Good morning, everyone. My name is Seppo Orsila. I'm founder and CEO of Modulight. I have with me today Mrs. Anca Guina, our CFO. Welcome to our Q3 webinar. We are first gonna go through the Q3 highlights. Then I'm gonna talk about our pipeline, and then we discuss little bit the progress with the investments, strategy, and then answer all the questions that you might have. We continued the strategy execution in the quarter focusing on investments and our growth strategy. We continued to make progress with the pipeline and actually we feel that some of the things in the project pipeline progressed faster than we anticipated earlier.
One quite notable progress has been that from several customers in United States, but also in Europe, we got feedback that suggests that we may be able to accelerate our pay-per-treatment cloud strategy in the short term. We're gonna talk more about that in the pipeline section of this presentation. The amount of projects in the pipeline, the most important metric for our future potential, remains solid at 26 projects. Yes, there were still some delays due to COVID, but overall, I would say that the market sentiment is clearly improving, and we've been able to travel, meet customers, do regulatory work, and visit hospitals in the United States. Mainly for our suppliers of capital equipment, they still report issues with component shortages.
From the financial perspective, revenue was at EUR 1.2, and obviously, still far from where we want to be, and the result was thus negative. I will let my colleague, Anca, to walk you through the numbers.
Yes. Thank you. As it could have been seen from the released figures, the main profitability indicators are still on the negative side, and that is due to lower revenue and increased costs associated with the implementation of the growth strategy. It was explained in our CEO letter that the revenues were still impacted by the uncertainty in the business environment, hence they are 42% lower compared to last year's same quarter. On the positive side, we were happy to see that the results of our employee satisfaction survey were again very positive with record number despite of the fast growth of our team and obviously of the challenging financial performance we had this year.
Moving on to the figures for the whole period from the beginning of the year, the first nine months, we had a revenue of EUR 3.3 million, which was 50% lower than the same period last year. EBITDA and the operating result in January, September were both negative compared to last year. We had capital investments for this period 41% higher than in 2021, and they accounted for almost EUR 9 million. The headcount increased by five full-time equivalent versus last year.
Thank you, Anca. As said, we are currently running 26 projects with projected a significant future commercial potential. I mentioned that we saw an opportunity to accelerate the cloud strategy. More specifically, this would mean that we would monetize our platforms instead of selling the devices to the customers so that they would use so-called pay per use or pay per treatment business model. This has always been in our strategy as we explained in the IPO material. At that time, we believe that it will take a few more years to be implemented. There is actually now independent feedback from customers in different indications that they would like to see this happening already earlier.
Also, some customers suggested that they would actually like to use our cloud more generally for their devices and indications, which is obviously very good signal to us. These are still early things, but I would say that the mentality change is quite big. I would say that it is also somewhat of a coincidence that this is happening now on several fronts simultaneously. Remember that we also hold a patent from a year ago for remote-controlled medical device in U.S., and during this quarter, we were awarded another patent in the same family.
We initiated one project in dermatology with an existing customer, and they are actually having a relatively aggressive schedule or at least a desire from customer's top management to have kind of launch of the product on short term, meaning next year. One early stage research project with an existing blue chip customer was deemed not to have a significant commercial potential anymore. Thus, plus one, minus one, i.e. the total remains at 26. Very important thing in our bladder cancer study, a first patient was treated, and this is considered by customer which is a U.S. public listed pharmaceutical company, as a significant progress and a milestone.
Overall, the number of projects did not increase, but as I'm gonna explain, now there is actually somewhat more than meets the eye. We have mostly been working to take projects forward and we still continue to sell, but the progress within the pipeline has been good. Earlier we always said that most of the revenue is coming from the early stage approval of concepts and trials, but now some projects, not most, but some are moving towards more mature stage, and we see this happening next year. What we want to kind of emphasize is that the revenue is unpredictable in the short term due to the early stage of our business.
