Good afternoon, everyone. My name is Seppo Orsila. I'm founder and CEO of Modulight. I'm here with Mrs. Anca Guina, our CFO, to talk to you about our fourth quarter progress and how we see the things going forward. Today we'll discuss about the updated strategy, talk about the FDA approval we recently got, recap the Q4 and full year performance. We will talk about the product pipeline and its progress, and then we'll talk about progress with the investments and recap with the strategy. Obviously we'll take all your questions at the end. The strategy that we updated on the 29th of November, is clearly happening.
We are seeing more vibrant action on the market, we, as said earlier, decided to focus even more on the United States, create local operations and focus on the go-to-market execution. Our R&D pipeline has grown to 27 projects, and the addition in the Q4 was one project with one of the largest pharmaceutical companies in the world. This is a company with whom we already had earlier activity announced earlier last year. There was significant progress in different projects within the R&D pipeline. We're gonna discuss about those a bit later, but particularly I would like to highlight the acceleration for the vapor treatment as a part of our cloud strategy, which we already touched upon briefly during our Q3 update.
Customer activity is still affected by coronavirus pandemic and related delays, but we are clearly seeing improvement in the business environment. After the period, i.e. in 20 January, we got an FDA PMA approval for our long-waited collaboration with a major North American pharmaceutical company. Here's some more detail. As expected, we have been waiting for quite some time, the FDA approval and now are very happy to finally announce it and that we are now kind of able to take forward the sales start. We announced together with Bausch + Lomb that we expect to do the sales start during the first half of 2023.
I think this is also very important from the point of view that this really validates our cloud strategy, it validates our technology and its uniqueness, there were actually quite a few companies in our industry who gave us praise for this and talked about that how this demonstrates our leadership and novelty in digitalization. This is obviously something that we are all very proud of. I'll let Mrs. Guina walk you through the numbers.
Hello, everybody. A few highlights for Modulight financial figures. Group revenue in the last quarter of 2022 was EUR 1.3 million compared to EUR 2.4 million in Q4 2021. The decrease in revenue was especially due to the company's long sales cycle and also delays in the customer's research projects. EBITDA was -EUR 2 million, and it represented -158% of the revenue. Operating result was -EUR 2.5 million, and -197% of revenue. Modulight's costs have been at a significant higher level in 2022 than in 2021 as the company has continued to follow its growth strategy.
For the year, our revenues decreased from EUR 4.6 million to EUR 9.1 million in 2021, especially because of continued pandemic restrictions in key markets and challenges in component availability as well as general macroeconomic and geopolitical uncertainty. During the implementation of our growth strategy, EBITDA was minus EUR 5.9 million versus EUR 500,000 in 2021. As we already mentioned previously, this was a disappointment to have the interruption of our 10-year profitable growth history. The year-over-year lower profitability was the result of a lower level of revenue and also increased cost of operations. With our strong balance sheet, we have been able to accelerate the implementation of our strategy and investments in R&D, people and equipment.
Despite the sales decline, we believe that accelerating in-investments is justified as it brings us competitive advantages difficult to be copied by our competitors, along with capabilities to address new potential markets. This was carefully reevaluated with the extensive strategy work we carried out in the opening time. We have not suffered from a shortage of personnel. On the contrary, we have constantly received excellent applications for all positions. We have been increasing our FTE from 52 in 2021 to 62 in 2022. We believe that our image as a good employer contributed to that. Despite of the challenging year, the result of our employee satisfaction survey was very positive.
Yeah. In a nutshell, the year was clearly a disappointment in financial terms, yet there is some light at the end of the tunnel. I think that this is best kind of described by the progress with R&D pipeline. The pipeline keeps growing, and I would say more importantly, there is progress within the pipeline. Yes, as Anca said, all this progress is somewhat shadowed by the stoppage of the long profitable growth for which there is no other way to say, except that we are very disappointed. Anyway, we look forward and we are particularly happy that existing projects in the pipeline are progressing. Yes, there are delays with some customers due to various reasons also mentioned by Anca.
