Good afternoon. Welcome to our first half 2023 webinar of Modulight. My name is Sepp Orsila. I'm a founder and CEO, and I'm here with our CFO, Anca Guina.
Hello.
What is Modulight is about? We fight cancer with science and technology. We are a biomedical company that designs and manufactures lasers for treatment of cancer and ophthalmic conditions. Same lasers are being used in some other high value-add applications, such as quantum computing. We're first gonna talk about the highlights of the first half and the second quarter, as well as then give you an update about our U.S. progress. Anca will then talk about the numbers, and then I will continue with more detail on the R&D pipeline. We believe that now we are able to share some insights to economics and the business model that you requested during the Q1 and end of last year.
We'll re-recap by reminding you about the revenue model and the customer base development, and repeat basically our outlook statement of no outlook. We'll obviously be very happy to discuss all the quick questions you have. Our first half continued with the positive development, as well as the Q2. Our product development was progressing. We made several good progresses in our pipeline projects, what we have been extremely happy for the entire spring is that the level of customer activity has been significantly higher than last year. In fact, five out of six months during the first half, we had more customers visit us here in Tampere than in the previous year total.
In the past at least, this has been a good sign for the future. We developed our SaaS-based business pay-per-treatment, and made progress in several areas in that, as we will discuss in a moment. We have been able to kind of develop our U.S. local operations in accordance with the strategy announced in November 29 last year. Revenue, EUR 2.6 million, and EBIT EUR -3 million for the first half. R&D pipeline remained at 27 projects, which we reached last winter. Progress we reported after Q1 continues, and we see significant revenue potential with some of the projects in short term.
About U.S. launch, in January, we received the PMA approval from the U.S. Food and Drug Administration, and we have been now working with that. First patients, patients, I should say, have been treated with the product. Visits to the hospitals have accelerated. New pay-per-treatment, is progressing. We are doing a lot of work with customers on, on, on various administrative things, from information security to reporting and billing and other things. We are quite encouraged by the fact that even if this information security reviews are quite time-consuming, all the customers seem to be dedicating significant resources on their side to complete those.
Last but not least, local organization is being developed, and, we expect to announce interesting news about that later this year. Anca, if you take the numbers.
Yeah, sure. Thank you. Q2 revenue increased by 122% compared to last year same period, and that was mainly due to the delivery of the existing customer projects. Hence, the profitability in, for the same period improved. Operating costs were slightly higher than last year same period due to the growth strategy implementation, which we announced every single webinar. As we also mentioned earlier, due t o completed investment program, we expected our costs and capital expenditure will decrease. Our risk management activities we implemented over the time proved to be efficient, and we benefit from the mitigations we have in place, and not only us, but also our customers.
As an example, with reference to the trade war between the powers, China is restricting the export of important materials, sorry, minerals, some of them actually, which we have to use in our manufacturing process. Modulight secured the need for some of these materials for two years or so. Basically, this helps us making sure that we don't cease the supply of certain products to our customers. For the first half of the year, the revenue was 23.8% higher than the previous year, with slight improvement of EBITDA. This was reflected in all other profitability measurements.
Same as for the quarter, we expect that the costs and CapEx will decrease due to the end of the implementation of the, of our investment program. If we go to the key figures, we adjusted the revenue and profitability of the company improved, and the free cash flow from the operations was actually heavily affected by the acceleration of the investment program and also in growth acceleration program. The company has a great strong balance sheet and at the end of the period, the cash in hand was EUR 32.6 million. Net debt was EUR -25 million, and gearing ratio, EUR -39.4 million. Equity ratio, 87%. Sorry, gearing ratio was -39%, not million, and equity ratio, 87%.
Thank you, Anca. Just, just to recap, the company announced November last year, five strategic programs. These are the kind of operational guidelines to us, against which we execute. I already touched upon the U.S. local operations, which is a key development area in our first program, sales, marketing, and operations development. The service team in U.S. continues to gather very good customer feedback, and we are making progress on establishing commercial commercial operations in stateside permanently as well. Cloud technology and cloud-based service development, key activity here, obviously, are deployment and put in place the new business models, pay-per-treatment and all the related work.