As we see now, the majority of the projects are growing. This will improve the predictability of the revenue streams. This might lead to us being in a position maybe towards the end of the next year to start issuing a guidance. Current pharmaceutical and biomedical projects are still mostly at early stage, but as said, there are now some of those that are progressing towards more mature state. This is the breakdown of those customer R&D pipeline projects by type of company. Most are with listed companies, and then there are a second category is private companies and a flat amount of research institutions/hospitals.
As said earlier, there are several other customers as well, but this is the portfolio which we view having significant commercial potential in the future. In detail, about the product development pipeline progress, we are in the process of waiting for the FDA approval with major New York Stock Exchange listed pharmaceutical company. We actually had a meeting with them and their leading clinicians or key opinion leaders, as they're often called in the industry. These are doctors who are using substantial amounts of that pharmaceutical product with patients. In that discussion came up this actually one of the clinicians suggested that could we go to this, what they call classic click fee model in ophthalmology.
This basically means that for every single patient that you treat, you make a payment to the provider of the equipment, which in this case is us. This we view as extremely positive development. As said, still work needs to be done. This is something that we were happily receiving as feedback. Simultaneously from actually a couple of other customers in different fields, we received the same feedback for the platform and the cloud strategy. The bladder cancer study is progressing well. First patient has been treated. This is something that you may remember that we have another project with this customer targeting eye cancer.
We view that if two projects are progressing in parallel, this may in future create additional opportunities with other indications and other organs. Thirdly, we are working with a publicly listed U.S. medical device company. I believe we announced this collaboration during the springtime, but now the customer has asked us to drive another project with another indication in parallel with a quite ambitious launch time window from their management. We certainly see this as a kind of interesting development and one of the reasons why we are saying that some of the projects are moving towards more mature state. If we talk briefly about the update for the strategy on the investment side, as you know, we have been investing quite heavily since 2019.
There have been some delays and some shortages due to various external factors, but we are steadily increasing with our investment plan. As explained in earlier quarterly calls, also expanded the plan. What we are extremely happy to announce today is that now we are really starting to see benefits in the operational level. We see further differentiation to the competition. We see ability to deliver expanded offering. We see increase in productivity, for example, as a yield improvement, and we see higher production capacity. Modulight will continue this investment plan according to the schedule. As said earlier, we have expanded it from the original plan made in 2019. Yes, there are certain delays with equipment suppliers.
Overall, things are looking actually quite nice, especially due to the fact that we are now finally getting some real benefit of these investments in the operational level. Now is a very busy time for our operations team, as there are more installation teams at Modulight every week than ever before, and we have multiple installations happening concurrently. As you know, we are in the process of updating our go-to-market strategy or give a strategy update later this year. The project with go-to-market work is progressing, and we expect to announce that this year as promised, but also make several related operational announcements.
In a nutshell, benefits of the production capacity increase are starting to materialize in terms of increased differentiation and wider offering, besides the obvious increase in capacity and quality. Geographical expansion. Sales and marketing activity has clearly increased, and this is partly due to the particular reason why some of these new positive developments have been achieved. We don't believe that those could have been achieved overnight. As said, we are updating our strategy and especially the go-to-market strategy and expect to announce it later this year. We continue to invest into expanding product range to other indications, and we are receiving now very good feedback on our new planned product platform. We expect that to be in production towards the end of 2023 with several customers.
Opportunities for expansion in the cloud side. We have reported earlier about patent applications and way to improve the therapeutic result. This work continues, and as said at the beginning, I'm extremely happy to announce this opportunity to possibly accelerate the cloud strategy, namely the pay per treatment business model introduction. There are obviously other business models and ways to monetize the cloud, but this pay per treatment is one important one. I just wanna remind you that there were a plethora of different ways that we see that and we are monetizing the cloud already. First and foremost, it's about delivering better efficacy, i.e. better treatment result.
there are several ways how we can support pharmaceutical companies' operational work ranging from health and safety to, for example, controlling the geographic price differentiation, helping with the go to market, selling existing trained install base to new indications, as well as remote support and diagnostics. We consider this pay per treatment as a very important step, especially if it happens already next year. We continue the investment in software and laser technology. There have been some delays with machines as reported earlier, but we are quite happy that there are these new patents as well. This has allow us to divert more and more resources to actual R&D activity supported by great tools.