I would say that the fact that we are getting more boost behind the new business models, for example, pay per treatment implementation and the fact that the larger share of the customers continues to be big companies and public companies, even blue chip companies, like the one new project started during the Q4. Perhaps very concretely, the FDA PMA approval received in January is a good exemplification of the progress of the pipeline as well as the solidity of the technology. As the pipeline progresses, we expect revenue to be more predictable. While there are small steps forward, we still are seeing that on the near term, there is a fluctuation and can be to both directions.
The customer base is relatively stable. There are no discontinued customers, and as said, the share of the mature companies continues to increase, which is in accordance to our strategy and in accordance to our operational objectives. If we talk about some examples of the progress within the pipeline, first, I'd like to mention one blue chip company with whom we've already been working earlier, but now, we started another project in fluorescence imaging. This is something that we have been developing earlier with another major company and continue to do so even still. We feel that this is quite remarkable, first of all, expanding the relationship, even if this is early stage development.
Yet again, it validates our unique platform technology, and it validates its applicability across multiple customers, which is not so irrelevant either that these are extremely large companies. Secondly, we made progress with a New York Stock Exchange-listed company we published earlier, and we announced together with Bausch + Lomb, the FDA PMA approval as mentioned earlier. Thirdly, want to highlight this progress with the SaaS business models and how we are expanding and accelerating the implementation across multiple indications and across multiple customers. This has clearly been one of the very positive elements versus our expectation even a year ago. I wanna kind of note our investment program, which we've been talking quite many times.
While we continue to invest, we can now say that we are pretty much complete with the investment program. By and large, all the equipments are with us, and there is still some new ones coming, but the majority and the bulk of the investments have been done. We, as explained last time, are already seeing ability to do further differentiation to our products, expand our offering, increase productivity, and higher capacity. All these four are seen in multiple operational examples. Yes, we did suffer during 2022 about component shortages, both for our own production as well as complaints from our equipment suppliers. Towards the end of the year, those disturbances started to become less and less.
We truly believe that our fab is now state-of-the-art and is in good position to support our growth strategy implementation. As summary, we are kind of focusing very much on the geographical expansion. The local operations is at the heart of what we are trying to improve at United States. We have established local operations to provide clinical support to our customers and pharmaceutical companies to support their clinical trials. We have a person based in New York, which actively supporting different sites and different people are supporting different sites. We have established a partnership in Europe with Laser 2000 to support and particularly kind of leverage our technology in Europe, particularly in Germany, France, Switzerland and elsewhere in Central Europe.
Laser 2000 is a leading company in the domain of lasers and their distribution for almost 30 years. We continue to drive for the commercial rollouts as described in our strategy based on the existing projects in the R&D pipeline. We continue to focus very much on expanding to other applications and new indications by productizing our existing platform products for new and existing indications with both existing and new customers. We are particularly happy to see existing customers expand to new indications and, as described in earlier calls, during the last year, we saw some customers starting, for example, a new indication with our technology. The improvement of treatment efficacy and accessibility remains at the core of the growth strategy and its implementation.
We are now seeing more traction and faster than anticipated traction for implementation of the new business models, namely pay per treatment and other SaaS-based business models. Commercial and operational excellence is something where we are investing, and we are seeing a number of smaller and larger projects where we are improving the way the company works. We also will reach carbon neutrality by 2025, and we have set as a separate strategic program the development of ESG governance and reporting. The fact that we have now more analysts covering Modulight is one step in the improved reporting. State-of-the-art laser technology.
We continue to invest into the technology development at a record rate, and this has been enabled to us by our strong balance sheet. For this, we are obviously very grateful for the investors who have enabled the company to accelerate its technology development. As said, in the strategy work, where we made a very thorough analysis of not just about the go-to-market, but about the validity, competitiveness and the market need for our product. We validated through careful analysis that there is more need than ever for our product. We feel that we are more competitive, not only thanks to all the investments that we have done, but all the development done with the customers than ever. Thus we continue to accelerate the development.