We are extremely happy that customers are devoting significant resources to this work, and this, in my mind, is the strongest sign of their commitment to our technology and to our therapy. Third, productizing platform devices for various indications and applications. The-- our technology continues to be accredited as leading technology, especially in digitalization, but also in basic laser technology. One of the examples of this is that a leading dental company in the world announced as recently, that they want to become user of our technology as well. This is not a project yet, in the sense of commercial rollouts, but could, could end up being one after a more mature state of the project.
Technology, development, obviously, we're extremely happy about the investments, progressing and helping us. For example, the before mentioned customer specifically mentioned that they became our customer because of our capabilities and mentioning even, by, by name, some of the individual machines which were part of the acceleration program, put in place in late 2021. In the area of ESG, we are, are making progress and are a bit ahead of our plans with becoming carbon neutral and also have obviously developed the board composition and the, the management composition to be even more in line with diversity principles.
Employees, leadership and the board all now have 40% of the less represented sex, and we hope that our reporting and transparency continues to improve, especially now that there are three analysts tracking Modulight, and thus providing more transparency and more wider analysis to the investors. Our R&D client pipeline remains solid and at the record level of 27 projects. As we reported, in several projects, we made good progress, and we see significant revenue potential in the short term.
Positive development in the cloud technology is mainly related to the business side, I mean, business model, service, and customer needs, but also on the scientific side, related to brain cancer, bladder cancer, and some of the others that we find very important to the implementation of our strategy. Studies and patient recruitment have been resuming from what they were. As we reported earlier, some of the studies were really suffering from, from the COVID, but now, these studies and patient recruitment has been resuming and progressing, which is obviously very good for all of those projects.
I would also like to mention our subsystem development, which has been progressing, and here, one of the important points from, from the company point of view, is that when we are selling subsystems to some of the existing customers, it is expected that the commercialization lead time is shorter than with the full clinical trials and related systems. Most importantly, for our pipeline, we have completed with the help, external help, an extensive study of economic analysis and combining medical analysis. This is based on open source material, as well as lots of customer inputs, and this is something that we are feeling to validate quite well some of the assumptions that we have earlier reported.
That work has been also instrumental for us, driving the pricing negotiations pay-per-treatment. Our customer base continues to be solid and unchanged with the proportion of the bigger listed companies continuing to increase. A little bit about this economics pay-per-treatment. Last year, we completed a strategy revalidation project with KPMG and have now since extended that with further studies, as well as customer information about the potential feasibility, and ability to accelerate the new business models, aka Pay-per-treatment. Our analysis makes us to estimate and expect that the single treatment will be priced between EUR 1,000 and EUR 10,000.
As said earlier, this is a significant progress in terms of timeline, and that change more towards SaaS-based, or earnings-based, business model from pure CapEx sales and service charging that we were earlier anticipating to be the majority of the business at this time. To give you a little bit idea what this means, we're obviously focusing almost solely on the U.S., and thus, the figures are maybe different in other markets, but at this time, we have almost exclusively focused on U.S., and there, these prices would represent a bit between less than 1% to slightly less than 10% of the total cancer treatment costs, according to extensive interview with related specialists and centers done by external consultants.
Implementation of the pricing model is expected to have a financial impact in the short term, we are meaning that there will be more, more proceeds. Just as a reminder, our revenue model, we are still gathering most of our current revenues from early-stage trials, the revenue curve is improving and maturizing, and we expect predictability of the revenue to become better as the projects mature. As said, we see significant potential and progress with some projects. I would like to add that these projects range across several indications and customers. Modulight has not issued any outlook for revenue or profitability. Just, just a note on that.
In summary, we see positive development, continued R&D pipeline progress. I'm particularly happy about the customer interaction increase, and especially that big customers and and significant decision-makers choose to come to Tampere. We had also an exceptional participation to Tampere due to the IPA conference held in early July. We're gonna talk more about that in the third quarter release, as there is a lot of that in the public media, it can obviously be referred here as well. This is a conference of leading scientists and the feedback about our company and our team was nothing less than overwhelming. Discussion with the partners and new partners are progressing, as said, number of customer meetings continue to grow.