We are now doing clearly more research activity than ever before. This obviously is one of the core reasons why the pipeline projects are maturing faster than before. As before, Modulight is still an early-stage company and thus not giving any guidance, no change in policy. We wanna remind about that again in this presentation. Finally, to summarize, we have had a significant progress in our R&D project pipeline and particularly highlighting the opportunity to accelerate the pay-per-treatment business model and overall our cloud strategy in the short term. The pipeline remains solid at 26 projects. Customer activity has increased, so there is obviously a different sentiment in sales and marketing activity than, for example, six months ago.
We expect that this will result in good things in next year and the year after. Customer development projects are still affected by COVID-19, but to less degree. There is still some component shortages. I'm extremely proud about the work our operations team has been doing, and we have been also heavily stocking items. For example, I believe we have been buying about 500 computational model modules for our upcoming systems deliveries. As a result of these changes, we are reviewing the strategy as said, and we'll announce that later this year. Thanks to our strong balance sheet, we are able to continue and accelerate the implementation of the strategy and obviously we...
This is a good thing for us as we are very disappointed about our this year's financial results, but we believe very strongly that the current product strategy makes sense to continue and accelerate and there is more demand for our product, both macroeconomic-wise as well as from the customer feedback point of view than ever. Thank you, and I guess we take some questions.
Yeah. We have online our analyst monitoring Modulight from Danske Bank, Mr. Daniel Lepistö. Lars, if you would like to ask some questions, we can give you a go first, and then move on to other questions from the webcast audience.
Oh, okay. Thanks. It's Daniel Lepistö here. I'll take them one by one. I think that's best. I mean, to start with this approval you mentioned expected during this year with a new photodynamic therapy for U.S. launch, assuming that approval's gonna happen, what will happen afterwards, so to say, in terms of any significant shipments, rollouts, payments, et cetera?
Can you just shed some light on that, please?
Sure. That's a great question, Daniel Lepistö. As an experienced pharma and medical device tracker, you know that there are strict rules in place by the FDA related to the marketing and sales activities prior to the product launch. We have done together with the pharmaceutical company a so-called budget letter, which is a kind of informal way to inform the target customers about that should there be an approval, this is roughly what you should expect and be prepared for. This is kind of the marketing and kind of communication that can be done in advance to an anticipated launch.
We of course need to repeat the fact that our regulator may at any time choose to add more questions or request more information or to deny the whole application completely. To our knowledge, we have answered all the questions and provided all the documents that they are in need, and we have had no feedback, which at least prior to the COVID was a good sign. We also have to accept the fact and very humbly admit that we were completely wrong in predicting the approval timeline because based on our pre-COVID experience, we actually expected the approval a year ago.
It remains to be seen, but we have done the preparations that can be done in our view, but we will then obviously announce as operational things mature and FDA will probably announce their decision anyway in the open web immediately once they do it.
This is again, just to remind us, a device. There's an existing device on the market which this one basically over time will replace?
Technically there is a predicate device, yes, you are correct, but that device has not been available for quite some time. We cannot comment on the relationship between the two other companies. The feedback we hear from the field widely from all the key users of that drug is that devices are not available, but they are also not serviceable and pretty much all the devices currently in the field are more than 10 years old, and most of them are broken, and there are lots of issues, and this is why actual use of the drug is very severely limited according to feedback we receive from individual doctors.
Okay. It's fair to characterize this from your partner's point of view, it's fair to characterize as a relaunch?
This is a wording that they have used in this kind of semi-public events held at scientific conferences.
Okay. I get it. Could you just remind us about anything about the status of your target of having three commercialized products on the market by the end of, I think you have said by the end of 2023.
2023. Yes. That's the official target. We are now reviewing the strategy. I cannot announce the strategy before it has been done. In that sense, it's difficult and maybe somewhat illogical at this point to comment on the kind of targets, as we are in the process of reviewing the strategy at the moment.
Okay. I got it. Could you just comment a bit more on this project with a big client that was stopped, you mentioned for commercial reasons or lack of commercial potential?
