we are kind of basically charging for every patient. Yes, it is not exactly pure like that. In some cases, there may be elements such as monthly fees or other kinds of revenue components, but by and large, we have tried to implement the patient-based model with its pros and cons.
Okay, thank you. Then on the upcoming near-term commercialization, so do you have any comment on the schedule of those? And also, is the previous comment on the definition of the commercialization of being EUR 10 million annually, is that still valid?
If we would kind of have a reason to update, that we would obviously do so. Yes, we continue to monitor the R&D pipeline very carefully and aim to do the projects only with EUR 10+ million of annual revenue when at full speed. So no reason to revise that. Regarding the near-term focus, I mean, we continue to work with our customers and obviously are excited, especially about those projects which are more on the mature end of the life cycle or the development cycle. Daniel, you have a hand up.
Yeah, maybe a question about the strategy period and, I mean, your current expectation of returning the strong profitable growth. I mean, still, I guess it's due to 2025. So also sort of discussing these commercial projects, I think in the past you referred that you would expect three of such projects out by 2025. So now you have obviously announced one last year. So is this still sort of a reasonable assumption or has these, I would say, delays seen in the end of the year pushed any timelines materially forward?
Yeah, you probably noticed that we gave a profit warning at the end of last year, and I guess that also implies that we were strongly expecting a significantly different outcome for the year. Obviously, that didn't happen, and we are sorry for that. But yes, we are aiming on strong growth every year during the strategy period. We failed last year, but yes, we do intend and expect to return to also strong profitability by the end of the strategy period, which yes, ends at 2025, as you well noted. Any question from any of the analysts before we go online for the list there? Antti or Daniel, if you have or Timo just shared.
I have one more on my list from investors. This morning, Aamulehti wrote about the Finnish Financial Supervisory Authority report. Can you comment a little bit on the report? What did the authority comment and what kind of actions have you taken after receiving the report?
I think that we have to be rather limited. I saw that article in Aamulehti myself as well, and if you look at the top of the article, it says that Finanssivalvonta has deemed the report as salassapidettävä. So as such, Modulight is not commenting the report itself and especially not the article. But yes, we did notice at the beginning of our IPO that we need to keep on improving the processes, and at the same time, we had kind of poor performance and unexpected performance in our business. But we had already improved many of the things before that respective audit. But of course, that audit was done in hindsight to the early days.
I would also like to pay attention to everybody that Modulight has not been issued any penal action, and if it were so, obviously, Finanssivalvonta would have made a kind of public about that. I would encourage people to stick to the facts and also look at the general policies of the regulator. As such, Modulight is not able to comment on this kind of confidential report.
Thank you. That's all from me.
Yeah, thank you. But I want to emphasize that we obviously take all these kinds of authorities seriously, but no, we have not been punished for anything, and we continue to humbly develop our operations and our business. Then there is a question on the line. Will you need to raise additional cash before going break-even? Obviously, if a company will have plans to issue more equity or major financing, it will be published according to the regulation, i.e., thus there are no such plans at this time. About the pipeline, how many projects have dropped out from the pipeline with no viability going forward? Furthermore, what is the expected time horizon from phase three to commercialization? Excellent questions. So there have been very little projects, as you can see from our historical series that is in the report, dropping out.
And as I said earlier, we are continuously monitoring the projects, and even if the project is dropped out of the pipeline, which are very few, that does not typically mean that the project has stopped, but it is only that our internal assessment of the projects' potential is not large enough, and the project can, at least in some cases, also return to the pipeline, at least in theory. And regarding the expected horizon from phase three to commercialization and kind of, I guess, revenue streams, if I understand the question, the phase threes are varying a lot in terms of length. Sometimes they can be just over a year in life science. Some of the phase threes can be more than three years.
This is obviously making the range relatively challenging for financial modeling, but we will take this as a heed, and maybe in the future we will be able, for example, and I'm just thinking out loud, to bring into the table that we published you about the different indications, if we are able to compile systematic enough kind of typical kind of Phase III schedule under each indication, that might be something that we will be able to give. But I cannot guarantee that. For some of our customers, we have even very detailed plans about their projects, and in some cases, they are less detailed. But I would also like to point out to you what we already shared at the IPO, is that the projects in the medical world tend to delay from what is expected.