Product development pipeline stayed at the record level, and several projects progressed towards commercialization. SaaS-based business model and startup of U.S. local operations are progressing well. Economic analysis implies positive expectation. In nutshell, we believe that our actions are in line with our growth strategy, and our commitment to long-term investment program now is already showing several benefits, as we already revealed in Q1. As said, for example, as one example, it appears that one very significant customer is coming to us only because of the our technology and expanded capabilities. Finally, just to recap what Anca mentioned, we expect operational costs and CapEx to decrease. Our goal continues to be, as stated earlier, to grow and return to strong profitability. That's all we are.
Thank you, and happy to take any questions that you might have.
Okay, we have our analysts on the line, and I would like to welcome Mr. Lars Hevreng from Danske Bank, and you have the first question. Please go ahead.
Yeah, thank you. Can I just ask about the phasing of the CapEx program? You mentioned them in the remarks in the presentation about the phasing here, but should we assume a sharply lower spending now in the second half compared to the first half? Is that how we should see it?
I don't know if we can, project numbers, but, obviously, when you are taking in use these machines, you try to verify as well as possible that everything has been put in place and, is in good shape before you want to make the last, last payments.
Yeah, No, without any numbers, we already announced, you know, in the year end that we see a decrease of the CapEx in this year. Let's see by the end of the year. I'm afraid I cannot give you an exact number.
Is it possible to say anything about the utilization rate you have at the moment, given all the investments you have done in the past couple of years? Is that possible to quantify in any way?
Yeah, I think, I mean, we already answered that question indirectly a long time ago, that we see that the capacity of the back then machinery is way bigger than our current business at that time. Obviously, our current business is now half of what it used to be two years ago. I think it's a clear conclusion that with additional investments, we have now a significantly larger capacity than is the size of our business today. Additionally, I mean, we continue to develop the pricing based on a value-based pricing principle. I think all the data points are there to conclude that the capacity utilization currently is very low.
Okay, thanks. Just on the U.S. market launch by your partner, you've said you had the first patient treatment, so that's on a pay-per-treatment basis. I mean, any revenue impact now in the second quarter? That has been minimal, I assume.
Yeah, the revenue, impact from the new therapeutic device is obviously minimal as you saw. I mean there was not a big change yet, s o, that's , I guess, clear from the numbers.
Okay, and this is the kind of launch where you see, I mean the level of sales potential as you have stated before. Is this one of them?
It's difficult to estimate the future, but we announced that we see significant potential in many projects. This being one.
All right. Okay, thank you.
Thanks, Lars. Antti, do you want to go next? You have a hand up, at least I see.
Sure, thanks. If I'm not mistaken, previously in Q1 report, you mentioned significant revenue potential in several projects for 2023, and now I think you maybe omitted the year. Can you explain a little bit the background on this? Are these potentials delayed somehow?
I mean, we are now realistically already quite close to the end of the year, and we're not kind of issuing guidance. That's also something we said earlier. I mean, while we expect our business is maturizing, we are still at a relatively early stage, and thus it would be unwise to ignore the history with fluctuations and changes. There is a lot of work that needs to be done. It's available even in public records. We are pursuing all kinds of reviews and accreditations to get started in many hospitals in the United States. It takes certain amount of time.
We're not commenting how much of those will happen this year and how much will happen later but definitely we are expect to make progress on the short term in several areas, including the existing, recently approved, therapeutic device.
Okay. You refer in this report to, to pay-per-treatment revenues, I think in cancer applications of from EUR 1,000-EUR 10,000. I, I just wanted to, to clarify that is this a Modulight revenue or shared revenue with with the API owner?
T his is net-n et revenue after a ll kind of possible sharings with outside parties, s o it would be net-net to us.
Okay. One more question on revenues. You had this big project of $3.9 million that was realized during the past 12 months. Was the Q2 similar to the previous quarters in this regard?
Yeah. I mean, deliveries to several customers have continued, but in some cases they have slowed down. These are the type of fluctuations that we see, and thus, we try to be quite careful and try to base our way of the future for a number of different projects.
Thanks. Final, final questions. You, you have many seasonal workers, and on average, you had 67 employees, if I'm correct. Does the 67 employees kind of reflect the growth rate that you are seeing in number of personnel?
We announced earlier this year that we have a plan to hire up to 20 persons for this year. We did follow the plan. It's not maybe exactly 20 persons, but I would say that we are fine for now with the workforce we have. Then, you see the seasonal differences because of the students we have working here part-time, who usually work full-time from June until end of August. Then you will see a much higher number average actually in Q3 because they are working basically almost three months full time, you know.