Yeah. Basically it was an early-stage research project related to the drug transport kind of systems involving a high-end university, involving the customer and us. As you know, in pharmaceutical projects, the failure percentage is typically very large, I don't know, 80% or 90%. In this case there is no big drama. It was just concluded that this is unlikely to have a significant commercial potential in that particular indication and application where we were targeting. The collaboration with them does continue, and they have expressed other ideas, but those are currently under evaluation.
We try to be fairly prudent about our pipeline, and since there is currently no clear big business case for that particular project, we kind of just said that, "Okay, it is no longer meeting all the criteria to be listed in the number.
All right. I got it.
Absolutely it has no significant impact to our short or mid-term kind of projections.
All right. I guess it's fair to say that this has nothing to do with the collaboration that you have with the device maker of visualization in connection to endoscopic.
No
procedures, yeah.
No. This is absolutely not. This is at a very early stage. I emphasize very early stage research idea that was generated and was deemed as very interesting. I mean, after some research work and testing, it was deemed that it would not work for that particular application. I wanna emphasize that that customer paid all its invoices and bills, and there are no issues from that point of view either.
Okay. Thank you. Also in terms of shortages in components, could you give some how do you see this progressing? You have shortages in installations of equipment, but I guess this also affects the supply capacity you have.
There is, I would say, some influence, but clearly the bad experience we had unexpectedly during the summertime, that is over. Our operations team has done fantastic work to buffer things as well as implement more rigorously this kind of design principles that we would use same or similar components across the platforms. This has obviously improved the kind of availability. The fact is that for many components, still you have like half a year or longer lead times. I mean, I'm sure that all the other companies are experiencing the same supply chain issues. Thanks to our strong balance sheet, we are now in the process of stocking up many components at the cost of increased working capital.
We feel that it is the right thing to do, as then that will prepare us for ramp-ups with several of our customers.
Okay. In terms of the CapEx problem overall, how far have you progressed? I mean, you mentioned a EUR 23 million expansion program.
Yeah. I think we have spent, Anca, is it close to EUR 20 million?
Yes. Yes.
We have spent close to EUR 20 million combined. As we said earlier, we have expanded the project in terms of scope of devices and equipment that we bought. Some of the equipment, and this was the happy side of the corona, we actually got at a significant discount, as we reported earlier. Thanks to the kind of expansions, we are probably more or less close to the initial EUR 23 million, even with the expanded scope. Of course, this does not mean that we wouldn't do investments beyond that.
If you ignore some of the delays in deliveries, we are good with that program and particularly happy that now after more than two years of investing, we are now starting to see some real benefits, particularly in terms of differentiation. For example, last night we had a very nice call with one U.S. customer who more or less said that they wanna fly to Finland because of some of the results that the guys showed them. This is one clear outcome of our investment program.
Okay. I mean, I guess this is work in progress, but is it possible to characterize the utilization rate of your capacity? Either-
Either the capacity you have today or you know, a year ahead, but where are you?
As we said, we are mostly using our factory for research and development. Measuring the actual utilization rate is not so straightforward. We moved into kind of 5 by 24 shift work with our fab more than a year ago or a year ago. This is kind of helping us obviously, not so much at the moment from the capacity point of view, but mostly that we can reduce the cycle time and the calendar time it takes to take projects forward. This is also a significant achievement from our operations team that by kind of doing some things which typically need to be done in serial.
Of course, you can do 100 hours of work in 1 week if you are working in 3 shifts, but if you are working in 1 shift, it takes 2.5 weeks. Since our work involves many iterations which are sequential in nature, this is one of the key things that has helped us to kind of progress with the project and thus move towards more mature state. Utilization rate, still, I would say production capacity-wise, very low.
All right. Then just to come back to this photodynamic therapy expected approval. Just to be clear, your revenue recognition, will that reflect your deliveries to the marketing company, or will it reflect the marketing, you know, the sales or the commercial products in the market?
We plan to recognize the revenue based on the kind of true sales, meaning that when the device is actually in use with the end user. There will be some revenues generated to us based on certain more technical milestones. Overall, we wanna be very careful with this revenue recognition and make sure that it aligns with the actual benefits.