Continuous focus on kind of leveraging the company's technology is continuing, and this is very much thanks to the highly skilled and very talented team that I am pleased to have as a part of the company and what we call a laser family. We are not issuing outlook as noted before. In summary, we have updated the strategy with additional focus on the local operations and go-to-market United States product. Pipeline grew to 27%, 27 projects during 2022. There are some significant progress that is in the pipeline, including the FDA approval finally received early this year. We see opportunities to accelerate pay per treatment on the short term.
Customer development projects have been affected still by the pandemic and geopolitical uncertainty, overall business environment has clearly been improving. Here we are meaning the feeling at the trade shows, number of customer visits and all the touchpoints in the various digital channels. This is something that we have observed during the Q4 and continued this year. As said by Anca, thank you. Thanks to the strong balance sheet, unique technology and supporting megatrends, we are good placed to continue execution of our growth strategy. Thank you and happy to take any questions that you might have.
All right. We have online our analysts. from Danske and OP. I'd like to first give a free speech to Mr. Lars Hevreng from Danske.
Yes. Thanks. Can you hear me?
Perfectly.
Great. First on the, I mean, on the rollout now with the 61, 67 turn product then through Bausch + Lomb, what can you say about, or can you say anything about installed base of equipment that you aim to re-replace? Any purchasing patterns from Bausch + Lomb? How that's gonna pan out, what's the equipment base in total that you're gonna replace over time? What can you say about that?
Thanks, Lars. A great question. As we announced, together with Bausch, we will be informing about the market availability later. I believe that their press release noted that they expect the product to be available to the eye care professionals during the first half of '23, i.e., this half. I think it's now still too early to comment further. We've agreed together with the customer that we'll be closely coordinating the market launch activities and have been obviously doing so well in advance. This is what we have been able to say at this time.
You will be paid by Bausch + Lomb at the time of their ordering, or how is that gonna play out?
We will be serving the end users directly. There are certain commercial agreements and legal agreements between the two companies, but those are not public at the moment.
All right. In terms of the guidance, you have said, I mean, strong growth from 2023 to 2025, that should be assumed any growth. I know that you haven't provided the guidance for 2023, what? Should we assume that growth, wording, so to say, that that's also gonna relate to 2023?
I believe we said, in our statements that, we are targeting a return to strong profitability during the strategy period, i.e., this year and the next two years. We are targeting strong growth every single year during the strategy period.
I got it. Just on the fourth quarter in isolation, the other operating cost line, so to say, what. That also, that was up quite a bit relative to previous quarter. What was included there, please?
Basically, all the costs, with the operations, excepting manufacturing cost and salaries.
Sorry, I missed that.
Depreciation... Sorry?
I missed what you said. Sorry.
All the other costs excepting depreciation, salaries, and manufacturing.
I believe Lars was asking that what was the main reason, the, of the increase.
Was this the question, Lars? Was it what is included in the-
No. My question was why was it so high relative to previous quarters?
Due to increase of cooperations and our growth strategy implementation.
We have continued to accelerate the investment into the development activities, as well as, if you look at the amount of trade shows and marketing activities that we have been implementing, those have gone up quite substantially, especially during the second half of last year.
All right. In terms of the cost base, it seems overall your total cost has, broadly speaking, these costs, they have doubled in 2022 compared to 2021. Can you say anything about that, what kind of development we should forecast for 2023?
I guess, I mean, we're not issuing an outlook, or forecast for this, either. Yeah, so we are kind of. We continue to invest into the marketing and R&D. Maybe if you research the roadmaps, you might also conclude that there are some operational efficiencies to be expected.
All right. Just finally, the you said that the expansion CapEx program, that's coming to an end, right? That was your comment, wasn't it?