Okay. Thanks very much.
Hey, Kimmo, please, please, go ahead. Maybe you should have been first because you joined the conference first.
No, no worries, no worries. Lot of room for everybody to ask the questions. Maybe getting back to the CapEx levels and also on the cost base. More than EUR 6 million of CapEx in the first half, so it will come down quite heavily, as you stated in the later part of the year. Just to be curious, what the number to put there? Also the cash is burning quite heavily at the moment, so y ou are like, at the moment, EUR 25 million net cash position. Just trying to figure out what are your own, these kind of estimates and thoughts. What is the year-end level to end up with these metrics?
I know that you don't give me any, any specific numbers, but just to hear your thoughts on the topic.
Maybe I'll, I'll, I'll give my view, and then Anca will give you the facts or how was it. We ran the business 20 years without any external funding, and we have cherished the strong balance sheet ever since we started to accumulate that in 2017, 2018 or so. Definitely not gonna give up that, and tha t is very important to us.
Yes, and indeed, the facts are that, I'm afraid I cannot disclose any estimations, as you already mentioned. Yes, we do know that the CapEx would go down because most of the equipment was already ordered long ago. Not all of it was delivered due to reasons we mentioned many times earlier, but y es, the investments will go down. Nevertheless, every time we make a decision on investing in something, we do properly assess that investment. If it's short-term opportunity, we always consider twice if we shouldn't take it or not, should take it, should take it or not. I will not tell you now that, yes, we will stop all the investments, you know. Of course, we take into account the opportunity.
Okay. Okay, of course. A second question on this kind of same topics that you are ramping up the U.S. organization and of course, that it is a big market and very important market for you, so it's totally understandable. On net- net basis, compared to H1 cost base, so you are meaning that the cost base is coming down despite the fact that you are ramping up the U.S. organization at the moment?
Yes, that's correct.
I would again emphasize what we said early this year, that ramping up some of these new tools is extremely expensive, and we also chose to accelerate some of those activities, because it seemed like a prudent business decision. And the continuing costs of these molecular reactors, et cetera, is by no means a fixed cost that you will continue to run always. These costs are very substantial, even compared to our personal costs, et cetera. And this is the basis why we say that our operating costs will come down, even if, yes, there are certain increases. But I believe we also said in the past that in 2022, 2023, we will invest more into marketing than we perhaps traditionally have.
We wanted to make sure that we come out of this old world turmoil, and it will not at least be due to the fact that we saved 10% by doing half as little marketing. Now we have this year verified fairly well some of the assumptions that we made earlier, and I believe we will also see significant operational efficiencies in marketing going going into the future.
Okay, thank you. That's all for me. Thanks.
Okay. Thank you very much. We have question from the audience following the webcast about interest rates. Have the increased interest rates had any impact on our customers' activity, and what is our estimate of the higher interest rates affecting our customers' activity in the future?
Yeah, as we talked about last year, certain customers had challenges, not per se, due to the interest rates, but overall tightening of the financial markets. I said earlier today that our customer base continues to converge towards larger customers. They have not mentioned interest rates or difficulties in financing this year. Thus, in nutshell, we see limited impact. I guess it's prudent to acknowledge that overall increase in interest rates is not something which generally benefits the industry, so there must be some impact. This is not the hot topic like some of the financing turmoil was one and a half years ago.
Okay, yes, we have another question from the webcast followers. There's a positive effect of EUR 2 million from advanced payments in the cash flow statement. Could you elaborate on what this is caused by?
Basically, this is a matter of how the advance, advance payments related to equipment are recorded in accounting. Basically, they should be counted together with with the equipment, and at the time you receive it, basically that advance payment will become positive cash. It's not cash out anymore because it is recorded as value in the assets, i n the value of the equipment. Please look at it as a full number, you know, equipment and the advances. They should be counted together.
All right. Thanks. There are no further questions.
Thank you, everyone, for joining, and, we hope that you have a great weekend. We look forward to an active autumn. I'm happy to meet you at various investor events, and have you visit us when, our schedules coincide. Thank you. Bye-bye.
Thank you. Bye.