All right. If it will be a stock building by your marketing partner, that would not lead to a significant revenue recognition from your side. The revenues will more reflect when the risks goes over, so to say, to the end user.
Sorry, can you repeat that?
If your marketing co-partner, if they would build significant stock of inventory of the device during the launch phase, that would not.
No
mean a significant revenue recognition from your side.
No.
Okay.
Yeah. We feel that, I mean, there are these kind of options at the table, and some of the people I know for, let's say, good or bad reasons use those. Here the idea has been to be fully transparent and reflect real end user demand.
Okay, I got it. Then just finally on the you talked about expanding the geographic footprint over time. What's the current plans for people on the ground, so to say, in the U.S. market?
Let's put it this way, that I said earlier that we expect multiple operational announcements during the quarter related to the geographic expansion.
Okay, I got it. I guess that was more than 10 questions. I think that's fine for myself for now. Thank you.
Thank you, Daniel Lepistö.
Thank you, Lars. Now moving on to questions from the webcast audience.
Okay, there is a question. Do you consider it likely that there is a need to raise capital in the short term? No. Earlier this year, you made a big write-off due to a non-payment from some customers. How has the situation developed during the year? Have customers paid their bills in due time, or have you noticed any issues or risks in that respect? I think we answered this quite thoroughly in the previous call and the call before that. We have nothing new to report. Yes, the customers have paid their bills according to the schedule, more or less. There are no significant overdues changes. This is the kind of work that we are doing gets paid.
I don't know, Anca, if you wanna give more scientific answer.
I think that this is good enough answer for.
Okay.
For the current status.
Yeah. Obviously, we are not fortune tellers. We cannot say what is the future, but we believe that those problems have been now solved, and we are with that particular group focusing on recollecting the money, but definitely no issues similar at the moment, nor expected going forward due to the fact that, as we said, we changed also the revenue recognition with select customers. Retail investors worry about Modulight sponsoring local ice hockey teams of Tampere. Which benefit for Modulight do you expect from those partnerships? Thank you for the question. This week has actually been quite active in that field.
Not that actually those activities were planned this week, but they were planned long time ago as a part of our comprehensive collaboration with Ilves and Tappara hockey teams. As we said at the time of the launch, we feel that this is part of our societal response. We are giving back to the society. Modulight has for a very long time, more than 10 years, sponsored children's hockey, little girls' floorball, et cetera, very widely, as also brought up by several retail investors in the chat forums. What is the benefit to the Modulight? We believe that Modulight's is better known in Finland. It is also right thing to do. We are sharing back, we are giving back to the society.
It improves Modulight's image as an employer and within the team. It drives society into the right direction. Yes, in some limited sense and in isolated cases, for example, on Monday when we had the charity game where we offered all the small children of Tampere an opportunity to go to the Nokia Arena and watch the hockey, we actually happened to have some Japanese guests here, and we were taking them to the game as well. That is obviously something that is not very tangible or easily measured, but we believe that this kind of hockey thing has improved our image and the perception of us as a company with customers, partners.
We even took the FDA guy in the last spring into the game. This is part of the overall company brand building for employees, future employees, as well as customers and other related parties. I'm very happy to talk about this, but we are fully focused on our business, and that is what is taking 99% of our time, even if the ice hockey is probably quite visible. That is definitely not something that we use up a significant portion of our time or resources. Thank you for asking.
That's all from the question side. Thank you.
Any other questions, Daniel Lepistö, or anybody on the line?
Nothing more from my side, Seppo Orsila.
Thank you. We also don't see any more on the web. It is very important to us that we answer all the questions. Now Ulla has tried to make sure that if there are clear duplicates, then those are only answered once. Thank you very much for listening to us and I highly recommend that you keep following or you start following our social media. There is lots of information about Modulight. As some of you may have noticed that we're also stepping up our more formal press releases and there is a clear recognized need from the investors to provide more visibility into what the company is doing.
We expect to announce later this year additional means how we will provide you more transparency, more visibility our daily operations. Thank you very much and have a great day.
Thank you.