Yes.
Okay. CapEx in the year ahead, relative to 2022, that will probably decrease.
Yes.
Okay.
Based on what you said.
Okay.
What we said earlier.
All right. Thanks for that, both of you.
Thank you, Lars. May we have the next questions from Kimmo Stenvall from OP. Welcome.
Yes. Thank you. Thank you for the chance to ask some questions. I will touch a little bit on the OPEX side as also Lars did maybe a little bit on more this kind of housekeeping question as a new analyst in Modulight. First of all, the materials and services were they were extremely high in Q4. Is there any one-time cost affecting this cost base, or what was behind this EUR 1.5 million that you reported in materials and services?
Yeah. Obviously, Kimmo, as you said, you've not been part of some of the earlier calls. Ramping up the new tools, particularly new epitaxial reactors, consumes relatively large amounts of material. If you combine the fact that we have had a record number of equipment installations during the second half, and if you have what we shared already during the IPO that kind of calibrating and taking into the process new tools consumes a fair amount of materials. This, I think, creates a logical rationale for significant use of materials. What we can say is that there is no change in our kind of product profitability.
Obviously if there were material changes, we would highlight that.
Okay. That will come down a little bit on the coming quarters I guess.
Please. Yeah, go on.
Yes. What is your thinking on because of now it's this cost item is more than revenue, so I would expect it to come below EUR 1 million per quarter? What is the reasonable level to expect from this cost item?
I guess, I mean, we have to follow that and we keep to the fact that, yes, we will be discussing the product profitability when it changes. We do, as we have said, we have maintained the high level of investment. We also said that the company has validated its growth strategy and decided to keep investing heavily into both kind of R&D and equipment despite the revenue decline. I believe that this is the maybe best commentary that we gave related to this topic.
Okay. Okay. Lars was asking about the CapEx. I guess it's coming down quite significantly this year. Is there anything that you wanna tell about the cash run away? It's now net cash is like EUR 35.6 million. What are your long-term thoughts on the this net cash position? I think it's going to roll out at the moment, any thoughts on this cash flow development? What do you have?
I believe that this kind of release has obviously the material that you are seeing. There will be more line items related to the cash flow in the 15th of March release, which will give you further detail. I believe that we cannot disclose those details at this call because they have not been made public yet. I think it is very clear already to what we said, that the CapEx spending has been very significant, and we said that that program is now by and large completed.
Okay. Thank you. No, no further questions on my behalf.
Thanks, Kimmo. By the way, Daniel, do you have something you wanna ask?
No, I guess, guys, most of the questions were asked already. Thank you. Nothing on mind.
All right. Thank you, Kimmo, Lars, and Daniel. We'll move on to the questions that we received through the chat. First, we have a question about the PMA. What do you mean by this PMA?
PMA is an official acronym by the U.S. Food and Drug Administration. The letters stand for Premarket Approval. There are different types of FDA approvals. Most of the medical devices that people are talking about are so, 510(k) devices. Then there is the more stringent regulated devices such as ours, which is the PMA. I actually made a call to Finnish health tech industry and asked that who else is having these PMA approvals in Finland besides us, and they did not know anybody else except this one company in Turku which is making this hormonikierukka, whatever that is in English. A relatively major company, who actually is also our public reference buyer.
The PMA differentiates from the technical point of view from many other FDA approvals in that sense that they always require an advanced on-site assessment by the FDA, whereas 510(k) can be granted based on a purely documentary submission. Those documents are just checked against themselves but not validated against real records, which is the case in the case of PMA. We are extremely proud of this PMA, particularly for this reason.
Thank you for the clarification. We have questions regarding the ML6710i. Like, what are our expectations for sales during 2023 and also in monetary terms or commercial potential? You know, even if we're not giving outlook, maybe there's something that we can say about this.