Even today, we are working with customers who in 2014 had a plan to go to market in 3-5 years, and we are still working with them. Those customers have made huge progress. Some of them are very well-financed public companies today, but their product still, after 10 years, is not yet on the market. So this is something that we always kind of highlighted because developing new pharmaceuticals, cure for cancer, in most cases, is kind of patient's man's game. Then there's a question that we have heard about commercial potential. When do these realize to revenue? Can you give a kind of outlook? Will this finally happen this year? I believe my last comment to the previous question was addressing this question as well. The next one, is it possible to give an estimate on the length of the phase 3 clinical trials?
That was part of the previous answer as well. How do you see your cash position and cash flow still considerably negative? When do you need to fill up the cash reserves? This was kind of commented earlier as well, but I don't know, Anca, if you want to supplement something.
Yes, so as I already mentioned, we still have a strong balance sheet of EUR 25 million. Seppo said that there are no plans to raise new capital, and we believe that with the return to growth, we will fill up basically the cash reserves, as you say.
What have been the reasons for project delays? That you mentioned reasons for slowness in revenue and profit. Last year, there were operational reasons, typically outside our influence, i.e., on the customers and sites. And then on our side, I would say that the one key reason was these information security reviews, which definitely took more time than we anticipated. Please remind us about your competitive landscape. How are your competitors developing and doing? What are your most important competitive advantages? This is an excellent question. I would like to kind of refer to a strategy update. We did a very comprehensive strategy update at the end of 2022. But just to kind of list some of the things, we have a unique technology applicable to multiple indications and to be used across multiple drugs. Typically, the competition devices are used only with a single drug and single indication.
Secondly, our device is cloud-connected. It creates the ability to perform new business models versus the traditional CapEx model, but also drive the patient outcome in both terms of improvement of efficacy as well as treatment accessibility. Thirdly, we are uniquely a vertically integrated company, and very much thanks to all of you investors, I believe our laser fab is quite unique, and I would say more or less the best fab in the world. This allows us to tailor the technology for the actual indication, for the actual therapy. Unlike most of the customers and the competitors, they have to apply what is available off the shelf. This is a little bit like building a tractor with a sports car gearbox or vice versa.
We have extremely proven technology and widely adopted by the science, and it has been proven across 100+ very prestigious scientific groups publishing our technology by name in the leading scientific journals as presented. Yeah, these are some of the things and a quick answer to the question. In Aamulehti, a newspaper reported today on the Finnish Financial Supervisory Authority audit on Modulight, the Financial Supervisory Authority pointed out Modulight's management of insider information, for example. Why did Modulight not make inspection and report public, and does the company agree with the Finnish Financial Supervisory Authority's remarks? Thank you. As said, the report that you saw in Aamulehti states very clearly that it is a salassapidettävä document.
We have no arguments with the FIN-FSA, and we take their advice very humbly and, as said, had already improved in many of the areas, and I would say fixed things before the audit. You mentioned that several projects have reached Phase III. Can you please provide us with an exact number at this stage? Obviously, we said several, so this means at least three, but it is obviously not, for example, yeah, it is more than three. This is what it means. Finally, we have a question on the line. If everything looks so promising, why is outlook for 2024 so negative? Just to be clear, Modulight has not issued any outlook, and this has been explained in the previous calls due to the business being at the early stage, and there are quarter-to-quarter fluctuations.
So all the rationale why we're not issuing the outlook or the guidance still applies. When listening to the investor call, everything sounds so positive, and the operating environment for Modulight seems to be improving, but outlook states exactly the opposite. Again, I repeat myself, we are not issuing guidance. And then the last section of the last question highlights that the operating environment caused by macroeconomic and geopolitical uncertainty will still impact its financial performance in the short term. I believe that this must be from some earlier risk statement, and yes, we do have experienced in the recent years strong impacts from those, and thus they are kept on the kind of risk log, and we continue to monitor those. But we have no acute or specific timely information or new information from the Q4 to point into this particular sentence.
And obviously, Finland joining NATO and different things going forward, this has been very welcomed by our United States customers. So this seems to be all the questions. We thank everyone for participation and taking the time to listen to us, and look forward to seeing you again in April or joining some of the events where we will be presenting. Thank you very much.
Thank you.