Yeah, we are quite excited about this. As I said earlier, the fact that we have now have an official approval from the most respected authority in the world, probably, i.e. the FDA, that is obviously a subjective opinion. I have received kind of congratulations from several industry leaders about the advancement, the digitalization, usability and durability of this device. We are extremely proud about the feedback and the feedback obviously that the device received at the approval. That opened us many of the opportunities that we have articulated in our strategy for monetization of the cloud. Obviously, there is lot of work to be done.
We are extremely happy about this interim step. As announced together with Bausch, we will communicate further into the market when this device is available to the eye care professionals.
All right. Thank you. Then we have a question about pay per treatment business model. Asking if there are any initial system fees for customers, and what level of treatment prices are per treatment? As a follow-up, what is the expected average payback time per laser unit before they start to generate profit?
I believe that we need to come back with the question about profitability once we have enough realized transactions so that we can give investors a proper data representative kind of sample. As we have said, we are now in the process of bringing the device to the market. We have the regulatory authorization to do that together with our partner. We do not have yet the date that to be released. Thus, it would be difficult to give proper figures as we have not had those transactions yet.
All right. Thank you. We got still a couple of questions. Like, somebody's asking if we could comment the effects on the current high inflation rate to Modulight.
Modulight is in a fortunate position to have very, very high or high gross margin products. Thus, our production costs are not very highly impacted. Obviously, we are impacted by in the OPEX side, like our competition. The costs for the trade shows, costs for the kind of digital channels and everything continues to increase as it does for everybody. I wouldn't say that we have any particular concerns about the inflation unless Anca wants to highlight something.
Of course, the salaries should increase with the mandatory increase. We didn't see other elements.
Our salaries overall have, for quite a few years, increased, way above the inflation rate in the past. We were, at least in the past, able to maintain high profitability. Based on the historical data, actually, some of the real cost, increases are now actually less than what we implemented in the past when we were highly profitable. I'm not that concerned about the inflation.
Thank you for your answer for that. Then we got still a couple of questions. Somebody's asking, like, given our recent negative history, I meaning the write-off in last March, what is our view in relation to the macroeconomic situation? Like, interest rates, access to funding, and, do we foresee that our customers will have issues with the credit ratings, et cetera, or do we see payments being overdue or delayed?
Maybe the last one can be covered by Anca.
We already announced, last year in the spring time, we changed our record of the recognition of the revenue with selected customers. Basically, this is our control measure over increased receivables.
I think overall, the fact which I mentioned at the beginning of the presentation that customer portfolio continues to be transitioning towards bigger companies, those are typically less prone for fluctuations in the availability of financing. The overall macroeconomic trend, as we said in our release, also continues to go to a favorable direction in that sense that the business environment seems to be much more vibrant. There are more customer visits. There are more people at the trade shows, et cetera. I would say that while the geopolitical uncertainty remains high, there is a certain positive vibe, especially towards the end of last year and early this year.
We definitely do not hear similar concerns that we were hearing during the last spring from customers. The fact that Finland is in a positive move towards NATO has been highlighted by several customers as a very positive thing. Remember that many of these challenges came from the fact that we are a sole source technology supplier to some of our customers who are easily 5,000 miles away, and they were very concerned about the geopolitical risks increases in close proximity. These concerns have clearly reduced when we listen to the customers.
All right. Thank you. Then, one more question, from somebody, asking: Will you book any milestone on time profits when the FDA-approved laser sales are starting in 2023?
As we have said earlier, we are booking revenue only based on deliveries and achieved milestones. There is nothing special for us to announce. Obviously, if there was, we would have included that into our releases. There is. We continue to have this same principle as before on the revenue recognition that there are no advances or any kind of revenue based on bookings, et cetera. The very normal way, I would say old-fashioned, normal way of recognizing revenue based on real deliveries and actual milestones.
All right. Thank you. Seems that there are no further questions that haven't been answered yet.
Thank you very much, all. Bye-bye.